1. automotive and vehicles
2. cars
3. convertible

MANAGEMENT’S PROPOSAL
Annual General Meeting
April 24, 2015
TABLE OF CONTENTS
Management´s Proposal for the Annual General Meeting ............................................. 03
Attachment I – Section 10 of the Reference Form ......................................................... 06
Attachment II – Section 12.6 through 12.10 of the Reference Form .............................. 97
Attachment III – Section 13 of the Reference Form ..................................................... 112
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MARFRIG GLOBAL FOODS S.A.
Taxpayer ID (CNPJ/MF) 03.853.896/0001-40
State registration (NIRE) 35.300.341.031
A Public Company
PROPOSAL THE MANAGEMENT OF MARFRIG GLOBAL FOODS S.A.
PUTS FORWARD TO SHAREHOLDERS CONVENING IN THE
ANNUAL GENERAL MEETING SET FOR APRIL 24, 2015.
Dear Shareholders,
We, the Management of Marfrig Global Foods S.A. submit for your consideration at the Annual
General Meeting called to convene at 10 a.m. on April 24, 2015, the following Proposal
(“Proposal”) concerning the topics in the meeting agenda.
1.
Receiving the management’s annual report; reviewing and judging the financial
statements as of and for the year ended December 31, 2014.
The Management’s Annual Report and the Financial Statements and related notes prepared under
Management’s responsibility as of and for the year ended December 31, 2014, in conjunction with
the related independent auditors’ report, the Audit Committee Opinion have been approved at a
meeting of the Board of Directors held on February 27, 2015. These documents were published in
the “Valor Econômico” newspaper, issue of February 28, 2015, and in the Official Gazette of the
State of São Paulo, issue of March 3, 2015. Additionally, the Fiscal Council of the Company has
issued opinion to the effect that the financial statements and related notes are suitable to being
submitted to a vote of the shareholders convening in the upcoming Annual General Meeting.
Appendix I to this Proposal presents the Management’s Discussion and Analysis of Financial
Condition and Results of Operations required to be presented in section 10 of the Reference
Form adopted pursuant to Brazilian Securities Commission (CVM) Ruling No. 480 dated
December 7, 2009 (“CVM Ruling 480”). The Financial Statements and related notes as of and
for the year ended December 31, 2014, are available for collection at our registered office
premises and are also accessible in our investor relations gateway at www.marfrig.com.br/ri
and in the websites of BM&FBOVESPA at www.bmfbovespa.com.br and the Brazilian
Securities Commission (Comissão de Valores Mobiliários), or CVM, at www.cvm.gov.br.
Given the net loss determined for the year ended December 31, 2014, we are not presenting a
proposal for allocation of results, as otherwise would be required per Annex 9-1-II of
CVM Ruling No. 481 dated December 17, 2009.
2.
Determining the number of active board of directors seats, in line with the main
provision of article 16 of the Bylaws.
Under article 16 of the Company’s Bylaws, our Board of Directors is composed of at least five (5)
and at most eleven (11) members that are elected (for unified two-year terms) or removed upon a
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decision of the shareholders’ convening in a general meeting. Additionally, under subsection 4.3 of
the Novo Mercado Listing Rules, at least a five-seat board is required.
Accordingly, we are now proposing that you vote to have an eight-seat board of directors.
3.
Electing the members of the Board of Directors.
The current members of the Board of Directors of Marfrig Global Foods S.A were elected at the
annual shareholders’ meeting held on April 30, 2013, for a unified two-year term set to expire at the
date of the upcoming annual meeting. Accordingly, you are now being asked to vote to elect the
members of the Board of Directors for a two-year term ending at the time of the 2017 annual
meeting. For such purpose, we present for your consideration the following slate of nominee
candidate directors.
Nominee candidates up for reelection as independent directors: Mr. Antonio dos Santos
Maciel Neto, Mr. Carlos Geraldo Langoni, Mr. David G. McDonald and Mr. Marcelo Maia de
Azevedo Correa.
Nominee candidates up for reelection as non-independent directors: Mr. Marcos Antonio
Molina dos Santos, Ms. Marcia Aparecida Pascoal Marçal dos Santos, Mr. Alain Emilie Henry
Martinet and Mr. Rodrigo Marçal Filho.
Appendix II to this Proposal presents the identification and background information regarding
nominee candidate directors required to be presented in subsections 12.6 to 12.10 of the
Reference Form adopted under CVM Ruling 480.
Consistent with the provision of article 3 of CVM Ruling No. 367 dated May 29, 2002 (“CVM Ruling
367”), Management reports having obtained from each of the nominated candidate directors
assurances that he or she meets the no-liability standards which qualify them as eligible for office
and, therefore, each fulfils the requirements of article 147 of Brazilian Corporate Law and CVM
Ruling 367. In addition, as President, chief executive and member of the Board of Directors of the
OSI Group, LLC, Mr. David G. McDonald could potentially have a conflict of interest with us in the
future, as the Marfrig and OSI groups compete in certain international operations.
4.
Eleição dos membros do Conselho Fiscal.
The current members of the Fiscal Council of Marfrig Global Foods S.A. were elected at the
annual shareholders’ meeting held on April 17, 2014, for a unified one-year term set to expire at
the date of the upcoming annual meeting. Accordingly, you are being asked to vote to elect the
members of the Fiscal Council for another term, and for this purpose, we present for your
consideration the following slate of nominee candidate fiscal council members.
Nominee candidates for election as effective fiscal council members: Messrs. Eduardo
Augusto Rocha Pocetti, Roberto Lamb and Alexandre Mendonça.
Nominee candidates for election as alternate fiscal council members: Messrs. Peter Vaz da
Fonseca, Carlos Roberto de Albuquerque Sá and Marcelo Silva.
Appendix II to this Proposal presents the identification and background information regarding
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nominee candidate fiscal council members required to be presented in subsections 12.6 to
12.10 of the Reference Form adopted under CVM Ruling 480. Moreover, the nominations of
Messrs. Roberto Lamb and Carlos Roberto de Albuquerque Sá are contingent on consent
being obtained from shareholder BNDES Participações S.A.
5.
Ratifying the amounts paid to directors and officers by way of aggregate annual
compensation in the year ended December 31, 2011.
Management is proposing that you vote to confirm payments the Company made by way of
aggregate compensation of directors and officers over the year ended December 31, 2011,
which totaled $16,546,601.00, thus having exceeded by R$ 546,601.00 the amount of
R$16,000,000.00 approved at the annual general meeting held on April 30, 2011.
6.
Setting the aggregate compensation of directors, officers and fiscal council members
for 2015.
The compensation proposal put forward to you is for the Company to pay the directors, officers
and fiscal council members an aggregate annual amount up to twenty seven million Brazilian reais
(R$27,000,000.00), which amount includes benefits and related payroll charges. The proposed
total compensation of R$ 27,000,000.00, breaks down into an amount of R$19,241,904.86
attributable to the executive officers collectively, plus R$6,939,105.93 attributable to the Board
members collectively, and R$ 818,989.21 attributable to the fiscal council members collectively.
This compensation proposal covers the period from January to December 2015.
The table below sets forth detailed data regarding the compensation proposal.
Proposed Compensation
For 2015
# of
Persons
Fixed
Compensation
Short-term
Variable
Compensation
Share-based
Payment
Payroll
Charges
Benefits
Package
TOTAL
(In Brazilian reais – R$)
BOARD OF DIRECTORS
8.00
5,717,692.82
–
–
1,143,538.56
77,874.55
6,939,105.93
EXECUTIVE BOARD OF
OFFICERS
5.00
6,712,193.12
7,825,218.18
2,038,337.91
2,467,903.72
198,251.93
19,241,904.86
FISCAL COUNCIL
6.00
674,309.13
–
–
134,861.83
9,818.25
818,989.21
SUM TOTAL
19.00
13,104,195.07
7,825,218.18
2,038,337.91
3,746,304.11
285,944.73
27,000,000.00
Consistent with the reporting requirements of section 13 of the Reference Form adopted pursuant
to CVM Ruling 480, Appendix III to this Proposal presents detailed information regarding the
executive compensation proposal we are putting forward to you.
We remain at your disposal for any additional clarification you may require.
São Paulo, March 23, 2015.
MARFRIG GLOBAL FOODS S.A.
Marcos Antonio Molina dos Santos
Chairman of the Board
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APPENDIX I
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARFRIG GLOBAL FOODS S.A.
PER SECTION 10 OF THE REFERENCE FORM
10.1 General financial and equity conditions
(a)
Comments of Executive Officers on the general financial and equity conditions
Marfrig Global Foods S.A. is a global corporation operating in the food service and retail segments that offers
innovative, safe and healthy food solutions to its clients. With a diversified and comprehensive product
portfolio, the Corporation is committed to excellence and quality and to ensuring the presence of its
products in the largest restaurant chains and supermarkets, as well as in the households of its consumers, in
over 110 countries.
The Corporation has created an integrated and geographically diversified business model that is formed by
strategically located production units, combined with a vast distribution network with access to key channels
and consumer markets, which gives the Corporation significant growth capacity as well as the ability to
hedge against certain industry risks.
As part of its constant efforts to add value to its business, the Corporation made a significant divestment in
2013, selling the Seara and Zenda business units for R$ 5.85 billion. The payment was made through the
assumption, by the acquirer, of the debts of the units sold and of Marfrig itself, which led to a significant
reduction in the Corporation’s leverage.
The strategy behind the divestment of assets was guided by the strategy of simplifying and optimizing the
Corporation's organizational structure and reducing the need for resources, while benefiting from the lower
leverage and greater focus on the core business through a more robust capital structure. The management
believes that continuous improvement in its internal processes will enable it to further improve efficiency
and cut costs, which, coupled with a result-driven management that is committed to profitable growth, will
drive profitability and cash generation.
The Corporation closed the fiscal year ended December 31, 2014 with consolidated gross debt of R$11,060.9
million, compared to R$8,939.8 million on December 31, 2013 and R$12,381.9 million on December 31,
2012.
This debt does not include the Private Instrument of Indenture of the 2nd Issue of Convertible Debentures of
Convertible Debentures of the Corporation, as amended (“Convertible Mandatory Deed”), since, unlike
other items in the Corporation’s liabilities, the Convertible Mandatory Deed cannot be settled through cash
and equivalents, but only through common shares issued by the Corporation.
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Of the total debt at the end of 2014, only 15.0% matures in the short term and 85.0% in the long term. Of
the total debt, 8.4% is denominated in Brazilian real and 91.6% in other currencies, while 19.5% of the
Group’s revenues are generated in Brazilian real and 80.5% in other currencies. The weighted average cost
of our consolidated bank debt was 7.7. The leverage ratio (net debt/EBITDA) stood at 3.4x, while the current
liquidity ratio stood at 1.79x, considering cash and cash equivalents at December 31, 2014 of R$2,659
million.
In 2014, the net financial result was an expense of R$2,126.8 million, versus R$2,031.0 million in 2013. The
4.7% increase in the financial result in the year was driven mainly by (i) the Company participating in the
REFIS tax amnesty program in August, which led to an expense with interest and accumulated fine through
the close of the year of R$117.4 million; and (ii) the realization of deferred costs from the issue of bonds
repurchased in connection with a liability management plan executed throughout 2014.
In 2014, interest expenses amounted to R$ 1.17 billion, slightly below the R$ 1.27 billion recorded in 2013,
mainly due to liability management strategy adopted throughout the year.
On December 31, 2013, the breakdown of gross debt (loans and non-convertible debentures) by currency
was 4.5% in Brazilian real and 95.5% in other currencies, totaling R$9,092.5 million, while cash and cash
equivalents totaled R$1,812.6 million. The weighted average cost of the Corporation’s consolidated debt as
on December 31, 2013 was 8.0%. This debt does not include the Private Deed of the 2nd Issue of Convertible
Debentures of the Corporation, as amended (“Mandatory Deed Convertible into Shares”), since contrary to
other liabilities of the Corporation, the Mandatory Deed Convertible into Shares is not due for settlement
through cash or cash equivalents but merely converted into shares issued by the Corporation itself.
The 2013 financial result was a net expense of R$2,031.0 million, versus a net expense of R$2,081.4 million
in 2012. According to the Executive Officers, the result was mainly due to the exchange variation in the year,
which has no cash impact, which was a loss of R$589.9 million, compared to a loss of R$538.4 million in
2012, which is explained by the depreciation in the Brazilian real against the U.S. dollar, and nonrecurring
negative result from derivative operations, which, although transferred upon the sale of the Seara and Zenda
operations, still impacted the result of 2013.
On December 31, 2012, the breakdown of gross debt (loans and non-convertible debentures) by currency
was 25.1% in Brazilian real and 74.9% in other currencies, totaling R$12,381.9 million, while cash and cash
equivalents totaled R$3,178.2 million. At December 31, 2012, the weighted average cost of our consolidated
debt decreased to 7.6% compared to 8.0% in 2011, which is explained by the lower borrowing costs of
transactions carried out in the period. This debt does not include the Private Instrument of Indenture of the
2nd Issue of Convertible Debentures of Convertible Debentures of the Corporation, as amended
(“Convertible Mandatory Deed”), since, unlike other items in the Corporation’s liabilities, the Convertible
Mandatory Deed cannot be settled through cash and equivalents, but only through common shares issued
by the Corporation.
In 2012, the financial result was a net expense of R$2,081.4 million, versus R$2,300.7 million in 2011.
According to the Executive Officers ,the result was mainly due to the exchange variation in the year, which
has no cash impact, which was a loss of R$538.4 million, compared to a loss of R$780.5 million in 2011,
which is explained by the average depreciation in the Brazilian real against the U.S. dollar of 14.3%. In the
year, the financial result excluding exchange effects was an expense of R$1.54 billion, in line with 2011.
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The Executive Officers inform that the Corporation does not contract leveraged operations involving
derivatives or similar instruments that do not have the objective of providing minimum protection against its
exposure to other currencies, and maintains a conservative policy of not contracting operations that could
jeopardize its financial position.
The Executive Officers inform that, on December 31, 2014, 2013 and 2012, the current liquidity ratio of the
Corporation was 1.79 times, 2.03 times and 1.33 times, respectively. The debt ratio (net debt to EBITDA) of
the Corporation on December 31, 2014, 2013 and 2012 was 4.98 times, 3.0 times and 4.3 times, respectively.
(b) Comments of the Executive Officers on capital structure and possibility of share redemptions
Below is the capital structure of the Corporation in the periods indicated. In the opinion of the Executive
Officers, the capital structure of the Corporation currently represents an adequate balance between equity
and debt:
On December 31, 2014, the capital structure of the Corporation consisted of 15.8% equity and 84.2% debt.
On December 31, 2013, the capital structure of the Corporation consisted of 17.5% equity and 82.5% debt.
On December 31, 2012, the capital structure of the Corporation consisted of 16.8% equity and 83.2% debt.
The Executive Officers also inform that the Corporation has not issued any redeemable shares.
(c) Comments of the Executive Officers on the payment capacity regarding financial commitments assumed
The Executive Officers believe that the Corporation’s capacity to pay its financial commitments is considered
comfortable, considering its level of cash and equivalents, debt profile, and expectation of future cash flow
generation.
Of the total debt at the end of 2014, only 15.0% matures in the short term, while 85.0% matures in the long
term. The cash position of R$2,658.8 million corresponds to a short-term liquidity ratio (Cash and
Equivalents / Short-Term Debt) of 1.6x.
Furthermore, the Officers inform that the Corporation is seeking to improve the profile of its long-term debt,
with a better balance of maturities.
Of the total debt at the end of 2013, only 12.6% matures in the short term and 87.4% in the long term. The
cash position of R$1,811.6 million corresponds to a short-term liquidity ratio (Cash and Equivalents / ShortTerm Debt) of 1.6x.
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On December 31, 2012, the cash balance of the Corporation, amounting to R$3,178.2 million, represented a
short-term liquidity ratio of 0.86x. In the same period, of the total debt, only 29.9% matured in the short
term while 70.1% was due in the long term.
(d) Comments of the Executive Officers on sources of working capital and capital expenditure financing
The Executive Officers believe that in the last three fiscal years, the Corporation’s main sources of cash were:
(i) cash flow generated by our operating activities; (ii) short and long term bank debt; (iii) issuance of shares
(equity); and (iv) issuances of debt (bonds and debentures). These financing sources are used by the
Corporation mostly to cover costs, expenses and investments related to: (i) operating its business, (ii) capital
disbursements including investment in new plants, expansions and/or modernizations of existing plants and
(iii) the payment obligations related to its debt.
The Executive Officers believe that these sources of financing are appropriate to the debt profile of the
Corporation, meeting the working capital and capex needs, while always preserving the long-term profile of
financial debt and, consequently, the payment capacity of the Corporation.
(e) Comments of the Executive Officers on sources of working capital and capital expenditure financing that
the Corporation plans to use to cover liquidity deficiencies
In the opinion of the Executive Officers, the current cash and cash equivalents of the Corporation reduce the
need for fresh short-term loans. Nevertheless, they inform that the Corporation plans to contract low cost
and long-term funding in order to improve its debt profile. In this regard, the Corporation has sought and
plans to use loans from development institutions such as the Brazilian Development Bank (BNDES) and the
Caixa Econômica Federal, as well as other financial institutions. These funds are basically used to finance
fixed capital and for the renewal of operations.
As mentioned in the previous item, the Executive Officers are of the opinion that the capital market is also
an important source of funding for future growth of the Corporation, either organically or through
acquisitions.
In the next item 10.1(f) of this Reference Form, we describe the main financing lines taken out by the
Corporation and the characteristics of each.
(f) Comments of the Executive Officers on debt levels and characteristics of such debts, indicating:
(i) Relevant loan and financing contracts;
The following table shows the consolidated debt as of December 31, 2014, 2013 and 2012, described by
type, with the respective weighted average rates and terms:
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Credit Line
Charges
Weighted
average
interest
rate
Weighted
average
maturity
2014
2014
Balance on Balance on Balance on
December December December
31, 2014
31, 2013
31, 2012
(R$
thousand)
(R$
thousand)
645
2,320
(% p.a.)
(p.a.)
(year)
(R$
thousand)
FINAME
TJLP + Fixed Rate
6.08
2.29
294
BNDES Finem
TJLP + 1.80
-
-
-
FINEP
TJLP + 1%
4.40
4.63
38,283
50,509
79,453
NCE
Fixed Rate +%CDI
11.36
1.23
575,148
221,995
823,811
Working capital (R$)
Fixed Rate +%CDI
16.46
2.87
120,633
99,936
1,038,384
Rural Credit Notes (R$)
Fixed Rate
-
-
-
-
387,849
FCO – Midwest Constitution
Fund
Fixed Rate
-
-
-
-
12,693
Debentures
payable
interest on debentures
IPCA + CDI
-
-
190,582
26,272
740,521
Fixed Rate
-
-
-
-
25,020
924,940
399,357
3,113,798
Local Currency
BNDES Revitaliza
3,747
and
Total Local Currency
11.83
Foreign Currency
Financing of Industrial Facilities Libor + Fixed Rate +
(US$)
E.V
-
-
-
Prepayment (US$)
Libor + Fixed Rate +
E.V
5.39
1.63
84,213
224,977
2,485,905
Bonds(US$)
Fixed Rate + E.V.
4.84
7,749,702
5,624,277
3,226,378
BNDES Finem
Basket of Currencies
+ 1.30% CDI + Fixed
Rate + E.V.
-
-
-
0.48
825,768
NCE (US$) / ACC
%CDI + Fixed Rate +
8.29
6.16
5,230
220
893,170
1,797,240
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Credit Line
Charges
Weighted
average
interest
rate
Weighted
average
maturity
2014
2014
Balance on Balance on Balance on
December December December
31, 2014
31, 2013
31, 2012
E.V. (US$)+Libor
Working Capital (US$)
Fixed Rate + Libor
-
-
-
-
215,279
Working Capital (Pesos)
Development Unit
-
-
-
2,266
2,121
Bank Loan (US$)
Fixed Rate + E.V.
3.88
3.84
871,760
921,504
540,181
Revolving Credit Line
Libor + 2.75%
2.10
3.26
556,781
806,528
941,069
PAE (US$)
Fixed Rate + E.V.
2.26
0.14
26,160
17,036
21,259
Financing agreements (US$)
Fixed Rate + E.V.
-
-
-
22,071
-
Negotiable Liabilities
Fixed Rate
6.50
0.84
21,601
28,578
33,239
Total Foreign Currency
7.35
10,135,985 8,540,407
9,268,121
Total Debt
7.65
11,060,925 8,939,764
12,381,919
Current Liabilities
1,660,819
1,123,242
3,702,975
Noncurrent Liabilities
9,400,106
7,816,522
8,678,944
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Among the loans and financing shown above, the table below shows the individual contracts whose balance
due as on December 31, 2014, exceeded R$ 100.0 million.
Counterparty
Type of Contract
Principal
Date
Contract
of
Annual Cost
Balance
(R$
million)
(million)
Banco Bradesco
Export Credit Note
R$194.9
03/31/2011
105.3% CDI
Deutsche
Bank/ING
Export Prepayment
US$100.0
11/12/2013
Libor + 4.9%
Banco Itau BBA
Export Prepayment
US$170.0
09/20/2010
8.2%
458.0
Credit Suisse
Export Prepayment
US$60.0
03/28/2012
9.0%
159.5
Caixa Econômica
Bank Credit Note
R$100.0
30/12/2014
CDI + 0.35% 100.1
p.m.
Caixa Econômica
Export
Financing R$200.0
Agreement
11/27/2014
8.00%
201.5
Banco do Brasil
Export Credit Note
R$200.0
09/01/2014
116%CDI
202.8
Senior Notes
Senior Notes
US$400.0
09/20/2013
11.3%
125.3
Senior Notes
Senior Notes
US$750.0
05/09/2011
8.4%
1,924.7
Senior Notes
Senior Notes
US$600.0
01/24/2013
9.9%
421.3
Senior Notes
Senior Notes
US$500.0
05/04/2010
9.5%
2,034.1
Senior Notes
Senior Notes
US$191.1
11/16/2006
9.6%
486.9
Senior Notes
Senior Notes
US$850.0
06/24/2014
Senior Notes
Senior Notes
£200.0
05/19/2014
6.25%
814.1
Revolving Credit Line
US$400.0
03/29/2013
Libor
2.75%
+ 546.6
Bank loans
US$200.0
03/29/2013
Libor
2.75%
+ 530.0
Rabobank
Rabobank
6.875%
133.7
245.0
1,943.4
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As Executive Officers of the Corporation, we have described below what we consider the most important
loans and financing modalities:
Non-Convertible Debentures (Debentures)
Senior Notes - BONDS
Long-term debts, in US$, through debt securities issued abroad (Bonds) exclusively for qualified institutional
investors (Rule 144A/Reg S) not listed on the CVM, under the Securities Act of 1933, as amended.
The Corporation has conducted seven funding operations of this nature since 2006, which were classified by
Moody’s under B1 risk rating in foreign currency and by Standard & Poor’s and Fitch under B+ rating,
described as follows:
The first bond operation was concluded in November 2006, upon the issue by Marfrig Overseas Ltd., a
wholly-owned subsidiary of the Corporation, of US$375 million in Senior Notes, with a 9.625% p.a. coupon,
semi-annual interest payment beginning in May 2007 and maturity of principal in 10 years (November 2016),
which were assigned foreign currency risk ratings of B1 by Moody’s and B+ by Standard & Poor’s and Fitch.
The proceeds from the issue were used for the acquisition by the Corporation of business units in Argentina
and Uruguay.
In March 2010, Senior Note holders approved the amendment of certain clauses included in the indenture
that governs this issue, including the change in and/or omission of restrictions applicable to the guarantees
provided by the Corporation and its subsidiaries. Said amendment did not comprise any change in the
financial conditions of this debt, which maintained the same maturity term and interest rate originally
established (this addendum, jointly with the indenture, the “First Issue”). The First Issue is guaranteed by
Marfrig Global Foods S.A. and Marfrig Holdings (Europe) BV.;
The second operation was conducted in April 2010, upon the issue by Marfrig Overseas Ltd. of US$500
million in Senior Notes, with a coupon of 9.50% p.a., semiannual interest payments beginning in November
2010 and maturity of principal in 10 years (November 2020), which were assigned foreign currency risk
ratings of B1 by Moody’s and B+ by Standard & Poor’s and Fitch. This operation also was guaranteed by
Marfrig Global Foods S.A. and Marfrig Holdings (Europe) B.V. and its proceeds were used to lengthen the
debt profile of the Corporation (“Second Issue”).
The third operation was concluded in May 2011 and comprised the issue by Marfrig Holdings (Europe) B.V.
of US$750 million in Senior Notes, with a coupon of 8.375% p.a., semiannual interest payment beginning in
November 2011 and maturity of principal in 7 years (May 2018), which were assigned foreign currency risk
ratings of B1 by Moody’s and B+ by Standard & Poor’s and Fitch. The operation was guaranteed by Marfrig
Global Foods S.A. and Marfrig Overseas Limited and the proceeds were used to lengthen the debt profile of
the Corporation and to strengthen its working capital (“Third Issue”).
The fourth operation was concluded in January 2013 and comprised the issue by Marfrig Holdings (Europe)
B.V. of US$600 million in Senior Notes, with a coupon of 9.875% p.a., semiannual interest payments
beginning in July 2013 and maturity of the principal in 4.5 years (July 2017), which were assigned foreign
currency risk ratings of B2 by Moody’s and B+ by Standard & Poor’s and Fitch. This operation was
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guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas Ltd. and the proceeds were used to lengthen
the debt profile of the Corporation and to strengthen its working capital (“Fourth Issue”).
The fifth operation was concluded in January 2013 and comprised the issue by Marfrig Holdings (Europe)
B.V. of US$400 million in Senior Notes, with a coupon of 11.25% p.a., semiannual interest payments
beginning in March 2014 and maturity of the principal in 8 years (September 2021), which were assigned
foreign currency risk ratings of B2 by Moody’s and B+ by Standard & Poor’s and Fitch. This operation was
guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas and the proceeds were used to lengthen the
debt profile of the Corporation and to strengthen its working capital (“Fifth Issue”). Also in connection with
the Fifth Issue, the Corporation carried out a consent solicitation and tender offer to acquire the Bonds of
the First Issue, which mature in 2016. Based on the conclusion of this offering, the Corporation repurchased
Bonds in the approximate amount of US$191 million, or approximately 50.97% of the outstanding bonds of
the First Issue. As a result of the tender offer, the First Issue was amended through a complementary
indenture that sets forth, among other things, the elimination of virtually all the restrictive covenants of the
Indenture.
In March 2014, the Corporation concluded the re-tap of its Senior Notes linked to the Second Issue in the
aggregate amount of US$275 million (“Additional Notes”). The Additional Notes were consolidated into a
single series with the Senior Notes of the Second Issue, with coupon of 9.50% p.a. (yield of 9.43% p.a. for the
issue). The additional notes were assigned foreign currency risk ratings of B2 by Moody’s and B by Standard
& Poor’s and Fitch. The issue of Additional Notes issue is guaranteed by Marfrig Global Foods. S.A. and its
subsidiary Marfrig Holdings (Europe) B.V. In connection with the Additional Notes, the Corporation carried
out a tender offer to acquire the Bonds of the 2017 Bonds of the Fourth Issue and the 2021 Bonds of the
Fifth Issue. Based on the conclusion of this offering, the Corporation repurchased Bonds in the approximate
amount of (i) US$72.8 million, or 12.14% of the outstanding Bonds of the Fourth Issue; and (ii) US$57.1
million or 14.28% of the outstanding Bonds of the Fifth Issue.
The sixth operation was concluded in May 2014 and comprised the issue by Moy Park (Bondco) Plc of the
first issue of Senior Notes in pound sterling, in the total amount of GBP 200 million, with a coupon of 6.25%
p.a., semiannual interest payments starting in November 2014 and maturity of the principal in 7 years (May
2021), which were assigned foreign currency risk ratings of B1 by Moody’s and B+ by Standard & Poor’s. This
operation was guaranteed by Moy Park Holdings Europe Ltd., Moy Park Ltd. and some of its affiliates, with
no guarantee provided by the Corporation to the Notes. The proceeds were allocated to the Corporation and
used to repay existing debt (“Sixth Issue”);
The seventh operation was carried out in June 2014 and comprised the issue by Marfrig Holdings (Europe)
B.V. of US$850 million in Senior Notes, with a coupon of 6.875% p.a., semiannual interest payments starting
in December 2014 and maturity of the principal in 5 years (June 2019), which were assigned foreign currency
risk ratings of B2 by Moody’s and B by Standard & Poor’s. This operation was guaranteed by Marfrig Global
Foods S.A. and Marfrig Overseas Ltd., with the proceeds used to reduce the cost and lengthen the profile of
debt (“Seventh Issue”). In connection with the Seventh Issue, the Corporation carried out a tender offer
together with a consent solicitation, for 2017 Bonds of the Fourth Issue and 2021 Bonds of the Fifth Issue.
Based on the conclusion of these offers, the Corporation repurchased a total principal amount of about (i)
US$291.5 million, or 85.03% of the outstanding Notes of the Fifth Issue; and (ii) US$371.8 million or 70.54%
of the outstanding Notes of the Fourth Issue. As a result of the early tender offer, the Fourth and Fifth Issues
14/141
were amended through a complementary indenture that set forth, among other things, the elimination of
virtually all the covenants in the Indenture.
Furthermore, due to the settlement of the transaction governed by the Agreement for the Purchase and Sale
of Ownership Interests and Other Covenants of September 30, 2013, which formalized, among other things,
the sale by the Corporation of certain rights and ownership interests in the companies of its group that
owned the business unit Seara Brasil to JBS S.A., the guarantees originally offered by União Frederiquense
Participações Ltda. and Seara Alimentos Ltda. in the First Issue, Second Issue, Third Issue and Fourth Issue
were released as per the release mechanism provided for in their respective indentures.
Maturity schedule of debt in Brazilian real
The following table shows the schedule of payment of loans and financing, debentures and interest on
debentures in Brazilian real, of the Corporation on December 31, 2014, 2013 and 2012:
In R$ thousand
12/31/2014
Consolidated
12/31/2013
12/31/2012
Local currency
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Current liabilities
281,145
205,264
12,140
212,328
710,877
105,416
19,537
102,433
3,060
230,446
1,607,561
2014
2015
2016
2017
2018
2019
2020
2021
Non-current liabilities
77,980
74,407
54,745
5,932
998
1
214,063
44,375
40,628
38,462
38,462
5,977
1,006
1
168,911
627,537
582,949
180,318
42,504
42,372
29,798
761
1
1,506,240
Total
924,940
399,357
3,113,801
516,899
348,850
599,125
142,687
15/141
Maturity schedule of foreign currency debt
The following table shows the schedule of payment of loans and financing, debentures and interest on
debentures in foreign currency, of the Corporation on December 31, 2014, 2013 and 2012:
In R$ '000
12/31/2014
Foreign currency
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
Current liabilities
Consolidated
12/31/2013
12/31/2012
324,050
193,029
111,863
321,000
949,942
398,020
105,269
52,448
337,059
892,796
2014
2015
2016
2017
2018
2019
2020
2021
636,374
584,840
2,471,982
2,008,403
2,551,992
932,452
640,716
541,355
1,539,382
2,434,983
2,722
1,595,671
892,782
Non-current
9,186,043
7,647,611
7,172,707
10,135,985
8,540,407
9,268,121
Total
1,094,509
373,051
153,267
474,587
2,095,414
2,463,558
1,126,442
1,008,757
131,432
1,459,837
982,681
Mandatory deed convertible into Shares
According to the “Indenture for the Second Issue of Debentures Convertible into Shares of (Mandatory
Deed) Marfrig Global Foods S/A”, the Corporation issued two hundred and fifty thousand (250,000)
debentures, mainly convertible into shares, with unit par value of R$10, amounting to R$2,500,000. The
Mandatory Deed was issued on July 15, 2010 through private subscription, with maturity within 60 months,
annually restated at the interest rate at 100% of the accumulated variation of average interbank deposit
rates of a day, plus spread of one per cent (1%). Remuneration of the Mandatory Deed is recognized as
current liabilities and collateralized by a bank guarantee provided by Banco Itaú BBA S/A. The total amount
of the two hundred and fifty thousand (250,000) debentures was subscribed to, and the main debenture
holder is BNDES Participações S/A.
As defined in said Indenture and except for the cases of voluntary conversion, the conversion price will be
lower than the following items: (i) R$21.50, plus the percentage of interest paid to debenture holders over
the par value of the issues, less earnings distributed to each share, both restated at CDI as from the actual
payment, in the case of interest on debentures, or the date of debentures less earnings, in the case of
16/141
earnings, until the conversion date; and (ii) the higher between the market price and R$24.50, the latter
without adjustment for earnings in cash or monetary restatement.
The Corporation, based on the essence of the operation (equity) and on the characteristics thereof, initially
recorded the Mandatory Deed (principal) as Capital Reserve, under Shareholders' Equity. However, the
Securities and Exchange Commission of Brazil (CVM), through Official Letter CVM/SEP/GEA-5/no. 329/2012
dated October 10, 2012, stated its opinion of this instrument and ordered: (i) the accounting reclassification
of the Mandatory Deed; and (ii) the re-filing of the 2011 financial statements with comparisons to the 2010
financial instatements.
The Corporation abided by the order of the CVM, proceeding with the full reclassification of the Mandatory
Deed to the specific accounting line non-current liabilities. The previous method of accounting was based on
accounting and legal opinions issued specifically regarding this matter.
Said reclassification does not affect any terms and conditions of the Mandatory Deed and there is no effect
on the current financial indebtedness of the Corporation, on the servicing of its debt or on its financial
covenants, since, unlike others items under the liabilities of the Corporation, the Mandatory Deed may not
be liquidated into cash or cash equivalents, but only into common shares issued by the Corporation.
The Corporation spent R$12,328 to issue the Mandatory Deed, which was initially recorded as a valuation
allowance to the Capital Reserve account. The surety was renewed annually bringing the expenses with the
issue of the Mandatory Deed to R$41,180 on June 30, 2014. These expenses were also reclassified under
non-current liabilities, as a deduction from the account “Mandatory Deed Convertible into Shares”. As
determined by the Corporation, the value started to be amortized on a monthly basis.
Because of the paying in of such debentures made by BNDES Participações S/A, MMS Participações S/A and
BNDES Participações S/A have entered into a Shareholders' Agreement with the purpose of regulating the
relationship between the parties as shareholders of Marfrig Global Foods S.A.
On February 5, 2013 the Corporation conducted a capital increase, within the authorized limit due to the
conversion of thirty-five thousand (35,000) debentures from the 2nd Issue of Convertible Debentures of the
Corporation that were held by BNDES Participações S.A. – BNDESPAR into forty-three million, seven hundred
and fifty thousand (43,750) common shares issued by the Corporation, in accordance with Item III.16.11 of
the “Private Deed of the 2nd Issue of Debentures Convertible Into Shares of Marfrig Global Foods S.A.” that
was entered into by the Corporation and Planner Trustee DTVM Ltda. on July 22, 2010, and as per the
Material Fact published on October 24, 2012.
The Shares resulting from the conversion have the same characteristics and conditions and enjoy all of the
same rights and advantages ascribed by law and by the bylaws that are attributed to the existing common
shares issued by the Corporation.
As a result of the abovementioned conversion of debentures, there was a material increase in the ownership
interest held by the shareholder BNDESPAR, which now holds common shares representing 19.63% of the
Share Capital of the Corporation.
On January 6, 2014, the Board of Directors of the Corporation approved the submission to the Meeting of
Shareholders of the proposal for Fifth (5th) Issue of Unsecured Convertible Debentures in a Single Series in
the aggregate amount of R$2,150,000 (5th Issue of Convertible Debentures of the Corporation).
17/141
On January 22, 2014, the shareholders of the Corporation, assembled in an Extraordinary Shareholders'
Meeting, approved said Firth Issue of Convertible Debentures of the Corporation in the aggregate amount of
R$2,150,000, in a single series, upon the issue of 215,000 thousand debentures at the unit face value of
R$10, restated by an interest rate corresponding to 100% of the cumulative variation in the average
overnight rate for one day, plus a spread of one percent (1%). The interest will be paid annually on the
following dates: January 25, 2015, January 25, 2016; with the last payment date coinciding with the maturity
date, on January 25, 2017. The Fifth Issue had the objective, within the limits of its indenture, of fully
redeeming the debentures of the Second Issue of Convertible Debentures of the Corporation.
Likewise, the debentures of the Fifth Issue of Convertible Debentures of the Corporation are mandatorily
convertible into shares of the Corporation on the Maturity Date, with the conversion price corresponding to
the lowest of the following amounts: (i) R$21.50, restated annually by an interest rate corresponding to the
overnight rate plus one percent (CDI+1%), less any and all payments received by shareholders (dividends or
interest on equity); or (ii) the highest between the market price, as defined in the indenture as the weighted
average market price of MRFG3 stock quoted in the spot market of the BM&FBovespa in the sixty (60)
trading sessions immediately prior to the conversion date, and R$21.50 (without adjustment for cash
dividends or monetary restatement).
On March 17, 2014, the Corporation released a Notice to the Market informing the market of the conclusion
of its Fifth Issue of Convertible Debentures of the Corporation, with the subscription of 214,955 Debentures,
with unit face value of R$10, as per the information received from Itaú Unibanco S.A., the agent bank, and
that 45 unsubscribed debentures were canceled by the Corporation.
Lastly, on March 28, 2014, the Corporation published a Notice to the Market informing that, as decided in
the Meeting of Debenture Holders of the Second Issue of Convertible Debentures of the Corporation, held
on January 22, 2014, of a total of 215,000 debentures of the Second Issue: a) 214,900 were used by the
respective debenture holders to pay up the debentures of the Fifth Issue of Convertible Debentures of the
Corporation; and b) 100 outstanding debentures were fully redeemed, on the date hereof, which resulted in
the cancelation of all 215,000 debentures of the Second Issue of Convertible Debentures of the Corporation
and the consequent conclusion of said Second Issue of Debentures.
(ii)
Other long-term relationships with financial institutions
The Executive Officers confirm that the Corporation does not have any long-term relationship with financial
institutions other than those resulting from financing, loans and guarantees described above.
18/141
(iii)
Degree of debt subordination
“The Officers declare that the debts of the Corporation do not have a degree of subordination among them
and therefore have equal payment rights. Note, however, that the FINAME credit facilities contracted by the
Corporation from the Brazilian Development Bank (BNDES) feature security interests on the assets acquired
using the credit, and certain export prepayment credit facilities feature assignment of receivables. Marfrig
further clarifies that, during the last three fiscal years, no degree of subordination has existed among the
unsecured debts of the Corporation. Debts with security interest enjoy the preferences and prerogatives
provided for by law.”
(iv) Any restrictions imposed on the Corporation, especially those relating to limits on debt and the
contracting of new debt, the distribution of dividends, the disposal of assets, the issuance of new securities
and the transfer of control.
According to the Executive Officers, the main restrictions imposed on the Corporation regarding the debt
limits and the contracting of new debts, disposal of assets, issue of fresh securities and the sale of
shareholding control, are:
Debt limits
Senior Notes
Considering that the Senior Notes issued in 2006, 2010 (“Second Issue”), 2011 (“Third Issue”), January 2013,
September 2013, May 2014 (“Sixth Issue”) and June 2014 (“Seventh Issue”) represent 71.29% of the
Corporation’s consolidated debt as of December 31, 2014 (and represented 63.10% of the Company’s debt
on December 31, 2013), the obligation of maintaining a ratio of adjusted net debt to EBITDA in the last 12
months serves as a guide for the other outstanding loans and financing of the Corporation at the end of the
period.
Regarding the ratio of adjusted net debt to EBITDA, note that the (i) The Second Issue, Third Issue and
Seventh Issue establish a maximum ratio of 4.75x (excluding the impact of exchange variation); and (ii) the
Sixth Issue establishes a maximum ratio of 3.5x, applicable only to the Moy Park conglomerate and not
related to the ratio of adjusted net debt to EBITDA applicable to the Corporation’s consolidated results.
“Adjusted net debt”, for this purpose, signifies the consolidated debt of the Corporation, calculated in the
last four quarters before calculating (-) the sum of cash and equivalents and tradable securities considered
current assets in the balance sheet of the Corporation, calculated in the last quarter before the calculation
(except for any interest held by the Corporation in any person).
“EBITDA”, for this purpose, means, for any period, the sum of the consolidated profit (loss) of the controlling
shareholders of the Corporation (+) net financial costs (+) income tax and social contribution (+) depreciation
and amortization expenses (+) minority interest.
The Company has other loan agreements that are ruled by covenant of 4.75x (excluding the impact of
exchange variation), in its most restrictive form, in relation to consolidated indebtedness level, as maximum
quotient of Net Debt/annualized (last 12 months) EBITDA ratio, and restrictions to the distribution of
dividends.
19/141
Due to the contractual provisions (carve-out) that allow the exclusion of foreign exchange variation effects
from the calculation of leverage ratio (net debt/EBITDA LTM), the Corporation clarifies that based on this
methodology, the current leverage ratio (net debt/EBITDA LTM) stood at 3.42x at December 31, 2014.
20/141
Disposal of assets
There are restrictions to the disposal of assets and/or of a substantial part of assets that may lead to default
with the obligations under certain instruments: 5th Issues of Convertible Debentures and 4th Issue of NonConvertible Debentures issued by the Corporation and certain Advances on Exchange Contracts (ACC).
In the case of FINAME of BNDES, there is a prohibition to placing encumbrance on the Corporation’s
permanent assets, after contracting the operation, without prior express authorization from BNDES,
pursuant to clause XII, article 34 of the Provisions Applicable to Agreements with BNDES.
The Second Issue, Third Issue and Seventh Issue of Senior Notes and the Credit Agreement with Deutsche
Bank include a clause prohibiting the divestment of assets, except: (1) at fair market value; (2) 75% of the
price is paid in cash/liquid investments or assets/properties related to the Corporation’s businesses; and (3)
if within 360 days of receipt, such funds are used to repay debts or acquire assets in businesses related to
the Corporation’s activities.
Issue of securities
The agreements executed through the BNDES FINAME credit lines and the 2nd and 5th Issues of NonConvertible Debentures issued by the Corporation include a restriction on the issue of debentures and
beneficiaries by the borrower, after contracting the operation, without prior express authorization from
BNDES, pursuant to clause IX, article 34 of the Provisions Applicable to Agreements with BNDES.
Sale of control
The agreements executed through the BNDES FINAME credit lines and the 2nd and 5th Issues of Convertible
Debentures and the 4th Issue of Non-Convertible Debentures issued by the Corporation include a restriction
on the alteration of direct or indirect control, of the borrower, after contracting the operation, without prior
express authorization from BNDES, pursuant to clause III, article 39 of the Provisions Applicable to
Agreements with BNDES.
There are restrictions also on the sale of control of the beneficiary of the credits in the financing from NCEs,
Finame, NPRs, CCBs and certain ACCs.
(g) Comments of the Executive Officers on financing line use limits already contracted
The Executive Officers inform that all the financing agreements were fully released after the respective
approval and formalization with the creditors.
(h) Comments of Executive Officers on Material changes in each item of the financial statements
21/141
The following sections present a summary of our financial and operational information for the periods
indicated. The following information should be read and analyzed in conjunction with the Corporation’s
consolidated financial statements and the consolidated interim quarterly financial information of the
Corporation and accompanying notes, which are available on the Corporation’s website
(www.marfrig.com.br/ri) and on the website of the Securities and Exchange Commission of Brazil - CVM
(www.cvm.gov.br).
22/141
BALANCE SHEETS
12/31/2
014
AV
12/31/2
013
AV
12/31/2
012
AV
2014 x 2013 x
2013 2012
(in R$ thousand, except %)
Current Assets
Cash and cash equivalents
Financial investments
41.91
3.59%
%
16.16
%
1,567,11
1,040,28 5.84
7.76%
2
2
%
2,258,28
50.60
8.83%
6
%
53.93
%
941,277
1,075,60 6.03
4.66%
2
%
1,391,75
5.44% 12.06
2
%
22.72
%
677,483
3.36% 875,860
401,563
118.11
%
1,091,68
5.41% 771,254
5
Trade accounts receivable – domestic
Trade accounts receivable – foreign
Inventories of goods and merchandise
1.74% 350,106
Biological assets
1.57% 5.96%
943,832
32.37
%
3.69% 0.60% 62.91
%
1,240,45
61.39
4.85%
7
%
10.48
%
91,475
103.82
10.41
0.36%
%
%
0.29% 224,739
1.26
%
77,372
0.30% 74.31
%
190.47
%
57,204
0.28% 59,370
0.33
%
51,196
0.20% -3.65%
15.97
%
66,711
0.33% 75,580
0.42
155,079
0.61% -9.44% -
0.83% 81,949
0.46
%
58,261
Prepaid expenses
Notes receivable
Other receivables
1.96
%
1,361,63
1,110,43 6.23
6.75%
5
6
%
167,030
Advances to suppliers
4.91
%
919,908
2,027,91 10.05 1,828,55 10.26 2,703,73 10.57 11.12
9
%
2
%
2
%
%
352,200
Recoverable taxes
4.33
%
23/141
12/31/2
014
AV
12/31/2
013
AV
12/31/2
012
AV
2014 x 2013 x
2013 2012
51.26
%
%
8,368,51 41.46 7,493,73 42.03 10,234,6 40.00 20.92
7
%
0
%
52
%
%
Total current assets
26.78
%
Non-current Assets
Financial investments
Court deposits
Notes receivable
Deferred
income
contribution taxes
and
Recoverable taxes
970
0.00% 1,030
0.01
%
886
0.00% -5.83%
16.25
%
64,972
0.32% 71,519
0.40
%
44,366
0.17% -9.15%
61.20
%
345,664
1.71% 55,657
0.31
%
53,704
0.21%
1,708,43
1,447,96 8.12
social
8.46%
7
5
%
1,232,64
4.82% 8.73% 19.67
0
%
42,773
0.21% 33,207
0.19
%
77,807
0.30%
0.18% 54,774
0.31
%
11,107
0.04% 32.58
%
Investments
29.80
%
57.32
%
393.15
%
4,961,62 24.58 4,754,75 26.67 7,757,25 30.31
4.35% 38.71
3
%
2
%
9
%
%
142,140
Intangible assets
21.81
%
5.55
%
36,934
Biological assets
1,851,74
21.68
7.24%
7
%
1,509,16
7.48% 990,162
9
Other receivables
Property, plant and equipment
521.06
3.64%
%
0.70% 113,483
0.64
%
253,361
0.99%
25.25
%
55.21
%
3,004,70 14.71 2,811,28 15.77 4,071,92 15.91
6.88% 9
%
5
%
5
%
30.96
24/141
12/31/2
014
AV
12/31/2
013
AV
12/31/2
012
AV
2014 x 2013 x
2013 2012
%
Total non-current assets
Total assets
11,817,3 58.54 10,333,8 57.97 15,354,8 60.00 10.69
91
%
34
%
02
%
%
32.70
%
20,185,9 100.0 17,827,5
25,589,4
14.99
100%
100%
08
%
64
54
%
30.33
%
2,028,30 10.05 1,596,09 8.95
3
%
1
%
38.14
%
Current Liabilities
Trade accounts payable
506,969
1.98% 2.00% 33.34
%
187,503
71.78
0.73%
%
38.85
%
1,470,23
1,096,97 6.15
7.28%
7
0
%
3,359,13 13.13 34.28
0
%
%
67.34
%
352,852
1.38% 43.34
%
22.78
%
38,805
0.15%
144,445
625.42
81.81
0.56%
%
%
199,400
0.78% 0.00% 100.00
%
341,979
1.69% 337,931
1.90
%
0.99% 114,651
0.64
%
Payroll and related charges
200,312
Taxes
Loans and financing
129,895
0.64% 272,486
1.53
%
69,229
0.34% 49,663
0.28
%
0.94% 26,272
0.15
%
0.00% -
0.00
%
Notes payable
Lease payable
190,582
Interest on debentures
Debentures payable
2,580,22 10.08 27.09
7
%
%
39.40
%
27.983
%
25/141
12/31/2
014
AV
12/31/2
013
AV
12/31/2
012
2014 x 2013 x
2013 2012
90,553
418.46
34.64
0.35%
%
%
227,436
17.93
0.89%
%
40.50
%
4,662,46 23.10 3,688,56 20.69 7,687,32 30.04 33.49
5
%
6
%
0
%
%
52.02
%
9,400,10 46.57 7,816,52 43.85 8,282,26 32.37 20.26
6
%
2
%
8
%
%
-5.62%
72,645
0.36% 59,186
0.33
0.79% 135,316
0.76
%
Advances from customers
159,283
Other payables
Total current liabilities
AV
Non-current Liabilities
Loans and financing
706,545
3.50% 181,989
252,737
3.15% 646,857
3.63
%
1,474,66
5.76% 6.35% 56.14
0
%
0.20% 26,462
0.15
%
0.35% 103,096
0.58
%
0.00% -
0.00
%
Taxes
Deferred
income
contribution taxes
and
social 635,758
40,448
Provisions for contingencies
70,745
Lease payable
Debentures payable
Mandatory convertible deed
237,889
52.85
0.93%
%
88.88
%
107,523
0.42% 31.38
%
-4.12%
396,676
1.55% 0.00% 100.00
%
2,121,47 10.51 2,113,11 11.85 2,470,92
9.66% 0.40% 14.48
0
%
3
%
0
%
353,570
Notes payable
288.37
27.99
0.99%
%
%
1.02
%
1.75% 4,414
0.02
%
208,492
7910.8
97.88
0.81%
1%
%
26/141
12/31/2
014
123,076
AV
12/31/2
013
0.61% 127,523
Other
Total non-current liabilities
Total Liabilities
AV
0.72
%
12/31/2
012
165,877
AV
2014 x 2013 x
2013 2012
0.65% 0.49% 23.12
%
13,451,7 66.64 11,019,9 61.81 13,597,0 53.14 22.59
18
%
76
%
42
%
%
18.95
%
18,114,1 89.74 14,708,5 82.50 21,284,3 83.18 25.32
83
%
42
%
62
%
%
30.90
%
Shareholders' Equity
Share capital
5,276,67 26.14 5,276,67 29.60 4,926,67 19.25
0.00% 7.10%
8
%
8
%
8
%
(-) Share issue expenses
-108,210
-108,210 0.61
0.54%
%
Capital reserve
Acquisition of shares in subsidiaries
Issue of common shares
Profit reserve
Legal reserve
Retained earnings
0.00% 0.00%
0.42%
184,642
0.91% 184,800
1.04
%
184,800
0.72% -0.09% 0.00%
-158
0.00% -
0.00
%
-
0.00% 0.00% 0.00%
184,800
0.92% 184,800
1.04
%
184,800
0.72% 0.00% 0.00%
36,449
0.18% 35,773
0.20
%
33,604
0.13% 1.89% 6.45%
44,476
0.22% 44,476
0.25
%
44,476
0.17% 0,00% 0%
7,348
0.04% 7,348
0.04
%
7,348
0.03% 0,00% 0%
-3,685
-4,361
0.02%
0.02
%
-6,530
15.50
0.03%
%
-11,690
-11,690
0.06%
0.07
%
-11,690
0.05% 0.00% 0.00%
Treasury shares
Canceled treasury shares
-108,210
33.22
%
27/141
12/31/2
014
AV
12/31/2
013
AV
12/31/2
012
AV
2014 x 2013 x
2013 2012
514,371
Other comprehensive income
-438,071
-100,411 0.56
2.17%
%
347.83
119.52
2.01%
%
%
-168,805
Asset valuation adjustment
1,713,19
-969,306 5.44
8.49%
8
%
76.68
0.66% %
683,176
2.67%
Cumulative translation adjustment
1,275,12
6.32% 868,895
7
45.34
%
27.18
%
Accumulated losses
32.38
2,998,02 14.85 2,259,30 12.67 1,395,00
5.45% %
3
%
4
%
5
61.96
%
31.83
0.58%
%
39.74
%
2,071,72 10.26 3,119,02 17.50 4,305,09 16.82
33.72
5
%
2
%
2
%
%
27.55
%
20,185,9 100.0 17,827,5 100.0 25,589,4 100.0 14.99
shareholders'
08
0%
64
0%
54
0%
%
30.33
%
118,260
Non-controlling interest
Total shareholders' equity
Total liabilities
equity
and
4.87
%
474.22
%
0.59% 89,696
0.50
%
148,854
28/141
Comparative analysis of the Balance Sheets as of December 31, 2014 and 2013
Current Assets
Current assets were R$8,368.5 million at December 31, 2014 compared to R$7,493.7 million at December
31, 2013, for an increase of 11.7%. As a percentage of total assets, current assets represented 41.5% and
42.0% at December 31, 2014 and 2013, respectively.
Cash and cash equivalents. The Corporation’s cash and cash equivalents totaled R$2,658.8 million at
December 31, 2014, an increase of 46.8% from R$1,811.5 million at December 31, 2013. Cash and
equivalents as a percentage of total assets came to 13.2%, at December 31, 2014, compared to 10.1% at
December 31, 2013. The officers of the Corporation believe this increase in cash and equivalents is due to
increases in cash and marketable securities, of 41.9% and 50.6%, respectively, from the prior year.
Trade Accounts Receivable. The Corporation’s trade accounts receivable totaled R$1,618.8 million at
December 31, 2014, a decrease of 17.0% from R$1,951.4 million at December 31, 2013. As a percentage of
total assets, trade accounts receivable represented 8.0% at December 31, 2014, compared to 10.9% at
December 31, 2013. The officers of the Corporation believe the 17.0% decrease in Trade Accounts
Receivable was mainly due to the 57.2% increase in Advances on Exchange Deliverables (ACEs).
Inventory and Biological Assets. Inventory and biological assets of the Corporation amounted to R$2,380.1
million at December 31, 2014 compared to R$2,178.6 million at December 31, 2013, for an increase of 9.2%.
As a percentage of total assets, inventory and biological assets represented 11.8% and 12.2% at December
31, 2013, respectively.
Non-Current Assets
The Corporation’s non-current assets amounted to R$11,817.4 million at December 31, 2014, an increase of
14.4% from R$10,333.8 million at December 31, 2013. As a percentage of total assets, non-current assets
represented 58.5% at December 31, 2014, compared to 58.0% at December 31, 2013.
Property, plant and equipment and Biological Assets. Property, plant and equipment and biological assets
were R$5,103.8 million at December 31, 2014 compared to R$4,868.2 million at December 31, 2013, for an
increase of 4.8%. As a percentage of total assets, property, plant and equipment and biological assets
represented 25.3% and 27.3% at December 31, 2014 and December 31, 2013, respectively.
Intangible assets. Intangible assets totaled R$3,004.7 million at December 31, 2014 compared to R$2,811.3
million at December 31, 2013, for an increase of 6.9%. As a percentage of total assets, intangible assets
represented 14.9% and 15.8% at December 31, 2014 and December 31, 2013, respectively.
Current Liabilities
Current liabilities increased 26.4%, from R$4,662.5 million at December 31, 2013 to R$3,688.5 million at
December 31, 2014. As a percentage of total liabilities, current liabilities represented 23.1% at December 31,
2014, compared to 20.6% at December 31, 2013.
Trade accounts payable. At December 31, 2014, trade accounts payable amounted to R$2,028.3 million, an
increase of 27.1% from R$1,596.0 million at December 31, 2013. As a percentage of total liabilities, trade
accounts payable represented 10.0% at December 31, 2014, compared to 8.9% at December 31, 2013.
29/141
Loans and Financing. At December 31, 2014, loans totaled R$1,470.2 million, increasing 34.0% from
R$1,096.9 million at December 31, 2013. As a percentage of total liabilities, cost from loans and financing
represented 7.3% at December 31, 2014, compared to 6.1% at December 31, 2013. The Officers believe this
increase was mainly due to foreign-denominated debt (non-cash exchange variation in the Bonds line).
Interest on Debentures. At December 31, 2014, non-convertible debentures payable and interest on
debentures amounted to R$190.6 million, an increase of 625.4% from R$26.2 million at December 31, 2013.
As a percentage of total liabilities, interest on debentures represented 0.9% at December 31, 2014,
compared to 0.1% at December 31, 2013.
Noncurrent Liabilities
Noncurrent liabilities increased 22.1% to R$13,451.7 million at December 31, 2014, from R$11,019.9 million
at December 31, 2013. As a percentage of total liabilities, noncurrent liabilities represented 66.6% at
December 31, 2014, compared to 61.8% at December 31, 2013.
Loans and Financing. At December 31, 2014, loans totaled R$9,400.1 million, increasing 20.3% from
R$7,816.5 million at December 31, 2013. As a percentage of total liabilities, loans and financing including
debentures represented 46.6% at December 31, 2014, compared to 43.8% at December 31, 2013. The
Officers of the Corporation believe this increase was mainly due to foreign-denominated debt (non-cash
exchange variation in the Bonds line).
Convertible mandatory deed. At December 31, 2014, the amount under convertible mandatory deed totaled
R$2,121.5 million, increasing 0.4% from R$2,113.1 million at December 31, 2013. As a percentage of total
liabilities, cost from the convertible mandatory deed represented 10.5% at December 31, 2014, compared to
11.8% at December 31, 2013.
Shareholders' Equity
The Corporation’s shareholders’ equity decreased by 33.6%, to R$3,119.0 million on December 31, 2014
from R$2,071.7 million at December 31, 2013.
30/141
STATEMENT OF INCOME 2014 VS. 2013
12/31/2014 VA
12/31/2013 VA
12/31/2014
vs.
12/31/2013
(in R$ thousand, except %)
Net Operating Revenue
21,073,322 100% 18,752,376 100% 12%
Cost of goods sold
(18,408,152) -87% (16,442,702) -88% 12%
Gross Income
2,665,170
Operating income (expenses)
(3,707,481) -18% (3,473,914) -19% 7%
Selling expenses
(935,351)
-4%
(805,303)
-4%
16%
General and administrative expenses
(529,148)
-3%
(563,524)
-3%
-6%
Equity in earnings (losses) of subsidiaries
(17,795)
0%
(9,109)
0%
95%
Other operating income (expenses)
(98,423)
0%
(64,984)
0%
51%
Financial income (expenses)
(2,126,764) -10% (2,030,994) -11% 5%
13% 2,309,674
12% 15%
Financial income
294,701
1%
364,955
2%
-19%
Exchange gain
781,107
4%
778,261
4%
0%
Financial expenses
(1,970,693) -9%
(1,806,023) -10% 9%
Exchange loss
(1,231,879) -6%
(1,368,187) -7%
-10%
Operating Income
(1,042,311) -5%
(1,164,240) -6%
-10%
Loss before tax effects
(1,042,311) -5%
(1,164,240) -6%
-10%
Provision for income and social contribution taxes
322,018
2%
361,330
2%
-11%
Income tax
222,054
1%
267,470
1%
-17%
Social contribution tax
99,964
0%
93,860
1%
7%
Net income (loss) in the period from continuing
operations
(720,293)
-3%
(802,910)
-4%
-10%
Net income (loss) in the period from discontinued
operations
0
0%
(94,178)
-1%
-100%
Net income (loss) in the period before interest
-3%
(897,088)
-5%
-20%
(720,293)
31/141
12/31/2014 VA
12/31/2013 VA
12/31/2014
vs.
12/31/2013
Attributable to:
Marfrig Alimentos – controlling interest – continuing
operations
(739,472)
-4%
(815,768)
-4%
-9%
Marfrig Alimentos –
discontinued operations
0
0%
(97,825)
-1%
-100%
Marfrig Alimentos - controlling interest – Total
(739,472)
-4%
(913,593)
-5%
-19%
Non–controlling Interest – continuing operations
19,179
0%
12,858
0%
49%
Non–controlling Interest – discontinued operations
0
0%
3,647
0%
-100%
Non–controlling shareholders - Total
19,179
0%
16,505
0%
16%
Basic earnings (losses) per share – common continuing operations
(1.4212)
0%
(1.5679)
0%
-9%
Basic earnings (losses) per share – common discontinued operations
0.0000
0%
(0.1880)
0%
-100%
Basic earnings (losses) per share – common - Total
0%
(1.7559)
0%
-19%
controlling
interest
–
(1.4212)
32/141
Comparative analysis of the Balance Sheets as of December 31, 2013 and 2012
Current Assets
Current assets were R$7,493.7 million at December 31, 2013 compared to R$10,234.6 million at December
31, 2012, for a decrease of 26.8%. As a percentage of total assets, current assets represented 42.0% and
40.0% at December 31, 2013 and 2012, respectively. The officers of the Corporation believe this decrease in
current assets is due to the sale of ownership interests to JBS S.A., as per note 12.4 to the financial
statements for the fiscal year ended December 31, 2013.
Cash and cash equivalents. The Corporation’s cash and cash equivalents totaled R$1,811.5 million at
December 31, 2013, a decrease of 43.0% from R$3,178.2 million at December 31, 2012. Cash and
equivalents as a percentage of total assets came to 10.1%, at December 31, 2013, compared to 12.4% at
December 31, 2012. The officers of the Corporation believe this decrease in cash and equivalents is due to
the sale of ownership interests to JBS S.A., as per 12.4 to the financial statements for the fiscal year ended
December 31, 2013.
Trade Accounts Receivable. The Corporation’s trade accounts receivable totaled R$1,951.4 million at
December 31, 2013, an increase of 8.8% from R$1,793.3 million at December 31, 2012. As a percentage of
total assets, trade accounts receivable represented 10.9% at December 31, 2013, compared to 7.0% at
December 31, 2012. The officers of the Corporation believe the 8.8% increase in Trade Accounts Receivable
was due to the sale of ownership interests to JBS S.A., as per 12.4 to the financial statements for the fiscal
year ended December 31, 2013.
Inventory and Biological Assets. Inventory and biological assets of the Corporation amounted to R$2,178.6
million at December 31, 2013 compared to R$3,647.6 million at December 31, 2012, for a decrease of 40.2%.
As a percentage of total assets, inventory and biological assets represented 12.2% and 14.3% at December
31, 2013 and December 31, 2012, respectively. The officers of the Corporation believe this 40.2% decrease in
inventories and Biological Assets is due to the sale of ownership interests to JBS S.A., as per 12.4 to the
financial statements for the fiscal year ended December 31, 2013.
Non-Current Assets
The Corporation’s non-current assets amounted to R$10,333.8 million at December 31, 2013, a decrease of
32.7% from R$15,354.8 million at December 31, 2012. As a percentage of total assets, non-current assets
represented 57.9% at December 31, 2013, compared to 60.0% at December 31, 2012. The Officers inform
that the most relevant lines were Notes Receivable, Deferred Taxes and Recoverable Taxes, which decreased
as a result of the sale of ownership interests to JBS S.A., as per 12.4 to the financial statements for the fiscal
year ended December 31, 2013.
Property, plant and equipment and Biological Assets. Property, plant and equipment and biological assets
were R$4,868.2 million at December 31, 2013 compared to R$8,010.6 million at December 31, 2012, for a
decrease of 39.2%. As a percentage of total assets, property, plant and equipment represented 27.3% and
31.3% at December 31, 2013 and December 31, 2012, respectively. The officers of the Corporation believe
the decrease of 39.2% in property, plant and equipment was due to the sale of ownership interests to JBS
S.A., as per 12.4 to the financial statements for the fiscal year ended December 31, 2013.
33/141
Intangible assets. Intangible assets totaled R$2,811.2 million at December 31, 2013 compared to R$4,071.9
million at December 31, 2012, for a decrease of 31.0%. As a percentage of total assets, intangible assets
represented 15.7% and 16.0% at December 31, 2013 and December 31, 2012, respectively. The officers of
the Corporation believe the decrease of 30.9% was due to the sale of ownership interests to JBS S.A., as per
12.4 to the financial statements for the fiscal year ended December 31, 2013.
Current Liabilities
Current liabilities decreased 52.0%, from R$7,687.3 million at December 31, 2012 to R$3,688.5 million at
December 31, 2013. As a percentage of total liabilities, current liabilities represented 20.6% at December 31,
2013, compared to 30.0% at December 31, 2012. Regarding current liabilities, the officers of the Corporation
believe the 52.0% decrease was due to the sale of ownership interests to JBS S.A., as per 12.4 to the financial
statements for the fiscal year ended December 31, 2013.
Trade accounts payable. At December 31, 2013, trade accounts payable amounted to R$1,596.0 million, a
decrease of 38.1% from R$2,580.2 million at December 31, 2012. As a percentage of total liabilities, trade
accounts payable represented 8.9% at December 31, 2013, compared to 10.0% at December 31, 2012. The
Officers believe this decrease was due to the sale of ownership interests to JBS S.A., as per 12.4 to the
financial statements for the fiscal year ended December 31, 2013.
Loans and Financing. At December 31, 2013, loans totaled R$1,096.9 million, decreasing 67.3% from
R$3,359.1 million at December 31, 2012. As a percentage of total liabilities, cost from loans and financing
represented 6.1% at December 31, 2013, compared to 13.1% at December 31, 2012. The Officers believe this
decrease was due to the sale of ownership interests to JBS S.A., as per 12.4 to the financial statements for
the fiscal year ended December 31, 2013.
Debentures Payable and Interest on Debentures. At December 31, 2013, non-convertible debentures
payable and interest on debentures amounted to R$26.2 million, a decrease of 92.3% from R$343.8 million
at December 31, 2012. As a percentage of total liabilities, cost from non-convertible debentures payable and
interest on debentures represented 0.1% at December 31, 2013, compared to 1.3% at December 31, 2012.
The Officers believe this reduction was due to the sale of ownership interests to JBS S.A., as per 12.4 to the
financial statements for the fiscal year ended December 31, 2013.
Noncurrent Liabilities
Noncurrent liabilities decreased to R$11,019.9 million at December 31, 2013, from R$13,597.0 million at
December 31, 2012. As a percentage of total liabilities, noncurrent liabilities represented 61.8% at December
31, 2013, compared to 53.1% at December 31, 2012. The Officers believe this decrease was due to the sale
of ownership interests to JBS S.A., as per 12.4 to the financial statements for the fiscal year ended December
31, 2013.
Loans and Financing. At December 31, 2013, loans totaled R$7,816.5 million, decreasing 5.6% from
R$8,282.3 million at December 31, 2012. As a percentage of total liabilities, loans and financing including
debentures represented 43.8% at December 31, 2013, compared to 32.4% at December 31, 2012. The
Officers of the Corporation believe this increase to the lengthening of the debt profile and more balanced
capital structure.
34/141
Debentures Payable. At December 31, 2013, non-convertible debentures payable decreased from R$396.7
million at December 31, 2012. The Officers of the Corporation believe this reduction results was due to the
transfer of the amount to JBS S.A., as part of the debt assumption, as per the Purchase and Sale Agreement
of Ownership Interests and Other Covenants, executed on June 7, 2013, as described in note 18 to the
financial statements for the fiscal year ended December 31, 2013.
Convertible mandatory deed. At December 31, 2013, the amount under convertible mandatory deed totaled
R$2,113.1 million, decreasing 14.4% from R$2,470.9 million at December 31, 2012. As a percentage of total
liabilities, cost from the convertible mandatory deed represented 11.8% at December 31, 2013, compared to
9.7% at December 31, 2012. The Officers of the Corporation believe this reduction was due to the capital
increase carried out by the Corporation on February 5, 2013, within the authorized limit, in a Meeting of the
Board of directors, due to the conversion of thirty-five thousand (35,000) debentures from the 2nd Issue of
Convertible Debentures of the Corporation that were held by BNDES Participações S.A. - BNDESPAR.
Shareholders' Equity
The Corporation’s shareholders’ equity decreased by 27.6%, from R$4,305.0 million at December 31, 2012 to
R$3,119.0 million on December 31, 2013. The decrease was mainly due to the loss recorded in the year of
R$913.5 million, and the realization of the attributed cost after the sale of subsidiaries, in the amount of
R$447.2 million.
35/141
STATEMENT OF INCOME 2013 VS. 2012
12/31/2013 VA
Reclassified
12/31/2012 VA
12/31/2013
vs.
12/31/2012
(in R$ thousand, except %)
Net Operating Revenue
18,752,376 100% 16,516,366 100% 14%
Cost of goods sold
(16,442,702) -88% (14,154,405) -86% 16%
Gross Income
2,309,674
Operating income (expenses)
(3,473,914) -19% (2,350,712) -14% 48%
Selling expenses
(805,303)
-4%
(698,962)
-4%
15%
General and administrative expenses
(563,524)
-3%
(606,226)
-4%
-7%
Equity in earnings (losses) of subsidiaries
(9,109)
0%
Other operating income (expenses)
(64,984)
0%
Financial income (expenses)
(2,030,994) -11% (1,418,337) -9%
43%
Financial income
364,955
2%
338,931
2%
8%
Exchange gain
778,261
4%
311,249
2%
150%
Financial expenses
(1,806,023) -10% (1,407,318) -9%
28%
Exchange loss
(1,368,187) -7%
(661,199)
-4%
107%
Operating Income
(1,164,240) -6%
11,249
0%
-10450%
Loss before tax effects
(1,164,240) -6%
11,249
0%
-10450%
Provision for income and social contribution taxes
361,330
2%
266,221
2%
36%
Income tax
267,470
1%
206,138
1%
30%
Social contribution tax
93,860
1%
60,083
0%
56%
Net income (loss) in the period from continuing
operations
(802,910)
-4%
277,470
2%
-389%
Net income (loss) in the period from discontinued
operations
(94,178)
-1%
-510,701
-3%
-82%
Net income (loss) in the period before interest
-5%
(233,231)
-1%
285%
(897,088)
12% 2,361,961
372,813
14% -2%
0%
-
2%
-117%
36/141
12/31/2013 VA
Reclassified
12/31/2012 VA
12/31/2013
vs.
12/31/2012
Attributable to:
Marfrig Alimentos – controlling interest – continuing
operations
(815,768)
-4%
263,609
2%
-409%
Marfrig Alimentos – controlling interest – discontinued
operations
(97,825)
-1%
(487,511)
-3%
-80%
Marfrig Alimentos - controlling interest – Total
(913,593)
-5%
(223,902)
-1%
308%
Non–controlling Interest – continuing operations
12,858
0%
13,861
0%
-7%
Non–controlling Interest – discontinued operations
3,647
0%
(23,190)
0%
-116%
Non–controlling shareholders - Total
16,505
0%
(9,329)
0%
-277%
Basic earnings (losses) per share – common - continuing
operations
(1.5679)
(0.7488)
Basic earnings (losses) per share
discontinued operations
(0.1880)
(1.3847)
(1.7559)
(0.6359)
– common -
Basic earnings (losses) per share – common - Total
37/141
Comparative analysis of the Income Statements for the fiscal years ended December 31, 2014 and 2013
Net operating revenue increased by 12.4%, from R$18,752.4 million in the year ended December 31, 2013 to
R$21,073.3 million in the year ended December 31, 2014, which is explained by the 7.3% increase in sales
volume, the 4.7% decrease in average price. In the period, the Brazilian real depreciated 9% against the U.S.
dollar.
Marfrig Beef accounted for 45.9% of consolidated revenue, in line with its share of 46.2% in 2013, while
Keystone accounted for 28.0% (28.6% in 2013) and Moy Park for 26.1% (25.2% in 2013).
Net operating revenue growth was driven mainly by stronger sales at all business units, including:
(i)
the increase of 11.7% in net operating revenue at Marfrig Beef, driven by higher exports from Brazil
(up 13.6% on 2013), by the excellent result posted by the operations in Uruguay, which offset most of the
adverse conditions impacting the operations in Argentina, and by the improvement in fresh meat sales
volume to the food service segment in the domestic market;
(ii)
the increase of 9.7% in net operating revenue at Keystone, reflecting the higher sales volume at the
operations in APMEA (up 10.1% on 2013) fueled by (i) the higher purchasing power of the region’s middle
class driven by wage growth, which supported higher consumption at restaurants and fast food chains; (ii)
the greater diversification of the local client base;
(iii)
the increase of 16.6% in net operating revenue at Moy Park, explained by: (i) the strong sales volume
growth in fresh poultry and convenience coated products across the retail and food service channels in the
United Kingdom and Ireland, which is a very positive performance considering the challenging UK retail
market; (ii) the consolidation into Moy Park of Marfrig’s European beef business; and (iii) the positive impact
from the exchange variation of 14.6%. On the other hand, the results were partially affected by: (i) lower
sales prices for international exports of poultry products and offal due to export restrictions in both Russia
and South Africa; (ii) the lower sales volume in the food service channel in Europe; (iii) commodity input cost
deflation; and (iv) the stronger GBP relative to the EUR reducing the GBP value of European revenues.
38/141
The table below shows the breakdown of net revenue by segment:
Period ended
December 31
2014
2013
(in R$ million)
Marfrig Beef
Marfrig Beef - Brazil
7,626.4
6,626.4
Domestic Market
4,314.9
Export Market
3,311.5
2,596.9
Marfrig Beef - International Operations (Argentina, Uruguay and Chile)
2,044.1
2,030.9
Domestic Market
954.1
1,126.4
Export Market
1,090.1
904.5
Total—Marfrig Beef
9,670.5
8,657.2
Domestic Market
4,848.5
4,089.4
Export Market
659.3
634.0
Total—Moy Park
5,507.8
4,723.4
United States
4,341.8
4,060.3
APMEA (Asia Pacific, Middle East and Africa)
1,553.2
1,311.4
Total—Keystone
5,895.0
5,371.7
Domestic Market
14,459.3
13,305.6
Exports
6,614.1
5,446.8
Total Marfrig Consolidated
21,073.3
18,752.4
4,029.5
Moy Park
Keystone
Total – Marfrig Consolidated
Comments on the changes in our net revenue by segment (as per the above table) follow:
:: MARFRIG BEEF ::
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Brazil Operation – Domestic Market
20.5% of Consolidated Net Revenue
Domestic sales in Brazil grew 7.1% in 2014 to R$4,314.9 million, compared to R$4,029.5 million in 2013. This
performance was due to the 24.3% growth in sales volume, which offset the 13.8% decrease in the average
sales price practiced, driven by: (i) the greater focus on food service operations;(ii) the improvement in the
client mix in the retail channel, with a higher share of small and midsized businesses, with this positioning
enabling us to mitigate the negative effects caused by the oversupply of beef in the channel that pressured
prices, especially in the first half of the year; and (iii) the price decline is explained by the shift in the sales
mix, with the Company directing an increased share of higher-margin products to export markets, taking
advantage of the more favorable exchange rate and strong demand in foreign markets.
Brazil Operation – Exports
15.7% of Consolidated Net Revenue
Exports from Brazil advanced 27.5% in 2014 to R$3,311.5 million, from R$2,596.9 million in 2013. This
performance was due to the 13.6% growth in sales volume and the 12.3% increase in average sales price,
driven by: (i) the recovery in consumption in key markets in the Middle East, Europe and Asia; and (ii) the
more competitive prices in Brazilian real due to the 9% appreciation in the U.S. dollar against the Brazilian
real in the period.
International Operations – Argentina, Uruguay and Chile
9.7% of Consolidated Net Revenue
Revenue from international operations came to R$2,044.1 million, virtually stable in relation to the
R$2,030.9 million in 2013. The performance is the result of the 11.0% increase in average sales price, which
was partially offset by the 9.3% decrease in sales volume. In view of the growing challenges and
uncertainties in the Argentine market, the Company opted to reduce its exposure to the country and
temporarily shut down three production units, which contributed significantly to the reduction in sales
volume compared to 2013. The performance in Uruguay improved significantly compared to 2013, where
despite the slight revenue decrease of 1.4% in the domestic market, export revenue increased by 27.8%,
driven by the increase in both average price (21.4%) and volume (5.3%).
:: MOY PARK ::
Domestic Market – United Kingdom
23.0% of Consolidated Net Revenue
Domestic market net sales increased by 18.6%, from R$4,089.4 million in the year ended December 31, 2013
to R$4,848.5 million in the year ended December 31, 2014. This increase was mainly due to a 1.7% increase
in sales volume and a 14.7% increase in average price, driven by: (i) positive impact from exchange variation
of 14.6%; (ii) strong sales volume growth in fresh poultry and convenience coated products across the retail
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and food service channels in the United Kingdom and Ireland, which is a very positive performance in the
challenging UK retail market; (iii) the consolidation into Moy Park of Marfrig’s European beef business.
Exports
3.1% of Consolidated Net Revenue
Net revenue from exports increased by 4.0%, from R$634.0 million in the year ended December 31, 2013 to
R$659.3 million in the year ended December 31, 2014. The increase was mainly driven by the sales volume
growth of 4.9%, which was partially offset by the slight drop of 0.9% in average price resulting from the
decline in grain prices during the year.
:: KEYSTONE FOODS ::
United States
20.6% of Consolidated Net Revenue
Net operating revenue from the operations in the United States increased by 6.9%, from R$4,060.3 million in
the year ended December 31, 2013 to R$4,341.8 million in the year ended December 31, 2014. The increase
reflects the 9% depreciation of the Brazilian real against the U.S. dollar, which had a positive impact on the
currency translation of net operating revenue. Sales volume increased 1.3%, driven by increased meat
supply (higher poultry weight in the broiler farms). Overall, the lower average prices offset the reduction in
volumes, explained by the pricing model based on commodity prices adopted for QSR clients in the United
States, in which product prices reflected the lower input costs.
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Asia and Middle East (APMEA)
7.4% of Consolidated Net Revenue
Net operating revenue in the APMEA region increased by 18.4%, from R$1,311.4 million in the year ended
December 31, 2013 to R$1,553.2 million in the year ended December 31, 2014. Revenue growth was driven
by the increase of 10.1% in sales volume. Despite the impact from the recorded cases of avian influenza in
2013 and the food safety incident involving a supplier to our main client in Asia, the APMEA region remained
resilient. Revenue growth was also driven by the 9% depreciation of the Brazilian real against the U.S. dollar,
generating a positive impact in the translation of net operating revenue.
Cost of Goods Sold (COGS)
Cost of goods sold increased by 12.0%, practically in line with revenue growth, from R$ 16,442.7 million in
the year ended December 31, 2013 to R$18,408.2 million in the year ended December 31, 2014. The
increase was mainly due to (i) the 9.1% increase in expenses related to raw materials (finished cattle and live
cattle), with the fed cattle price increasing by almost 25%, according to the ESALQ index (which measures
cattle price variations in the state of São Paulo); (ii) the 8.3% increase in labor costs; and (iii) the 9.7%
increase in production costs, such as electricity, packaging and other indirect costs.
In terms of each segment’s share in cost of goods sold, Marfrig Beef’s remained stable at 43.7%, while Moy
Park’s increased to 26.5% and Keystone’s share decreased from 30.5% to 29.8% in 2014. The item raw
materials was the main component of COGS in 2014, accounting for 68.2% of the total, compared to 69.9%
in 2013. Labor accounted for 12.3% of total COGS in 2014, compared to 12.8% in 2013, while the share of
production costs and other increased from 17.3% to 19.5%.
The following table shows the breakdown of cost of goods sold:
COGS
2014
Share (%)
2013
Share (%)
Chg. (%)
Raw Materials
12,549
68.2%
11,449
69.9%
9.1%
Labor
2,271
12.3%
2,096
12.8%
8.3%
Production costs
2,786
15.2%
2,148
15.5%
9.7%
Other Costs
800
4.3%
305
1.8%
162.2%
TOTAL
18,408
100%
16,443
100%
12.0%
Marfrig Beef
8,042
43.7%
7,180
43.7%
12.0%
Moy Park
4,886
26.5%
4,256
25.8%
14.8%
Keystone Foods
5,479
29.8%
5,006
30.5%
9.4%
(R$ million)
:: MARFRIG BEEF ::
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The 12.0% increase in cost of goods sold compared to 2013 reflects: (i) the 11.7% growth in the segment's
sales, especially in the Brazil operation; and (ii) the higher fed cattle prices, especially in Brazil, which
increased 25% in relation to the average price in 2013. On the other hand, the temporary closure of three
production units in Argentina over the course of the year due to uncertainties regarding the country’s
political and economic scenario and the improvement at industrial units in Brazil, where capacity utilization
rates at the plants in operation increased, helped mitigate the impacts from higher COGS.
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:: MOY PARK ::
The 14.8% increase in cost of goods sold compared to 2013 reflects: (i) the 14.6% depreciation of the
Brazilian real against the pound sterling in the period; (ii) the organic growth in the segment's sales,
supported by the expansion in retail and food service clients; and (iii) the gradual decline in pressure on raw
material costs due to lower grain prices in relation to the peak levels registered in 2013.
:: KEYSTONE ::
The 9.5% increase in cost of goods sold compared to 2013 was virtually in line with the 9.7% growth in the
operation's sales, despite the depreciation in the Brazilian real against the U.S. dollar The stability in COGS in
relation to the previous years was mainly due to lower grain prices in the United States, operating efficiency
gains in the United States and higher sales in APMEA.
Gross Income and Gross Margin
Gross income increased by 15.4%, from R$2,309.7 million in the year ended December 31, 2013 to R$2,665.2
million in the year ended December 31, 2014.
Of the R$2,665.2 million in gross income, R$1,628.3 million, or 61.1%, was contributed by Marfrig Beef,
R$621.3 million, or 23.3%, was contributed by Moy Park and R$415.6 million, or 15.6%, was contributed by
Keystone.
:: MARFRIG BEEF ::
Gross income increased by 10.3%, from R$1,476.8 million in the year ended December 31, 2013,
representing a 17.1% margin, to R$1,628.3 million in the year ended December 31, 2014, representing a
16.8% margin, or stable on the prior-year period. The gross margin expansion in the period is explained by:
(i) the higher volume of export sales from Brazil, where we were able to significantly pass through the
increase in cattle prices, which helped balance meat supply in the domestic market as well as domestic
prices; (ii) the higher sales volume to the food service channel and to small and midsized retailers, with
better sales prices; (iii) the 9% depreciation of the Brazilian real against the U.S. dollar; and (iv) the excellent
result of the operations in Uruguay, which mitigated and offset the adverse scenario in Argentina.
:: MOY PARK ::
At Moy Park, gross income increased by 32.9%, from R$467.4 million (margin of 9.9%) in the year ended
December 31, 2013 to R$621.3 million (margin of 11.3%) in the year ended December 31, 2014. The gross
margin expansion is explained by: (i) higher sales due to the consolidation of the Marfrig Beef Brazil
operations in Europe; (ii) growth in the retail and food service channels in the United Kingdom and Ireland,
despite the lower exports to both Russia and South Africa; and (iii) lower grain prices.
:: KEYSTONE ::
At Keystone, gross income increased by 13.7%, from R$365.5 million in the year ended December 31, 2013,
representing a 6.8% margin, to R$415.6 million in the year ended December 31, 2014, representing a 7.1%
margin. Gross margin expansion was mainly driven by: (i) the revenue growth of 18.4% in APMEA and 6.9%
in the United States; and (ii) lower grain costs.
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Selling, General and Administrative Expenses (SG&A)
Selling, general and administrative (SG&A) expenses amounted to R$1,464.5 million in the year ended
December 31, 2014, a 7.0% increase from the R$1,368.8 million recorded in the year ended December 31,
2013. In the year ended December 31, 2013, SG&A expenses corresponded to 7.3% of net operating
revenue, compared to 6.9% in the year ended December 31, 2014, primarily due to: (i) the depreciation in
the Brazilian real against the U.S. dollar and pound sterling; and (ii) higher selling expenses. Both effects
were partially offset by the more rigorous control of the line administrative expenses.
Selling expenses increased by 16.1%, from R$805.3 million in the year ended December 31, 2013 to R$935.4
million in the year ended December 31, 2014. The increase in this group of expenses was driven mainly by
the line selling and marketing expenses, which was impacted by higher commissions to the sales team due to
sales volume growth and promotional costs during the 2014 World Cup due to Marfrig's sponsorship.
General and administrative expenses decreased by 6.1%, from R$563.5 million in the year ended December
31, 2013 to R$529.1 million in the year ended December 31, 2014. The reduction is explained by the
initiatives to control expenses, such as downsizing of administrative staff and reduction in travel, office and
third-party service expenses.
Marfrig Beef accounted for 59.4% of total SG&A expenses in the year ended December 31, 2013, compared
to 58.4% in the year ended December 31, 2014. Moy Park accounted for 26.8% of total SG&A expenses in
the year ended December 31, 2013, compared to 31.4% in the year ended December 31, 2014. Keystone
accounted for 13.8% of total SG&A expenses in the year ended December 31, 2013, compared to 10.2% in
the year ended December 31, 2014.
SG&A
2014
2013
Chg. (%)
Selling Expenses
935.4
805.3
16.1%
% of Net Revenue
4.4%
4.3%
+10 bps
General and Administrative Expenses
529.1
563.5
-6.1%
% of Net Revenue
2.5%
3.0%
-50 bps
TOTAL SG&A
1,464.5
1,368.8
7.0%
% of Net Revenue
6.9%
7.3%
-40 bps
Marfrig Beef (%)
6.9%
9.4%
-250 bps
Moy Park (%)
8.8%
7.8%
+ 100 bps
Keystone Foods (%)
2.5%
3.5%
- 100 bps
(R$ million)
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Adjusted EBITDA and Adjusted EBITDA Margin
In 2014, consolidated adjusted EBITDA (earnings before interest, tax, depreciation and amortization)
amounted to R$1,784.3 million, compared to R$1,446.2 million in 2013. Adjusted EBITDA Margin stood at
7.7%, compared to 8.5% in the prior year.
The Marfrig Beef segment accounted for 52.5% of Adjusted EBITDA in the period (55.2% in 2013), Keystone
for 24.5% (23.6% in 2013) and Moy Park for 23.0% (21.2% in 2013).
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ADJUSTED EBITDA RECONCILIATION
2014
2013
Chg. (%)
Adjusted EBITDA
1,784.3
1,446.2
23.4%
(+) Other Operating Income/Expenses:
(98.4)
(65.0)
-51.5%
EBITDA
1,685.9
1,381.2
22.1%
(+) Equity Income
(17.8)
(9.1)
-95.4%
(+) Depreciation/Amortization
(583.7)
(505.4)
-15.5%
(+) Net Financial Charges
(1,676.0)
(1,441.1)
-16.3%
(+) Net Exchange Variation
(450.8)
(589.9)
23.6%
(+) Non-controlling interest
(19.2)
(12.9)
-49.2%
(+) Provision for income and social contribution taxes
322.0
361.3
-10.9%
Net Income
(739.5)
(815.9)
9.4%
(R$ million)
:: MARFRIG BEEF ::
The 50 bps increase in Adjusted EBITDA margin was due to: (i) the higher share of exports, driven by the
BRL/USD exchange rate; and (ii) the reductions in costs and general and administrative expenses generated
by the “Productivity Agenda” program in Brazil, which were partially offset by: (iii) the pressure on fed cattle
prices, which surpassed the average price recorded in 2014 in both Brazil and Uruguay; (iv) the oversupply of
beef products in the domestic and international markets at the start of the year, which made it difficult to
pass through cost increases to prices; and (v) the temporary closure of three production units in Argentina
due to the political and economic uncertainties in that market, which led to lower sales volumes.
:: MOY PARK ::
The 90 bps improvement in Adjusted EBITDA margin is explained by: (i) higher sales; (ii) higher dilution of
fixed costs; (iii) the better sales mix resulting from higher penetration in food service clients; (iv) the higher
contribution from more profitable sales channels; and (v) the reduction in costs with soybean and wheat
during the year.
:: KEYSTONE ::
The 100 bps increase in adjusted EBITDA margin was mainly driven by the reduction in administrative
expenses, combined with higher sales in APMEA and the United States and lower gain prices during the
period.
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RECONCILIATION OF DISCONTINUED OPERATIONS
2014
2013
EBITDA from continuing and discontinued operations
1,685.9
2,373.8
(-) Effect from discontinued operations
0.0
992.6
EBITDA from continuing operations
1,685.9
1,381.2
(R$ million)
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Financial result
The net financial result in the year ended December 31, 2014 was a net expense of R$2,126.8 million,
compared to a net expense of R$2,031.0 million in the fiscal year ended December 31, 2013.
The 4.7% increase in the financial result in the year was driven mainly by (i) the Company participating in the
REFIS tax amnesty program in August, which led to an expense with interest and accumulated fine through
the close of the year of R$117.4 million; and (ii) the realization of deferred costs from the issue of bonds
repurchased in connection with a liability management plan executed throughout 2014.
Exchange variation in the year, which has no cash impact, was a loss of R$451 million, compared to a loss of
R$590 million in 2013, which is explained by the average appreciation in the U.S. dollar against the Brazilian
real in the period of 15.9%.
NET FINANCIAL RESULT (in R$ million)
2014
2013
Chg. (%)
Financial Income
294
365
-19.3%
Interest Income
173
178
-3.2%
Financial income (loss) from derivatives
98
180
-45.2%
Other
23
7
-244.7%
Financial Expenses
(1,971)
(1,806)
9.1%
Interest Expenses / Debentures / Leasing
(1,174)
(1,272)
-7.7%
Financial income (loss) from derivatives
(288)
(302)
-4.5%
Bank fees, commissions, financial discounts and other
(509)
(232)
118.9%
Net Exchange Variation
(451)
(590)
-23.6%
43%
The Officers inform that the Corporation does not enter into speculative transactions involving derivatives or
similar instruments. Transactions originally contracted with currency swap (mainly involving BRL and USD)
seek to provide minimal protection against the Corporation’s exposure to other currencies, interest rates
and commodity prices. The Corporation also maintains a conservative policy of not undertaking positions
that could adversely affect its financial position.
Net income/loss
The Company posted a net loss for the year of R$739 million, or 9% lower than the net loss of R$816 million
in 2013. The decrease is mainly driven by the depreciation in the Brazilian real against the U.S. dollar and
Sterling pound during the period.
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Net margin in the year ended December 31, 2014 was negative 3.5%, compared to negative 4.4% in the year
ended December 31, 2013. The main factor contributing to the net loss in the year ended December 31,
2014 was the depreciation in the Brazilian real against the U.S. dollar and Sterling pound during the period.
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Comparative analysis of the Income Statements for the fiscal years ended December 31, 2013 and 2012
Net Operating Revenue
Net revenue grew 14% in 2013 to R$18.75 billion, compared to R$16.52 billion in 2012, which is explained by
the 14% increase in the average sales price combined with sales volume remaining virtually stable in relation
to 2012.
The Marfrig Beef business segment accounted for 46% of consolidated revenue, in line with its contribution
in 2012, while Keystone accounted for 29% (30% in 2012) and Moy Park for the remaining 25% of revenue
(24% in 2012).
Revenue growth was driven by the solid performance of all business segments, with the highlights including:
(i) the growth of 18% at Moy Park, with sales growth in both the food service and retail segments in the
United Kingdom and Continental Europe; (ii) the 14% growth at Marfrig Beef due to the higher exports from
Brazil and the sales to the domestic food service market, which more than offset the unfavorable conditions
faced by the international operations; (ii) the growth of 10% at Keystone, which, despite suffering effects
from the reported cases of avian influenza in Asia, continued to grow its sales in the United States,
supported by a more diversified client base; and (iv) the effects from the appreciation in the average U.S.
dollar/Brazilian Real exchange rate in the period.
The following table presents details on net revenue by segment:
Period ended December
31
2013
2012
(in R$ million)
Marfrig Beef
Marfrig Beef - Brazil
6,626.4
5,490.8
Domestic Market
4,029.5
3,560.9
Export Market
2,596.9
1,929.9
Marfrig Beef - International Operations (Argentina, Uruguay and Chile)
2,030.9
2,136.5
Domestic Market
1,126.4
1,253.5
Export Market
904.5
883.0
Total—Marfrig Beef
8,657.2
7,627.3
Domestic Market
4,089.4
3,472.0
Export Market
634.0
533.9
Moy Park
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Period ended December
31
2013
2012
(in R$ million)
Total—Moy Park
4,723.4
4,005.8
United States
4,060.3
3,650.4
APMEA (Asia Pacific, Middle East and Africa)
1,311.4
1,232.8
Total—Keystone
5,371.7
4,883.2
Domestic Market
13,305.6
11,936.8
Exports
5,448.8
4,579.6
Total Marfrig Consolidated
18,752.4
16,516.4
Keystone
Total – Marfrig Consolidated
Comments on the changes in our net revenue by segment (as per the above table) follow:
Marfrig Beef
Beef - Brazil
Domestic sales in Brazil grew 13% in 2013 to R$4,029 million, compared to R$3,561 million in 2012. This
performance was due to the 7% growth in sales volume and the 5% increase in the average sales price,
which are explained by: (i) the increased focus on the food service segment, which, even with the transfer of
the Seara assets, continued to account for approximately 40% of domestic sales; and (ii) the improvement in
the client mix in the retail channel, with a higher share of small and midsized businesses, with this
positioning enabling us to mitigate the negative effects caused by the oversupply of beef in the channel that
pressured prices, especially in the first half of the year.
Exports from Brazil advanced 35% in 2013 to R$2,597 million, from R$1,930 million in 2012. The
performance was due to the 25% growth in sales volume and the 8% increase in the average sales price,
which were driven by: (i) the recovery in consumption in key markets in the Middle East, Europe and Asia;
and (ii) the more competitive prices in Brazilian Real due to the 15.9% appreciation in the U.S. dollar against
the Brazilian Real in the period.
Beef - International Operations (Argentina, Uruguay and Chile)
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Revenue from the international operations decreased 5% in 2013 to R$2,031 million, compared to R$2,137
million in 2012. This performance was due to 14% decrease in sales volume, which was mitigated by the 11%
increase in the average sales price practiced in the period. In view of the growing challenges and
uncertainties in the Argentine market, the Corporation opted to reduce its exposure to the country and close
temporarily two production units at the start of the year, which made a significant contribution to the
reduction in sales volume compared to 2012. In Uruguay, after a challenging year, with pressure on cattle
prices and reductions in supply, the scenario showed gradual signs of recovery over the year, accompanied
by increases in the average export price.
Moy Park
Moy Park’s revenue from domestic sales in the United Kingdom advanced by 18% in 2013 to R$4,089 million,
compared to R$3,472 million in 2012. This performance was due to the 4% growth in sales volume and the
13% increase in the average sales price, which were driven by: (i) the growth in the agri-fresh segment due
to the entry of new clients and the growth of the overall market; (ii) the continued strong growth in both the
retail and food service channels; and (iii) the 15.2% appreciation in the pound sterling against the Brazilian
Real, which had a positive impact on the currency translation of revenues.
Moy Park’s export revenues grew by 19% in 2013 to R$634 million, compared to R$534 million in 2012. This
performance is explained the 3% growth in sales volume and the 16% increase in the average sales price,
which were driven by the change in the export product mix, with an increased share of higher-value
processed products and exchange variation in the period.
Keystone Foods
Keystone’s revenues from its operations in the United States grew by 11% in 2013, to R$4,060 million,
compared to R$3,650 million in 2012. This performance was due to the 6% reduction in sales volume, which
was offset by the 18% increase in the average sales price practiced, which are explained by: (i) the change in
the sales mix of the main client, with lower sales of beef-based products due to the discontinuation of the
Angus line, with this reduction partially offset by the entry of new chicken-based products; (ii) the reduction
in promotional activities at the main clients compared to 2012, which was partially offset by higher sales to
new clients; and (iii) the depreciation in the Brazilian Real against the U.S. dollar, which had a positive impact
on the currency translation of revenues and on the average price.
Revenue from Keystone's operations in Asia and the Middle East amounted to R$1,311 million in 2013. Due
to the accounting adjustment implemented to comply with IFRS 11 – Joint Arrangements (CPC 19 – R2), the
joint venture established in China (Shandong Mckey Chinwhiz Foods Co. Ld.), which previously was
accounted for based on proportionate consolidation, began, in 2013, to be accounted for using the equity
method. Although this change is irrelevant at the consolidated level of the group, the comparisons of
volumes and revenues in Keystone's operations in Asia and the Middle East suffered distortions and are not
comparable with 2012.
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From the operational standpoint, the reported cases of avian influenza affected the business in China by
reducing sales volume in the country's domestic market as well as exports to Japan. On the other hand, this
effect was partially offset by higher sales to Korea, Malaysia, Thailand, the Middle East and Singapore.
Cost of Goods Sold (COGS)
Cost of Goods Sold increased 16%, from R$14.15 billion in 2012 to R$16.44 billion in 2013, in line with the
Corporation's organic growth (14% higher net revenue). The increase in COGS was also influenced by the
19% increase in expenses with raw materials (grains, livestock and other inputs), the increase of 11% in labor
costs and of 5% in production costs (energy, packaging, indirect costs and other).
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The Marfrig Beef business segment increased its share in COGS from 42% to 44% in 2013, while Moy Park
remained stable at 26% and Keystone reduced its share from 32% to 30%. The higher shares in COGS of the
Marfrig Beef operation is explained mostly by the increase in cattle costs in 2013, but also by increases in
other cost lines. The item raw materials was the main component of COGS in 2013, accounting for 74% of
the total, compared to 72% in 2012. Labor accounted for 13% of total COGS in 2013, compared to 14% in
2012, while the share of production costs decreased from 15% to 13% in the period, which is explained by
improvements in production processes and the automation of lines.
The following table provides a breakdown of cost of goods sold:
COGS
2013
Share (%)
2012
Share (%)
Change (%)
Raw materials
12,104
74%
10,133
72%
+19%
Labor
2,192
13%
1,968
14%
+11%
Production costs
2,148
13%
2,053
15%
+5%
TOTAL
16,443
100%
14,154
100%
+16%
Marfrig Beef
7,180
44%
5,969
42%
+20%
Moy Park
4,256
26%
3,657
26%
+16%
Keystone Foods
5,006
30%
4,528
32%
+11%
(R$ million)
The item raw materials, which includes animals and feed (grains), continued to be the main component of
cost of goods sold, corresponding to 74% of this cost in the twelve-month period ended December 31, 2013,
compared to 72% in the twelve-month period ended December 31, 2012.
Gross Income and Gross Margin
In 2013, Gross Income amounted to R$2.31 billion, slightly lower from R$2.36 billion in 2012. The Marfrig
Beef segment accounted for 64% of total gross income the period (70% in 2012), while Moy Park accounted
for 20% (vs. 15% in 2012) and Keystone for 16% (vs. 15% in 2012).
Gross Margin contracted by 200 bps, from 14.3% in 2012 to 12.3% in 2013, explained by the decreases in
gross margin of 460 bps in the Marfrig Beef segment and 50 bps in the Keystone segment, which were
partially offset by the 120 bps gross margin expansion in the Moy Park segment.
Selling, General and Administrative Expenses (SG&A)
In 2013, SG&A expenses amounted to R$1.37 billion, increasing 5% on the prior year and lagging the net
revenue growth in the period of 13.5%, demonstrating our strong commitment to reduce SG&A expenses.
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The Marfrig Beef segment accounted for 59% of total SG&A expenses in the period (63% in 2012), while Moy
Park accounted for 27% (vs. 22% in 2012) and Keystone for 14% (vs. 15% in 2012).
The higher selling, logistics and marketing expenses required to support the organic growth of the business
were offset by higher sales and rigorous control of expenses, which led to a 60 bps reduction in SG&A
expenses as a ratio of net revenue, from 7.9% in 2012 to 7.3% in 2013.
Selling expenses amounted to R$805 million and accounted for 4.3% of NOR, with this ratio remaining
virtually stable in relation to 4.2% of NOR in 2012. General and administrative expenses came to R$563
million, accounting for 3.0% of NOR, or 70 bps lower than in 2012.
Adjusted EBITDA and Adjusted EBITDA MARGIN
In 2013, Marfrig’s consolidated Adjusted EBITDA (earnings before interest tax, depreciation and
amortization) came to R$1,446 million, compared to R$1,505 million in 2012. Adjusted EBITDA margin stood
at 7.7%, compared to 9.1% in the prior year.
The Marfrig Beef segment accounted for 55% of period Adjusted EBITDA (64% in 2012), Keystone for 24%
(20% in 2012) and Moy Park for 21% (16% in 2012).
Net Financial Result
In 2013, the financial result excluding the effects from exchange variation was an expense of R$1.44 billion,
increasing 35% from the R$1.07 billion expense recorded in 2012, due to the increase in interest expenses
on borrowings, the higher net loss from derivative instruments and the higher financial discounts offered.
Exchange variation in the year, which has no cash impact, was a loss of R$590 million, compared to a loss of
R$350 million in 2012, which is explained by the 15.9% appreciation in the U.S. dollar against the Brazilian
Real in the period.
The following table provides the breakdown of financial results:
NET FINANCIAL RESULT
2013
2012
Change (%)
Financial Income
365
340
8%
Interest income
178
213
-16%
Financial income (loss) from derivatives
180
108
67%
Other
7
18
-61%
Financial Expenses
(1,806)
(1,407)
28%
Interest expenses / Debentures / Leasing
(1,272)
(1,166)
9%
Financial income (loss) from derivatives
(302)
(108)
180%
(R$ million)
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Bank fees, commissions, financial discounts and other
(232)
(133)
74%
Net Exchange Variation
(590)
(350)
69%
Net Financial Result
(2,031)
(1,418)
43%
The Officers inform that the Corporation does not enter into speculative transactions involving derivatives or
similar instruments. Transactions involving derivative instruments seek to provide minimal protection
against the Corporation’s exposure to other currencies, interest rates and commodity prices. The
Corporation also maintains a conservative policy of not undertaking positions that could adversely affect its
financial position.
Net Income/Loss and Net Margin
The Corporation posted a net loss for the year of R$816 million, compared to net income of R$264 million in
2012. The negative result in 2013 was due to: (i) the noncash exchange variation loss of approximately
R$590.0 million resulting from the depreciation in the Brazilian Real against the U.S. dollar; and (ii) the
nonrecurring loss from derivative operations, which, although transferred when the Seara and Zenda
operations were divested, still impacted the result in 2013.
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Comparative analysis of the Income Statements for the fiscal years ended December 31, 2012 and 2011
Net Operating Revenue
Net operating revenue increased 12.9% in the year ended December 31, 2012 compared to the same period
in 2011, from R$21,014.1 million to R$23,726.4 million. The Corporation’s executive officers inform the
increase was driven mainly by: improvement in the product mix at Seara Foods (with an increase in the share
of higher-value products), the incorporation of the new assets received from BRF, which had a partial impact
on the third quarter, the positive operational performance of Marfrig Beef, which benefitted from the
improvement in the cattle production cycle in Brazil and from the increase in foreign exchange gains of
approximately 14.3% between the periods.
The table below shows the breakdown of net revenue by segment:
Year ended December 31,
2012
2011
(in R$ million)
Beef — Brazil
4,390.2
4,251.4
Domestic Market
2,746.7
2,848.8
Exports
1,643.5
1,402.6
Beef — International
1,839.4
1,924.9
Domestic Market
1,046.2
1,096.5
Exports
793.2
828.4
Lamb, Leather and Other
1,522.7
1,471.3
Total – Marfrig Beef - Beef, lamb, leather and other
7,752.3
7,647.6
Poultry and pork - Brazil
6,920.7
5,910.2
Domestic Market
3,107.1
1,926.0
Exports
3,813.6
3,984.2
Poultry and Pork — International
8,462.4
7,037.4
Domestic Market
7,502.3
6,280.4
Exports
960.1
757.0
Other products
591.0
281.7
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Year ended December 31,
2012
2011
(in R$ million)
Discontinued operations
-
137.3
Total - Seara Foods - Poultry, pork and prepared and processed
products
15,974.1
13,366.5
Total
21,014.1
23,726.4
Marfrig Beef
Beef — Brazil
In the domestic market, net revenue decreased 4.2%, from R$3,475.9 million in the period ended December
31, 2011 to R$3,331.3 million in the period ended December 31, 2012. The executive officers believe such
decrease was due to the temporary shutdown of seven plants in the previous year to optimize the industrial
facilities of Marfrig Beef’s operations.
In the export market, net revenue increased by 19.1% from R$1,616.6 million in the period ended December
31, 2011 to R$1,925.9 million in the period ended December 31, 2012. According to the executive officers,
such increase was due to the gradual recovery in importing markets.
Beef — International Operations (Argentina and Uruguay)
In the domestic market, net revenue decreased from R$1,309.7 million in the period ended December 31,
2011, to R$1,241.4 million in the period ended December 31, 2012.
In the export market, net revenue remained stable from R$1,245.4 million in the period ended December 31,
2011 to R$1,253.5 million in the period ended December 31, 2012. According to the executive officers, this
increase was due to the 14.3% appreciation of the U.S. dollar between the periods and the increase in
average export prices of approximately 41.0%.
Lamb, leather and other products
Revenue from lamb, leather and other products increased by 10.4%, from R$416.9 million in the period
ended December 31, 2011 to R$460.3 million in the period ended December 31, 2012.
Seara Foods
Poultry and pork – Brazil
In the domestic market, net revenue increased by 56.9% from R$2,117.6 million in the period ended
December 31, 2011 to R$3,323.0 million in the period ended December 31, 2012. The executive officers
believe that the increase was due to (i) the incorporation of new assets at the Seara Brasil operations; (iii)
the average price increase at Seara Brasil of approximately 20% in the domestic operations and 23.5% in the
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international operations; (iii) the higher contribution to net revenue from higher-value products, which
reached 71.0% in the period ended December 31, 2012, compared to 70.0% the previous year; and (iv) the
appreciation of the U.S. dollar against the Brazilian real of 14.3% between the periods.
In the export market, net revenue decreased by 4.3% from R$3,984.2 million in the period ended December
31, 2011 to R$3,813.6 million in the period ended December 31, 2012. According to the executive officers,
the reduction was due to the improvement in the sales mix, with an increased share of higher-value
products in the domestic market, which have higher margins and prices, compared to products sold to the
export market, which have lower value added, and to the increase in the price of the main raw materials
(grains), which impacted export prices.
Poultry and Pork — International Operations
In the domestic market, net revenue increased by 21.0%, from R$6,507.8 million in the period ended
December 31, 2011 to R$7,877.5 million in the period ended December 31, 2012. The executive officers
believe this increase was due to: (i) the improved currency translation of revenues from foreign operations
and the 14.3% appreciation of the U.S. dollar against the Brazilian real between the periods; and (ii) the
increase in average prices in the period.
In the export market, net revenue increased by 26.8%, from R$757.0 million in the period ended December
31, 2011 to R$960.1 million in the period ended December 31, 2012. The executive officers inform that the
increase was due to (i) the appreciation of the U.S. dollar against the Brazilian real by 14.3% between the
periods; and (ii) the increase in average prices in the period.
Other products
Revenue from other products, which basically include byproducts, offals, live hogs, scrap, breeders, bone
meal and others, increased by 109.8%, from R$281.7 million in the period ended December 31, 2011 to
R$591.0 million in the period ended December 31, 2012. The executive officers believe such increase was
due to the sale of the Keystone logistics assets in the second quarter of 2012, previously classified as “other
products”.
Cost of Goods Sold (COGS)
Cost of goods sold increased by 11.8% from R$(18,032.3) million in the period ended December 31, 2011 to
R$(20,167.2) million in the period ended December 31, 2012. The Corporation’s executive officers believe
this increase was caused by the higher costs with raw materials (grains and meals) in the period, as well as
by the organic growth of the Group’s operations.
The following table shows the breakdown of the cost of goods sold:
Cost of Goods Sold
Year ended December 31
2012
%
2011
%
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(in R$ million)
(in R$ million)
Raw Materials
13,633.4
71.6%
11,783.3
65.3%
Packaging
789.6
3.5%
721.2
4.0%
Electricity
175.6
0.7%
142.8
0.8%
Direct expenses and direct labor
4,749.5
21.1%
4,536.6
25.2%
Indirect expenses and outsourced services
819.1
3.1%
848.5
4.7%
Total
20,167.2
100.0%
18,032.4
100.0%
The item raw material, which includes animals and feed (grains), continued to be the main component of
cost of goods sold, corresponding to 71.6% of this cost in the period ended December 31, 2012, compared to
65.3% in the period ended December 31, 2011.
The Marfrig Beef segment accounted for 30.1% of cost of goods sold, or R$(6,073.2) million, while Seara
Foods accounted for 69.9% of such cost, or R$(14,094.0) million. Within the Marfrig Beef segment, cattlerelated costs represented 89.4% of cost of goods sold, while grains, meal, adult chicken and pork carcass
corresponded to approximately 61.8% of the total for the Seara foods segment.
Gross Income and Gross Margin
Gross income came to R$3,559.2 million in the period ended December 31, 2012, increasing 19.4% from
R$2,981.8 million in the same period of 2011. As a percentage of net operating revenue, gross income
represented 15.0% in the period ended December 31, 2012, compared to 14.2% in the same period in 2011.
According to the executive officers, the Corporation continues to focus on optimizing its product mix by
increasing the share of processed products, which have higher value added and should reduce the volatility
of the margin. In addition, a series of initiatives were implemented in the last four quarters to improve
operations, including the improvement to the Corporation’s industrial facilities, with dilution of fixed costs at
the plants and optimization of raw material purchases. The executive officers believe that, combined with
the corporate restructuring, these initiatives should generate sustainable margins in the medium and long
terms.
SG&A (Selling, general and administrative expenses)
SG&A expenses (selling, general and administrative expenses, excluding other operating income and
expenses) totaled R$2,520.7 million in the period ended December 31, 2012, compared to R$2,169.9 million
in the same period of 2011, for an increase of 16.2%, driven, according to the executive officers, by the
expansion of the Corporation’s operating activities with the start of operations of the assets obtained from
BRF, which were integrated as of the third quarter of 2012.
SG&A expenses corresponded to 10.6% of the net revenue in the period ended on December 31, 2012, an
increase of 30 bps from the 10.3% of the net revenue in 2012.
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Other operating income and expenses include a gain of R$123.1 million from the asset swap and other
covenants with BRF, as per Note 12.3.
EBITDA and EBITDA Margin
The Corporation recorded EBITDA of R$2,134.0 million in the period ended on December 31, 2012,
compared to EBITDA of R$1,773.8 million in the same period of 2011. As a percentage of net operating
revenue, EBITDA represented 9.0% in the period ended December 31, 2012, compared to 8.4% in the same
period of 2011.
Financial Result
The Corporation registered a net financial loss of R$2,081.4 million in the period ended December 31, 2012,
compared to a net financial loss of R$2,300.7 million in the same period of 2011.
A breakdown of the financial result is presented below:
Financial Result
Year ended December 31
2012
2011
(in R$ million)
2012 vs. 2011
(%)
Financial Income
316.6
397.7
-20.39%
Financial income from derivatives
143.3
122.2
17.27%
Interests received, income from
financial investments
152.7
248.7
-38.62%
Discounts, other
20.6
26.7
-22.89%
Total Financial Income
842.2
962.5
-12.50%
Exchange gain
525.6
564.8
-6.95%
Financial Expenses
(1,859.6)
(1,917.8)
-3.03%
Interest
(1,004.0)
(965.3)
4.02%
Interest on Debentures.
(329.9)
(401.9)
-17.91%
Interest on leasing
(21.7)
(26.5)
-18.25%
Derivatives
(182.8)
(379.6)
-51.85%
Expenses, commissions, bank fees
(250.7)
(107.2)
133.90%
Other
(70.5)
(37.3)
88.85%
Total financial expenses
(2,923.6)
(3,263.2)
-10.41%
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Financial Result
Year ended December 31
2012
2011
(in R$ million)
2012 vs. 2011
(%)
Exchange loss
(1,063.9)
(1,345.4)
-20.92%
Net financial result
(2,081.4)
(2,300.7)
-9.53%
The executive officers inform that the Corporation does not carry out speculative operations involving
derivatives or similar instruments. Derivatives operations aim to provide a minimum hedge against the
Corporation’s exposure to foreign currencies, interest rates and commodity prices. The Corporation also
maintains a conservative policy of not undertaking positions that could hinder its financial position.
Net Income/Loss and Net Margin
The Corporation recorded net loss of R$223.9 million in the period ended on December 31, 2012, compared
to a net loss of R$746.0 million in the same period of 2011.
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10.2 Comments of the Executive Officers on the operating and financial results
(a) Results of the operations of the Corporation
(i) Description of any important revenue components
According to the Executive Officers of the Corporation, the supporting foundation of its revenues and,
consequently its operations, in the fiscal years ended December 31, 2012, 2013 and 2014 is the sale of fresh,
value-added (processed and processed) beef, pork, lamb and poultry products to clients in Brazil and abroad,
as well as from the distribution of food products (fresh and processed meats, frozen pre-cooked potatoes,
vegetables, fish, ready-to-eat meals and pastas) and other items used in quick restaurant service chains, such
as soft drinks, cups, napkins, straws, packaging, etc.
The revenues derive both from the domestic markets in which we have operations and from exports to over
110 countries.
(ii) Factors that materially affect the operating results
The Executive Officers believe that various factors on both the supply and demand sides directly affect our
results and profitability.
On the supply side, these factors include the availability and price of the raw materials to which we have
exposure, which include cattle and grains in the countries where we concentrate production operations. The
low availability of raw materials could increase our acquisition costs and subsequently compromise our
margins if we are unable to pass through these cost increases to the prices of our final products.
On the demand side, one example is a global economic crisis in which employment levels contract and
consequently impact the disposable income and consumption of households related to food, which could
significantly impact our operations.
According to the Executive Officers, another example of a factor that could impact our results is foreign
exchange volatility, given that a significant portion of our sales are originated in other currencies, such as the
U.S. dollar, pound sterling, euro, yuan, Argentine peso and Uruguayan peso.
The Executive Officers inform that disease outbreaks in animals may lead to trade and sanitary barriers by
other countries and consequently our access to international markets and our sales.
Below we comment more on the main items that could affect our results:
GDP growth in countries where we have operations and the demand for our products
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The Executive Officers believe that growth in foods and animal-protein consumption is directly linked to
population and income growth. The performance of GDP in the countries where we sell our products could
adversely affect our operating results.
Effects from fluctuations in the prices of raw materials (cattle and grains)
The Executive Officers believe that the main component of our production costs is the purchase of raw
materials, which includes the purchase of animals (cattle, poultry and hogs) and inputs for animal feed
(grains). Any fluctuations in grain and cattle prices in the domestic and export markets in which we operate
significantly affect our net operating revenue and cost of goods sold. However, we do not control these
prices, which fluctuate in accordance with supply and demand.
Sales prices in domestic and export markets
According to the Executive Officers, the prices of our products in the domestic and exports markets where
we operate are generally established by the market conditions, over which we have no control. Our prices in
the domestic market are also affected by the prices we are able to charge our various wholesale and retail
customers that resell our products.
Impacts from foreign exchange volatility
Our operating results and financial situation have been and will continue to be affected by volatility in the
currencies with which we operate. A good portion of our revenues are originated in currencies other than
the Brazilian real. Furthermore, we hold a part of our debt in U.S. dollar that requires us to pay principal and
interest in this currency.
The Executive Officers inform that exports, which allow us to generate receivables in foreign currency, tend
to have approximately the same share of foreign currencies as our debt, which gives us a so-called “natural
hedge” on the portion of our dollar-denominated debt-service obligations.
According to the Executive Officers, inflation and anti-inflation measures adopted by the governments of
countries where we operate could have considerable impacts on the economies of these countries and
consequently on our business. Inflationary pressures may lead to intervention by governments in the
economy, including the implementation of government policies that could have adverse impacts on us and
our clients. Additionally, if we face high inflation rates in the countries where we operate, we may not be
able to sufficiently increase our product prices to offset the inflationary impacts on our cost structure, which
could adversely affect our results.
(b) Revenue variations attributable to changes in prices, exchange rates, inflation, volumes and the launch of
new products and services
As mentioned above, according to the Executive Officers, several factors influence the revenues of the
Corporation. In the period ended December 31, 2014, the Executive Officers opine that the revenues of the
Corporation were impacted mainly due to:
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Foreign exchange volatility: Foreign exchange volatility impacts our results. A considerable part of Brazil’s
exports are denominated in U.S. dollar and a significant part of our revenues is denominated in pound
sterling. Furthermore, we hold debt in U.S. dollar that obliges us to pay principal and interest in this
currency. A good portion of our dollar-denominated debt is pegged to currency variation plus a fixed rate.
In 2014, revenue growth was driven by the good performance of all business segments, with the highlights
including:
growth of 16.6% in net operating revenue at Moy Park, due to (a) strong sales volume growth in fresh
poultry and convenience coated products across the retail & food service channels in the United Kingdom
and Ireland, which is a very positive performance in the challenging UK retail market; (b) the consolidation
into Moy Park of Marfrig’s beef business; and (c) the positive impact from the exchange variation of 14.6%;
the increase of 11.7% in net operating revenue at Marfrig Beef, driven by higher exports from Brazil (up
13.6% on 2013), by the excellent result posted by the operations in Uruguay, which offset most of the
adverse conditions impacting the operations in Argentina, and by the improvement in fresh meat sales
volume to the food service segment in the domestic market;
the increase of 9.7% in net operating revenue at Keystone, reflecting the higher sales volume at the
operations in APMEA (up 10.1% on 2013) fueled by (i) the higher purchasing power of the region’s middle
class driven by wage growth, which supported higher consumption at restaurants and fast food chains; and
(ii) the greater diversification of the local client base.
Net operating revenue increased by 12.4%, from R$18,752.4 million in the year ended December 31, 2013 to
R$21,073.3 million in the year ended December 31, 2014, which is explained by the 7.3% increase in sales
volume and the 4.7% increase in average prices. In the period, the Brazilian real registered depreciation of
9% against the U.S. dollar.
In 2013, revenue growth was driven by the healthy performance of all business segments, with the highlights
including: (i) the growth of 18% at Moy Park, with sales growth in both the food service and retail segments
in the United Kingdom and continental Europe; (ii) the 14% growth at Marfrig Beef, which is explained by
higher exports from Brazil driven by local-currency depreciation and by stronger sales to the domestic food
service market, which more than offset the unfavorable conditions faced by the international operations; (iii)
the growth of 10% at Keystone, which, despite suffering effects from avian influenza in China, continued to
grow its sales in the United States supported by a more diversified client base; and (iv) the effects from the
appreciation in the average price of the U.S. dollar against the Brazilian real.
Net operating revenue increased 12.9% in 2012 to R$23,726.4 million, from R$21,014.1 million in 2011. The
Management of the Corporation notes that this increase was mainly driven by: (i) the 14.8% increase in the
average sales price, which is explained by the better product mix at Seara Foods (with the share of highervalue products increasing from 54.7% in 2011 to 58.6% in 2012); (ii) the start of operations at the new assets
received from BRF, which only partially impacted the results of the third and fourth quarters, since they
were still in the ramp-up period; (iii) the new food service clients, with higher volumes and average prices at
Keystone Foods; (iv) the higher volumes sold to retail chains in continental Europe through Moy Park, which
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also benefited from the difficulties faced by other companies in the industry in the region; (v) the increase in
average prices at Marfrig Beef; and (vi) the 14.3% depreciation in the Brazilian real against the U.S. dollar in
the year.
(c) Impact of inflation, variations in the main input and product prices and foreign exchange and interest
rates on the operational and financial results of the issuer
The Executive Officers believe that the prices of food products made from animal proteins in Brazil suffered
inflationary impacts, driven, among other reasons, by the higher costs of raw materials (mainly grains and
cattle) and on the other hand by the higher household income and consumption levels in Brazil (robust
demand).
In 2014, cost of goods sold increased 12.0%, mainly due to: (i) the 9.1% increase in expenses related to raw
materials (finished and live cattle), with the fed cattle price increasing by almost 25%, according to the
ESALQ index (index that measures the fluctuation of cattle prices in the state of São Paulo, Brazil); (ii) the
8.3% increase in labor costs; and (iii) the 9.7% increase in production costs, such as electricity, packaging and
other indirect costs.
In 2013, the decrease of 460 bps in the operation's gross margin was due to the increase in the volume of
cattle slaughtered in the industry, especially in the first half of the year in both Brazil and Uruguay. The
increase pressured prices for finished cattle, with producers retaining herds and reducing the supply of
finished cattle, which led to higher prices in relation to the prior year. The higher supply of beef in both the
domestic and international markets made it more difficult to pass through the higher costs to retail prices,
which weighed on profitability.
The 340 bps decrease in Adjusted EBITDA margin was due to (i) the pressure on finished cattle prices, which
surpassed the average price recorded in 2012 in both Brazil and Uruguay; (ii) the oversupply of beef in the
domestic and international markets at the start of the year, which made it difficult to pass through cost
increases to sales prices; and (iii) the temporarily closure of two production units in Argentina due to the
political and economic uncertainties in that market, which led to lower sales volumes.
In 2012, despite the sharp increase in grain costs, the Corporation managed to grow its gross income due to
the series of strategic actions implemented over the course of the year that enabled it to achieve more
sustainable and less volatile margins. These measures included: (i) the continued increase in the penetration
of the brand’s processed/prepared products in the production mix; (ii) the better pricing of processed
products under the Seara brand, with an average price increase of 19.6% in the year; (iii) the good
performance of the Marfrig Beef operations, which increased profitability by improving the management of
sales channel and optimizing industrial facilities by adjusting slaughter capacity and utilization to the better
phase of the cattle cycle in Brazil; (iv) the development of more profitable sales channels (small and midsized
retailers) in Brazil driven by the accelerated growth of the client base; and (v) the improvement of industrial
facilities, which enabled a greater dilution of fixed costs.
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10.3 Actual or expected events with material effects on the financial statements
(a) Introduction or disposal of an operational segment
The Officers inform that, in the twelve-month period ended December 31, 2014, there was no change in the
Corporation’s operating segment that could be characterized as divestment or addition of a cash-generating
unit.
(b) Constitution, acquisition or disposal of stockholdings
Divestment of ownership interests to JBS S.A.
The Officers inform that, on June 30, 2013, the Corporation concluded the sale of the ownership interest
held in Columbus Netherlands BV, which holds a controlling interest in the leather business of the Marfrig
Group in Uruguay (Zenda), with the control of said company effectively transferred to JBS on that date. The
Corporation also concluded the sale of its ownership interest in the following entities: Pine Point
Participações Ltda., a company incorporated for the purposes of conducting a corporate reorganization of
the following companies: União Frederiquense Participação Ltda. Secculum Participação Ltda. Babicora
Holding Participações Ltda. Seara Alimentos S.A. Athena Alimentos S.A. Seara Holding (Europe) BV. Excelsior
Alimentos S.A. and Baumhardt Comércio e Participações Ltda. As a result, the Corporation transferred
control of these companies to JBS on that date. The transaction price was initially set at R$5.85 billion and
was paid via the assumption of Marfrig’s debt by JBS.
Asset swap between Brasil Foods and Marfrig
The Executive Officers inform that the Corporation concluded on June 11, 2012, the asset swap operation
between BRF – Brasil Foods S.A. (“BRF”) and Sadia S.A. (“Sadia”) by which it acquired a business that had the
following assets: (a) all the shares in Athena Alimentos S.A., which houses the main plants and distribution
centers transferred as part of the transaction; (b) direct and indirect interest of 64.57% in Excelsior
Alimentos S.A. (c) and the shares in Baumhardt Comércio e Participação Ltda. In return, Marfrig transferred
to BRF its entire interest in Quickfood S.A. plus cash R$350 million.
The swap operation with BRF was recorded in the Quarterly Financial Information report (ITR) of the second
quarter of 2012. In the fourth quarter of 2012, the Corporation concluded the allocation of the fair value of
the assets and liabilities received in the transaction, as per CPC 15 (R1) – Business Combination, based on the
report of external advisors.
Partial sale of the logistics assets of Keystone to Martin-Brower
The Executive Officers informed that on April 30, 2012, the Corporation concluded the partial sale of the
specialized logistics operations of its subsidiary Keystone Foods LLC (“Keystone”) to the fast food chain
company The Martin-Brower Company, LLC.
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Since this sale resulted in the write-off of a business unit of Keystone, all gains and losses generated by the
transaction are stated in the income statement of discontinued operations of the Corporation.
(c) Atypical events or transactions
The Executive Officers inform that there were no atypical or unusual events or transactions involving the
Corporation or its activities during the fiscal years ended on December 31, 2012, 2013 and 2014, that caused
or are expected to cause material impacts on the financial statements or results of our Corporation.
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10.4 Material changes in accounting practices – qualifications and emphasis of matter paragraphs in the
auditor’s report
(a)
Material changes in accounting practices
The Executive Officers inform that on October 10, 2012, the Corporation received official letter
CVM/SEP/GEA-5/Nº 329/12 (“Official Letter”) asking it to prepare once again and republish the financial
statements of 2011 compared to the financial statements of 2010.
As a result of the Official Letter, the Mandatorily Convertible Debentures issued in 2010 were reclassified
and the principal was included in the non-current liabilities of the Corporation.
The consolidated financial statements of the Corporation for the fiscal years 2011, 2012 and 2013 were
prepared in accordance with International Financial Reporting Standards (IFRS), as required by the
International Accounting Standards Board (IASB).
First-time adoption
The Executive Officers inform that the applicable exemptions under IFRS 1 and the exceptions in the
transition from BR GAAP to IFRS are described below.
IFRS Exemption Options
Business Combinations: IFRS 1 offers the option to apply IFRS 3 (R), Business Combinations, retroactively or
prospectively as of the Transition Date. The retrospective base requires reclassifying all business
combinations that occurred prior to the Transition Date. The Corporation opted not to retrospectively apply
IFRS 3 (R) to the business combinations that occurred prior to its acquisition of Moy Park on October 31,
2008, and these business combinations were not reclassified. Any goodwill arising from such business
combinations prior to the acquisition of Moy Park did not have their book values, determined previously
under BR GAAP, adjusted as a result of the application of these exemptions.
Exchange differences: To retroactively apply IFRS, the Corporation must determine the cumulative
differences from currency conversion in accordance with IAS 21, Effects of Changes in Exchange Rates of
Foreign Currency, as of the date on which a subsidiary or investee, based on the equity method, is formed or
acquired. IFRS 1 permits the gains and losses arising from conversion adjustments to be zeroed on the
transition date. The Corporation opted to zero all of its gains and losses arising from conversion adjustments
on the initial cumulative profits on the Transition Date.
Estimates: Retrospective consideration is not used to create or revise estimates. The estimates made
previously by the Corporation under BR GAAP were not revised for the application of IFRS, except when
required to reflect any differences in accounting policies or when there is change regarding the chance of
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loss was in accordance with the definitions in IAS 37 - Provisions, Contingent Liabilities and Contingent
Assets.
Significant changes in accounting policies
In addition to the exemptions described above, according to the Executive Officers, the following
descriptions explain the significant differences between previous accounting policies under BR GAAP and the
current ones under IFRS applied by the Corporation.
Business combinations
As presented in the section “IFRS Exemption Options", the Corporation opted to apply the exemption under
IFRS 1 for business combinations. However, due to the size of the acquisition of Moy Park on October 1,
2008, the Corporation opted not to retrospectively apply IFRS 3(R) Business Combinations to this acquisition.
There were no other business combinations between October 1, 2008 and the Transition Date, January 1,
2009.
Consequently, the business combinations concluded prior to October 1, 2008 were not adjusted and the
book value of the goodwill under IFRS on October 1, 2008 is equal to the book value under BR GAAP on said
date.
The following IFRS adjustments refer to the acquisitions that occurred in 2009 and 2010.
Adjustment to allocation of purchase price
BR GAAP: No adjustments were made in purchase price allocation. The purchase price is compared to the
net book value of the acquired company, without adjustments, with the difference allocated as goodwill or
negative goodwill under intangible assets.
IFRS: If the initial accounting for a business combination can only be determined temporarily, subsequent
adjustments in the allocation may be recognized if they occur within 12 months from the acquisition date.
After 12 months, the adjustments are recognized in profit and loss. The adjustments made as a result of the
temporary accounting are recognized retrospectively as of the acquisition date. As a result, adjustments in
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depreciation and amortization are registered retrospectively to reflect the allocation of the final purchase
price.
Biological Assets
BR GAAP: previously all biological assets were registered at cost, with the exception of animals used for
reproduction, which are recognized at cost and depreciated over the useful life.
IFRS: Under IFRS, the Corporation must recognize its inventory of biological assets at fair value less selling
costs. When it is not possible to reliably measure the fair value of any group of biological assets, the
Corporation may recognize these assets at their most recent market price.
Cumulative translation adjustments
As seen in the section “IFRS Exemption options", the Corporation did not apply the exemption for
establishing Cumulative translation adjustments as zero on January 1, 2009. The balance of translation
adjustments on January 1, 2009 was maintained in the account Cumulative Translation Adjustments under
shareholders’ equity, and did not generate any impact.
(b)
Material effects of the changes in accounting practices
In the financial statements of 2012, 2011 and 2010, as result of the Official Letter mentioned in item (a)
above, the principal amount of the mandatorily convertible debentures was excluded from capital reserve
and included in non-current liabilities. According to the Executive Officers, this reclassification did not
change any other terms and conditions of the debenture deed, and did not have any effect on the
Corporation’s current financial debt, debt service and financial covenants, since, differently from other items
of the Corporation’s liabilities, the debentures may not be paid through cash or equivalents, but solely
through common shares issued by the Corporation.
As for the changes brought about by the application of IFRS, the Executive Officers inform that the financial
statements of 2009 underwent the following changes:
Reconciliation of Results (BR GAAP vs. IFRS)
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Reconciliation of Gains - Consolidated
(R$ thousand)
For the fiscal year ended
Net gains according to BR GAAP
December 31
2009
679,079
Differences in the GAAP increasing (decreasing) the gains reported:
1. Revenues
2. Inventories
3. Biological assets
19,269
-12,982
8,297
4. Adjustment to present value
-1,090
5. Write-off of non-recoverable assets
-4,557
6. Reversal of amortization of deferred assets
1,361
7. Provision for non-realization of credits
-68,463
8. Provision for contingencies
-11,411
9. Non-realization of inventories/obsolescence
-71,650
10. Depreciation of revalued fixed assets
-47,868
11. Deferred taxes
44,450
12. Business combinations
Net gains under IFRS
534,435
(c) Qualifications and emphasis of matter paragraphs in the auditor's report
According to the Executive Officers, the reports issued by the independent auditors regarding (i) the
reviewed financial statements for the fiscal years ended 2010 and 2011, which were restated by
requirement of the Letter; and (ii) the reviews of financial statements for the fiscal years ended 2009 did not
contain any qualifications.
In the same reports issued by the independent auditors regarding the financial statements for the fiscal
years ended in 2010 and 2011 there was one emphasis of matter paragraph regarding the valuation of
investments in parent companies, affiliated companies and subsidiaries using the equity method, under the
accounting practices adopted in Brazil, while under IFRS, which is applicable to the individual financial
statements, the practice is to adopt cost or fair value. Despite the emphasis of matter, the auditors issued an
unqualified opinion. The Executive Officers inform that the report of the special review issued by the
independent auditors on the quarterly information relating to the period ended on December 31, 2012,
2013 and 2014 did not have any qualifications or emphasis of matter.
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10.5 Comments of the Executive Officers on critical accounting policies
According to the Executive Officers, apart from the standard and usual accounting practices, considering the
agribusiness industry in which the Corporation operates, and the characteristics and diversity of the
Corporation, the following policies are of critical importance for the preparation of consolidated financial
statements:
Results of operations
Results of operations are recorded on the accrual basis.
Revenue
Revenue arising from the sale of goods is recognized when the Group transfers all risks and benefits of
ownership of the asset to the buyer and it is probable that the Group will receive the agreed payment. The
property of risks and benefits is transferred when the products are shipped with the corresponding sales
invoice, taking into account the incoterms. These conditions are met when the goods are delivered to the
buyer, complying with main freights modalities used by the Corporation.
Revenue is shown net of taxes on returns, rebates and discounts and the consolidated financial statements
are also net of intercompany sales eliminations and unrealized profits on inventories.
Financial revenue and expenses
Revenue comprises gains on changes in the value of financial assets and liabilities measured at fair value
through profit or loss, as well as interest income obtained with the effective interest method.
They include interest income on invested amounts (including financial assets/liabilities available for sale),
gains on the disposal of financial assets available for sale and changes in the fair value of financial assets
measured at fair value through profit or loss. Interest income is recognized in the statement of operations
using the effective interest method.
Financial expenses basically comprise interest on loans. Loan costs directly attributable to acquisition,
construction or manufacture of a qualified asset are capitalized jointly with the investment.
Segment reporting
The information by operating segment is based on internal reporting to the chief operating decision maker,
according to CVM Resolution 582/09 (CPC 22 – Information by segment). The chief operating decision
makers are the chief executive officer, the chief financial officer and the chief executive of each business
segment (Marfrig Beef, Keystone and Moy Park).
This Management identified the three main reportable segments that are strategically organized according
to business unit
Accounting estimates
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The preparation of the parent company and consolidated financial statements in accordance with Brazilian
accounting practices and IFRS requires Management to make estimates and assumptions that, in its best
judgment, affect the reported amounts of assets and liabilities. These estimates and assumptions include,
when applicable, the determination of the residual value of property, plant and equipment, allowance for
estimated doubtful accounts, estimated inventory losses, deferred Income and Social Contribution tax assets
and provisions for tax, labor and civil contingencies. Transaction settlement involving those estimates may
result in values different from estimates, due to the inherent inaccuracy of the process. The Corporation and
its subsidiaries review estimates and assumptions at least quarterly.
The issues requiring Corporation’s estimates are as follows:
Useful life of property, plant and equipment and intangible assets with finite useful lives;
Measurement of the fair value of biological assets;
Impairment of taxes;
Loss on impairment of intangible assets with undefined life, including goodwill;
Measurement of items arising from business combinations at fair value;
Fair value of financial instruments and derivatives;
Losses on doubtful accounts;
Estimated losses with inventory obsolescence;
Deferred Income and Social Contribution tax assets;
Provisions (legal, tax, labor and civil proceedings);
Stock option plan;
Present Value Adjustment (PVA).
Financial instruments
Non-derivative financial instruments include financial investments, debt and equity instruments, accounts
receivable and other receivables, cash and cash equivalents, loans and financing, as well as accounts payable
and other debts.
Non-derivative financial instruments are initially recognized at their fair values plus, for instruments which
are not recognized at fair value through profit or loss, any directly attributable transaction costs. Regarding
financial investments and instruments classified as cash and cash equivalents, after initial recognition, nonderivative financial instruments are measured according to their respective classification, as follows:
Measured at fair value through profit or loss
An instrument is measured at fair value through profit or loss if it is held for trading, i.e. designated as such
upon initial recognition. Financial instruments are designated at fair value through profit or loss if the
Corporation manages these investments and makes decisions to buy and sell the investments based on the
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investment’s fair value according to the Corporation’s investment and risk Management strategy. After
initial recognition, transaction costs that are attributable to the acquisition of the investment are recognized
in the statement of operations when incurred. Financial instruments stated at fair value through profit or
loss are measured at fair value and changes in fair value are recognized in the statement of operations.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market, initially recognized at fair value plus any associated transaction costs. After initial recognition,
loans and receivables are measured at amortized cost using the effective interest method, excluding any
impairment loss.
Financial liabilities
Financial liabilities are measured at amortized cost using the effective interest method, adjusted for any
reductions in the settlement value.
Derivative financial instruments and hedge accounting
Derivative financial instruments designed in hedge operations are initially recognized at their fair value on
the date of the derivative contract, and subsequently revaluated also at fair value. Derivatives are presented
as financial assets when the fair value of the instrument is positive and as financial liabilities when their fair
value is negative.
Any gains or losses arising from changes in the fair value of derivatives during the year are recorded directly
in the income statement, except for the effective portion of the cash flow hedges, which are recognized
directly in shareholders’ equity as other comprehensive income. The amounts booked under other
comprehensive income are immediately transferred to the income statement when the transaction
underlying the hedge affects profit or loss.
Foreign currency
Management defined the Brazilian real as the Corporation’s and its Brazilian subsidiaries’ functional
currency, according to the provisions of CVM Resolution 640/10 (CPC 02 (R2) – effects on changes in foreign
exchange rates and translation of financial statements, approved by CVM Resolution No. 640/10. The
functional currency of foreign companies is the legal tender of the country in which they operate, except for
companies located in the Netherlands and in Uruguay, whose functional currency is the US dollar.
Translations into the reporting currency are also in accordance with CVM Resolution 640/10 (CPC 02 (R2) –
effects on changes in foreign exchange rates and translation of financial statements).
Foreign currency transactions, i.e., all transactions not made in the functional currency, are translated using
the exchange rate on the transaction date. Monetary assets and liabilities denominated in foreign currency
are translated into the functional currency at the closing exchange rate. Non-monetary assets and liabilities
acquired or entered into in foreign currency are translated using the exchange rates on the transaction dates
or the dates at which they are stated at fair value when fair value is used. Exchange rate variation gains or
losses on monetary and non-monetary assets and liabilities are recognized in the statement of income.
Current and non-current assets
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Cash and cash equivalents
Consist of cash, banks and short-term highly liquid financial investments that are readily converted to known
amounts of cash and that are subject to an insignificant risk of changes in value.
Marketable Securities
These include virtually all investments of the following types: Repurchase agreements and Credit Link Note
(CLN), these investments may be readily redeemed and have an insignificant risk of change in value.
Trade accounts receivable
Trade accounts receivable are recorded at the fair value and when applicable, discounted to present value,
according to CVM Resolution 564/08 (CPC 12 – Present value adjustment).
The estimated loss with doubtful accounts is set up in an amount deemed sufficient by Management to
cover possible losses on the realization of receivables, calculated on an individual basis.
Inventories
Inventories are stated at the average acquisition or production cost, adjusted at net realizable value, if lower
than the average cost.
Investments
Corporation’s investments in subsidiaries and affiliates are accounted for using the equity method in the
parent company financial statements.
Property, plant and equipment
Property, plant and equipment are stated at acquisition or construction cost, less depreciation calculated
using the straight-line method and take into consideration the estimated useful lives of assets and property
lease terms with respect to leasehold improvements.
Finance charges on financing agreements incurred when property, plant and equipment items are being built
are capitalized until the asset begins its operations.
Other expenditures are capitalized only if the economic benefits associated with the property, plant and
equipment item increase. Another type of cost is recognized as an expense when incurred.
Pursuant to CVM Resolution 639/10 (CPC 01 (R1) – reduction to recoverable value of assets), an asset is
tested for impairment on an annual basis. The asset’s value must be estimated only if there is any indication
of impairment.
Lease
Finance lease
Certain lease agreements transfer substantially all risks and benefits of ownership of an asset to the
Corporation. These agreements are finance leases and are initially recognized as property, plant and
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equipment with an offsetting entry to liabilities at the lowest of present or fair values, according to CVM
Resolution 645/10 (CPC 06 (R1) – commercial leasing operations).
Operating lease
Certain agreements are classified as operating leases when its substance does not meet the finance lease
requirements. Payments of these agreements are recognized as expenses in the statement of operations on
a straight-line basis over the period the agreements are effective and the asset is used.
Intangible assets
Intangible assets consist of assets acquired from third parties, including through business combinations, and
those generated internally by the Corporation. They are stated at acquisition or formation cost, less
amortization calculated using the straight-line method, and based on the recovery estimated periods.
Intangible assets with indefinite useful lives and goodwill resulting from expected future profitability are not
amortized and are tested annually for impairment.
The goodwill represents the excess of total consideration paid over the difference between the fair value of
acquired assets and liabilities assumed on the takeover date of the acquired company.
Goodwill is capitalized as an intangible asset and any impairment is recognized in the statement of
operations. Whenever the fair value of the acquired assets and assumed liabilities exceeds total
consideration paid, the full difference will be recognized in the consolidated comprehensive loss on the
acquisition date.
Biological assets
According to CVM Resolution 596/09 (CPC 29 – biological assets and agricultural products), agricultural
activity is the management of the biological transformation of assets (living animals and/or plants) for sale,
into agricultural products or into additional biological assets. The Corporation classifies living cattle and
poultry as biological assets.
The Corporation recognizes biological assets when it controls these assets as a result of past events and it is
probable that future economic benefits will flow to the Corporation and the fair value of the asset can be
reliably measured.
Under CVM Resolution 596/09 (CPC 29 – biological assets and agricultural products), biological assets should
be measured on initial recognition and at the end of each reporting period at fair value less costs to sell,
unless fair value cannot be reliably measured.
The Corporation values cattle at its fair value based on market prices, while poultry is valued at the
acquisition cost since there is no market for poultry.
Impairment
Impairment tests on goodwill and other intangible assets with indefinite economic useful life are annually
conducted at the end of the year. Other non-financial assets, such as property, plant and equipment and
intangible assets are submitted to impairment tests whenever events or changes in circumstances indicate
that its book value may not be recoverable. Once the book value of an asset exceeds its recoverable value
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(i.e., the highest between the use and fair value minus selling costs), a loss is recognized to bring the book
value to its recoverable value.
When it is not possible to estimate the impairment of an individual asset, the impairment test is conducted
in its cash generating unit (CGU): the smallest group of assets to which the asset belongs and for which there
are cash flows separately identifiable. The Corporation adopts as CGU for assessing the recoverable value of
an asset, its segmentation by business unit.
Goodwill recorded in the initial recording of an acquisition is allocated to each BU of the group that expects
to benefit from combination synergies that originated the goodwill, for purposes of impairment testing.
Impairment losses are included in the statement of operations. An impairment loss recorded as goodwill is
not reversed.
Current and non-current liabilities
Current and non-current liabilities are stated at known or estimated amounts, plus the related charges,
exchange rate gains (losses) and/or monetary changes incurred through the balance sheet date, when
applicable.
Provisions
Provisions are recorded in case of probable exit of future economic benefits resulting from past events and
these can be safely estimated.
Share-based compensation plan
The effects of the share-based compensation plan are calculated at fair value and recognized in the balance
sheet and the statement of operations as contract conditions are met.
Income and Social Contribution taxes
Income Tax is calculated on taxable income. Income and Social Contribution taxes are paid monthly on
estimated calculation bases, at the rates and in the manners provided for in prevailing legislation.
Deferred tax assets recognized for Income and Social Contribution tax losses and temporary differences are
recognized pursuant to tax legislation and CVM Resolution No. 599/09 (CPC 32 - income taxes). They take
into consideration the Corporation’s history of profitability and the expected future generation of taxable
income supported by an annually reviewed technical feasibility study.
The Corporation and its subsidiaries opted for the Transition Tax System (RTT) established by Executive Act
No. 449/08, converted into Law No. 11,941 of May 27, 2009, declaring their irrevocable option for RTT in the
Corporate Income Tax Return of 2009.
Deferred tax assets and liabilities are recognized when the carrying amount of an asset or liability differs
from their tax base, except for the differences that arise from:
The initial recognition of goodwill;
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The initial recognition of an asset or liability in a transaction that is not a business combination and at the
time of the transaction affects neither book income or taxable income; and
The investments in subsidiaries and joint ventures where the Group is able to control the timing of the
reversal of the difference and it is probable that the reversal will not occur in the foreseeable future.
Deferred tax asset is recognized only if it is probable that taxable income will be available against which the
difference can be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realized and the liability is settled, based on tax rates and laws that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset when the legally enforceable right to offset current tax assets
and liabilities exists and the deferred tax assets and liabilities relate to income taxes levied by the same
taxing authority on the following cases:
For the same entity of the taxable group;
For different entities of the group that intend to settle on a net basis or realize the asset and settle the
liability at the same time, in each future year in which significant amounts of deferred tax assets and
deferred tax liabilities are to be realized or settled.
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Dividends and Interest on Equity
Management’s proposal for distribution of dividends and interest on equity within the mandatory minimum
dividend amount is recorded as current liabilities since it is considered a legal obligation set forth in the
bylaws. The amount that exceeds mandatory minimum dividend, which is declared by Management before
the end of the reporting period and has not yet been approved by the shareholders, is recorded as proposed
additional dividend in shareholders’ equity.
Earnings per share
Basic
Basic earnings/losses per share is calculated by dividing the earnings or losses attributable to the
Corporation’s controlling and non-controlling shareholders by the weighted average number of common
shares outstanding during the period, pursuant to CVM Resolution No. 636/10 (CPC 41 – earnings/losses per
share), excluding the common shares held as treasury shares.
Diluted
Diluted earnings/losses per share is calculated by dividing the earnings/losses attributed to the Corporation’s
common shareholders by the weighted average number of common shares, which would be issued in the
conversion of all diluted potential common shares into common shares. The effect of dilution of earnings
(loss) per share does not generate significant difference between basic and diluted earnings (loss).
Discount to present value (PVA)
In accordance with CVM Resolution 564/08 (CPC 12 – present value adjustment), non-current assets and
liabilities, as well as current assets and liabilities, when material, are recorded at present value, on the
respective transaction date, according to interest rates that reflect each transaction’s term, currency and
risk. The offsetting entry to discounts to present value is made to the accounts that originated the asset or
the liability. The difference between the present value of a transaction and the face value of an asset or
liability is recorded in the statement of operations during the assets or liabilities’ life according to the
amortized cost and effective interest method.
Discounts to present value were determined using the average between Selic (Central Bank overnight rate)
and the average rate at which funds are raised in financial markets (rate established as that of return on
debt capital), thus reaching the average rate of 11.05% p.a., as at December 31, 2014 (9.82% p.a. as at
December 31, 2013).
The terms adopted for determining Discounts to Present Value (PVA) vary according to the operating activity
and correspond to the average expected period to settle it, for example: average sales collection term,
average payment term and others deemed necessary.
The established rates and periods in relation to the risk factors involved in the Corporation’s operations are
perfectly reflected on the discount to present value.
Share issuance expenses
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In accordance with CVM Resolution 649/10 (CPC 08 (R1) – transaction costs and premium on issue of
securities), transaction costs incurred with the raising of funds through the issuance of equity securities
should be separately recorded in a valuation allowance which reduces shareholders’ equity, less possible tax
effects.
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Treasury shares
Treasury shares are Corporation shares acquired by the Corporation itself and kept in the treasury with the
specific purpose of carrying out the Corporation’s stock option plan. Treasury shares are recorded in a
separate account, and, for the purpose of balance sheet presentation, are deducted from the Income
Reserve, whose balance was used in such operation.
Business combination
Business combinations are recognized using the acquisition method. Cost of an acquisition is the sum of the
consideration transferred, measured at fair value on the acquisition date, and any non-controlling interest in
the acquiree. For each business combination, the acquirer should measure the non-controlling interest in the
acquiree at the fair value or based on the acquirer’s share in fair value of the acquiree’s identifiable net
assets. Costs that are directly attributable to the acquisition should be recorded as an expense when
incurred.
In a business acquisition, Management assesses the assets acquired and the liabilities assumed with the
objective of classifying and allocating them according to contractual provisions, economic circumstances and
relevant conditions on the acquisition date.
Goodwill is initially measured as the excess of the consideration transferred in the business combination
over the fair value of the net assets acquired (identifiable assets and liabilities assumed, net). If the
consideration is less than the fair value of the net assets acquired, the difference should be recognized as a
gain in the statement of operations.
Consolidation
Accounting practices are uniformly applied to all consolidated companies and are consistent with those
applied in previous periods.
Description of the main consolidation procedures:
Elimination of the balances of intercompany assets and liabilities;
Elimination of ownership interest, reserves and retained earnings of subsidiaries;
Elimination of the balances of intercompany revenues and expenses and unrealized profits resulting from
intercompany transactions.
Discontinued operations and assets held for sale
An operation is classified as discontinued operation when it is sold or it complies with criteria for
classification as held-for-sale, if it occurs first. When an operation is classified as a discontinued operation,
the statements of income and cash flows are presented as if the operation was discontinued since the
beginning of comparative period, for which reason the note “reclassified” was included in the statements as
at December 31, 2012.
These assets are measured by the lower between the book value and the fair value less selling expenses.
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Once they are classified as held-for-sale, intangible and fixed assets can no longer be amortized or
depreciated.
The result from discontinued operations is presented as a single amount in the statement of income, and
includes the total result after these operations’ Income Tax and Social Contribution less any impairment loss
Statement of value added
The Corporation prepared the parent company and consolidated statement of value added in accordance
with CVM Resolution 557/08 (CPC 09 – statement of value added), which is an integral part of the financial
statements under BRGAAP applicable to publicly-held companies, while it represents additional information
for IFRS standards.
Standards effective as of 2014
The Corporation’s management duly evaluated the standards, amendments and interpretations of standards
issued by IASB and which are in force since January 1, 2014, and did not identify significant effects on the
Corporation’s financial statements. The standards that were altered are:
IAS 32 – Offsetting financial assets and financial liabilities: in December 2011, IASB issued a revision of the
IAS 32 standard. The revision of the standard addresses aspects related to offsetting financial assets and
liabilities. The standard has been effective since January 1, 2014. The Corporation analyzed the revision of
the pronouncement already converted and updated in the CPC and did not identify any impacts on the
disclosure of these financial statements.
IFRS 10, IFRS 12 and IAS 27 – Investment Entities. In October 2012, IASB issued a revision of the IFRS 10, IFRS
12 and IAS 27 standards, which define an investment entity and introduce an exception to the consolidation
of subsidiaries by investment entities, establishing the accounting treatment in these cases. The changes to
these standards are effective for annual periods starting as of January 1, 2014. The Corporation analyzed the
revision of the pronouncement already converted and updated in the CPC and did not identify any impacts
on the disclosure of these financial statements.
IFRIC 21 - Levies. In May 2013, IASB issued the interpretation IFRIC 21. This interpretation addresses aspects
related to the recognition of a tax liability when this originates from the application of IAS 37 - Provisions,
Contingent Liabilities and Contingent Assets. This interpretation of the standard is effective for annual
periods starting as of January 1, 2014. The Corporation analyzed the revision of the pronouncement
converted and updated in the CPC and did not identify any impacts on the disclosure of these financial
statements.
IAS 36 – Impairment of Assets. In May 2013, IASB issued a revision to the IAS 36 standard. The revision of the
standard requires the disclosure of the current and previous discount rates used to determine the
recoverable amount of assets, if the recoverable amount of the impaired asset is based on a valuation
technique of the present value based on the fair value less costs of disposal. The standard is effective for
annual periods starting as of January 1, 2014. The Corporation analyzed the revision of the pronouncement
converted and updated in the CPC and did not identify any impacts on the disclosure of these financial
statements.
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IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting. In June 2013 IASB issued a revision
to the IAS 39 standard. The revision of the standard aims to clarify when an entity is required to discontinue
a hedge instrument, in cases when the hedging instrument expires, is sold, terminated or exercised. This
standard is effective for annual periods starting as of January 1, 2014. The Corporation analyzed the revision
of the pronouncement converted and updated in the CPC and did not identify any impacts on the disclosure
of these financial statements.
IAS 19 - Employee benefits. In November 2013, IASB issued a revision to the IAS 19 standard. The revision of
the standard aims to establish aspects related to the recognition of employee or third-party contributions
and their impacts on the cost of service and periods of service. This standard is effective for annual periods
starting as of July 1, 2014. The Corporation analyzed the revision of the pronouncement converted and
updated in the CPC and did not identify any impacts on the disclosure of these financial statements.
IAS 27 – Separate Financial Statements. On August 12, 2014, IASB issued a revision to the IAS 27 standard,
which allows the use of the equity accounting method to account for investments in subsidiaries, joint
ventures and associates in the separate financial statements. The standard is effective for annual periods
starting on or after January 1, 2016. In IFRS and accounting practices adopted in Brazil, it is already accepted
as of December 31, 2014, as approved by the Brazilian Accounting Council and early adoption of IFRS. The
Corporation does not expect impacts from the adoption of this standard on its financial statements.
Standards not yet in force
The following new standards, changes and interpretations of standards were issued by IASB but were not
issued by the CPC:
IAS 1 – Presentation of financial statements. On December 18, 2014, IASB published the “Disclosure
Initiative” (Amendment to IAS 1). The changes aim to clarify IAS 1 and direct the perceived impediments to
the judgment for the preparation and presentation of financial statements. This standard is effective for
annual periods starting on or after January 1, 2016, with early adoption allowed. The Corporation is
assessing the impacts of the adoption of this standard on its financial statements.
IFRS 9 - Financial instruments. In July 2014, IASB issued the final version of the IFRS 9 standard, which
replaces the standard IAS 39 – Financial instruments: Recognition and measurement. These changes address
certain issues regarding the application of the standard and introduce the concept of “fair value through
comprehensive income” for measuring certain types of debt instruments. Moreover, IASB included in the
IFRS 9 standard requirements for recognition of asset impairment losses related to the registry of expected
credit-impaired financial assets and commitments to renegotiate such credits. The standard is effective for
annual periods starting on or after January 1, 2018. The Corporation is assessing the impacts of the adoption
of this standard on its financial statements.
IFRS 14 – Regulatory deferral accounts. In January 2014, IASB issued the IFRS 14 standard, which specifically
regulates the recognition of regulatory assets and liabilities upon initial adoption of IFRS standards. The
standard is effective for annual periods starting on or after January 1, 2016. The Corporation does not expect
impacts from the adoption of this standard on its financial statements.
IFRS 11 – Joint arrangements. In May 2014, IASB issued a revision of the IFRS 11 standard. The revision of the
IFRS 11 standard addresses criteria related to the accounting treatment of acquisitions of an interest in joint
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arrangements that constitutes a business, as defined in IFRS 3. This revision of the standard is effective for
annual periods starting on or after January 1, 2016. The Corporation is assessing the impacts of the adoption
of this standard on its financial statements.
IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortization. In May 2014, IASB
issued a revision to standards IAS 16 and IAS 38. This revision aims to clarify the methods of depreciation
and amortization, observing the alignment with the concept of future economic benefits expected from the
use of the asset over its economic useful life. This revision of the standard is effective for annual periods
starting on or after January 1, 2016. The Corporation is assessing the impacts of the adoption of this
standard on its financial statements.
IFRS 15 – Revenue from contracts with customers. In May 2014, IASB issued the IFRS 15 standard. The
standard replaced IAS 18 – Revenue and IAS 11 – Construction contracts and a number of interpretations
related to revenues. This standard is effective for annual periods starting on or after January 1, 2017. The
Corporation does not expect impacts from the adoption of this standard on its financial statements.
IAS 16 and IAS 41. In July 2014, IASB issued a revision of standards IAS 16 – Property, plant and equipment,
and IAS 41 – Biological assets, to include biological assets that meet the definition of “Bearer plants”
(defined as “living plants” used in the production of agricultural produce). The change requires “bearer
plants” to be recorded as property, plant and equipment in accordance with IAS 16, at the historical cost
instead of being measured at fair value as required under IAS 41. The standard is effective for annual periods
starting on or after July 1, 2016. The Corporation does not expect impacts from the adoption of this standard
on its financial statements.
IFRS 10 and IAS 28. On September 11, 2014, IASB issued a revision of standards IFRS 10 – Consolidated
Financial Statements and IAS 28 – Investment in Associates, Subsidiaries and Joint Ventures. These revisions
led to an inconsistency recognized between the requirements under IFRS 10 and IAS 28 in dealing with the
sale or contribution of assets from an investor, associate or joint venture. The main consequence of the
revisions is that the gain or loss is recognized when a transaction involves a business (whether or not it is
installed in a subsidiary). A partial gain or loss is recognized when the transaction involves assets that do not
constitute a business even if these assets are allocated in a subsidiary. This standard is effective for annual
periods starting on or after July 1, 2016. The Corporation is assessing the impacts from the adoption of these
changes on its financial statements.
Annual improvement of the IFRS of September 2014 – IASB issued a revision of standards IFRS 5, IFRS 7, IAS
19 and IAS 34. These standards are effective for annual periods starting on or after January 1, 2016. The
Corporation is assessing the impacts from the adoption of these changes on its financial statements.
Consolidated financial statements
The consolidated financial statements include the accounts of the Corporation and its subsidiaries.
The financial statements of subsidiaries located abroad were originally prepared in domestic currency,
according to the applicable laws of each country where the companies are located. They were converted
into the International Financial Reporting Standards (IFRS) at their relating functional currencies. Later, those
financial statements were translated into Brazilian reais, using the exchange rate prevailing on the balance
sheet date.
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10.6 Internal controls for the preparation of the financial statements - Degree of efficiency and deficiencies
and recommendations made in the auditor’s report
(a) Efficiency level of such controls, indicating any imperfections and measures adopted to correct them
According to the Executive Officers the evaluation of the internal controls for the preparation of the financial
statements has the objective of providing a reasonable level of comfort regarding the reliability of the
accounting information and the preparation of the financial statements for external disclosure in accordance
with generally accepted accounting principles.
The Corporation uses internal audit and, together with the recommendations contained in the report of
internal controls issued by independent auditors, evaluates the efficiency of controls and takes steps to
improve internal processes and practices.
The independent audit services for fiscal years 2014, 2013 and 2012 were provided by BDO RCS Auditores
Independentes. These services helped improve the internal controls of the Corporation.
In 2014, 2013 and 2012, the Corporation received the reports of independent auditors, which contained
recommendations on internal controls, which were analyzed and implemented within the Corporation’s
plan, with priority given to the most relevant aspects.
The results from the internal and external audits are presented to the Board of Directors, the Fiscal Council
and the Audit Committee, who also contribute to improving the Corporation’s processes and internal
controls.
The Corporation’s Executive Officers believe in the efficiency of the procedures and internal controls we
adopt to ensure the quality, accuracy and reliability of our accounting statements. Accordingly, in our
opinion, our accounting statements adequately present the result of our operations and our equity and
financial situation on the respective dates.
(b) Deficiencies and recommendations regarding the internal controls included in the independent auditor’s
report
The Executive Officers believe the comments presented in the reports on procedures and internal controls
issued by the Corporation’s independent auditors do not represent significant risks of distortions of the
individual and consolidated financial statements for fiscal years 2012, 2013 and 2014, and that said reports
do not affect the opinions of the auditors in their respective final audit reports. The Executive officers also
believe that said comments may be used, in line with its business plans, as a form to improve the
Corporation’s internal procedures and internal controls.
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10.7 Comments of the Executive Officers on the allocation of proceeds from the public offerings and any
deviations
PUBLIC OFFERING 2009
(a)
How the proceeds from the offering were used
The Executive Officers inform that in November 2009, the Corporation held a public offering of shares.
Through this offering, the Corporation raised net proceeds of R$1,464,236 thousand, which were used:
to pay a part of the price for the acquisition of Seara and its affiliated companies abroad;
for organic expansion in processed and prepared products based on animal proteins and other inputs used in
feed;
to reach a balanced capital structure for the Corporation.
(b)
If there were any material deviations between the actual use of proceeds and the proposed uses
disclosed in the respective distribution prospectuses
The Executive Officers inform that there were no deviations between the use of proceeds and the proposed
uses described in the prospectuses.
(c)
If there were any deviations, the reasons for such deviations
The Executive Officers inform that there were no deviations between the use of proceeds and the proposed
uses described in the prospectuses.
PUBLIC OFFERING 2012
(a)
How the proceeds from the offering were used
The Executive Officers inform that in December 2012, the Corporation held a public offering of shares.
Through this offering, the Corporation raised net proceeds of R$1,017,325,667.72, which will be used in the
following manner:
70% for partial amortization of the balance short-term debt;
30% for a balanced capital structure,
(b)
If there were any material deviations between the actual use of proceeds and the proposed uses
disclosed in the respective distribution prospectuses
The Executive Officers inform that the actual use of proceeds from the Offering depends on several factors
that they cannot guarantee will happen, which include current market conditions, and are based on their
analyses, estimates and current estimates of future events and trends. Changes in these and other factors
may oblige us to review the allocation of the net proceeds from the Offering when they are actually used.
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(c)
If there were any deviations, the reasons for such deviations
The Executive Officers inform that until the date of this Reference Form, no deviation had been found in the
allocation of proceeds from the offering.
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10.8 Comments of the Executive Officers on other material items not stated in the financial statements
(a) The assets and liabilities directly or indirectly held by the issuer that are not stated on its balance sheet
(off-balance sheet items)
The Corporation, with the exception of operating leases, does not have assets or liabilities, directly or
indirectly, which are not stated in its financial statements of the fiscal years 2012, 2013 and 2014 and the
respective notes to the statements.
The operating leases contracted by the Corporation are not stated in the financial statements disclosed but
only in the notes. Such contracts do not represent any restrictions or contingencies and, in the opinion of the
Executive Officers, were signed in accordance with the conventional market practices, with readjustment
clauses during the tenure of the contract in a few cases.
The amounts of the assets leased are calculated at a total definitive cost, which includes transport, tax and
documentation costs. The consideration is calculated on the total definitive cost at a percentage predefined
for each agreement.
In case of rescission, the lessor will have the option of cumulatively: (i) rescinding unilaterally the leasing
agreement; (ii) claiming the return of the assets leased; and (iii) declaring the early maturity of the leasing
agreement. In this case, the lessee undertakes to pay the balance amount due of the unpaid installments,
including matured and maturing amounts, apart from unpaid expenses, taxes and duties, plus a fine of 10%
on the balance due. The lessee, without prejudice to the lessor, can claim losses and damages.
The Executive Officers inform that in relation to the option for renewal, the lessee should first inform of their
intention, in the absence of which the leasing operation is renewed automatically under the conditions that
should be agreed to by the parties. If there is no agreement between the parties, the lessee should choose
to buy the assets at market value or return them.
(b) Other items not stated in the financial statements
The Executive Officers inform that there are no other items not stated in the financial statements.
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10.9 Comments of the Executive Officers on items not stated in the financial statements
(a) How such items change or may change the revenues, expenses, operating income, financial expenses or
other items on the issuer’s financial statement
According to the Executive Officers, as mentioned in item 10.8 of this Reference Form, the Corporation, with
the exception of operating leases, does not have assets or liabilities, directly or indirectly, which are not
stated in its financial statements of the fiscal years 2012, 2013 and 2014, and the respective notes to the
statements.
The Executive Officers inform that the operating leases affect the operating result of the Corporation every
month, considering the booking of the leasing expense (installment payable).
(b) Nature and purpose of the transaction
The Executive Officers inform that the operating leases refer to agreements with characteristics similar to
rent agreements, and not fitting the criteria for being classified as financial leasing, as envisaged in the
Technical Pronouncement CPC6 – Leasing Operations.
The Corporation has operating lease agreements for IT equipment, machinery and equipment, aircraft and
meatpacking plants, which are used for the operating activities of the Corporation during the validity of the
agreement. Said agreements may or may not be renewed and any options to buy may or may not be
exercised.
(c) Nature and amount of the obligations undertaken and the rights generated on behalf of the issuer arising
from the transaction
The following chart presents operating leases as on December 31, 2014 (obligations assumed) and the main
contractual details:
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Consolidated
Weighted average
Start date interest rate (p.a)
Weighted
average
maturity
(years)
Local currency
BANCO IBM S.A
IT Equip.
BANCO DE LAGE LADEN
IT Equip.
LEASEPLAN ARRREND.SA
Vehicles
BRASIL FOOD SERV. GROUP .SA BFGMeatpacking plant
07/05/12
05/25/12
01/20/12
10/01/14
11.46%
11.46%
7.30%
IGP-M year
0.5
0.3
0.7
5.0
LEONI EMPREENDIMENTOS IMOB.
01/01/14
IGP-M year
5.0
Financial institution
Leased asset
Meatpacking plant
856
2,610
70
70,848
Expense at
12/31/14
347
870
22
3,936
2,520
385
76,904
5,560
24,631
82,342
156
624
104,672
114,412
33,021
7,879
18,736
2,310
6,015
134
707
22,765
13,785
9,574
1,337
6,599
Total foreign currency
386,473
63,226
Total local and foreign currency
463,377
68,786
Total local currency
AVN AIR LLC
Bank of America
Ford Motor Credit CO.
Sundry leasers
Sundry leasers
Sundry leasers
Sundry leasers
Sundry leasers
Sundry leasers
Total amount
financed
Foreign currency
Aircraft
Aircraft
Vehicles
IT Equipment
Property
Machinery and Equipment
Integrated
Land and Buildings
Vehicles
12/01/07
04/15/11
12/31/13
06/16/12
05/26/07
06/08/14
06/22/13
08/05/13
11/08/14
3.04%
6.61%
15.93%
Fixed Installment
Fixed Installment
Fixed Installment
Fixed Installment
Fixed Installment
Fixed Installment
2.8
8.0
0.5
2.0
3.7
11.1
5.5
11.1
4.2
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10.10 Comments of the Executive Officers on the business plan
(a) Quantitative and qualitative description of ongoing and projected investments:
According to the Executive Officers, in line with the Corporation’s strategy of consistently growing its
operations based on a globalized and diversified business model, seeking to strengthen its presence in the
global food industry and also meet the world’s growing demand for animal proteins, the Corporation has
invested consistently to acquire companies, primarily abroad, ensuring a presence in 17 countries. Also in
line with this strategy, the Executive Officers inform that the Corporation is investing in the processed and
elaborated food market and in the food service segment.
Due to the constant pursuit of efficiency and scale gains, cost reductions and operational improvements, the
operating activities of the Corporation require regular investments.
The Executive Officers also believe that the Corporation will continue investing in environmental projects,
such as the construction of biodigesters for treating water and effluents and cogeneration projects to
generate own energy to power our Processed products plants. We will also continue to invest in social
projects, mainly in the communities surrounding our plants.
The Corporation operates the units owned by Frigorífico Mercosul S.A. in Capão do Leão/RS, Mato Leitão/RS,
Tucumã/PA, Pirenópolis/GO, Nova Londrina/PR and Alegrete/RS and that, as announced in the material fact
notice of October 3, 2014, it chose acquire such assets, and that such option is subject to certain
circumstances, including the conducting of a legal audit, approval by antitrust authorities and negotiation of
commercial and financial conditions, a process that is expected to be concluded over the course of 2015.
The following table presents a breakdown of the investments made in the last three fiscal years and the
current fiscal year:
Investment
2014
2013
2012
Fixed Assets
435.8
650.6
603.5
Breeding Stock
186.2
151.1
142.7
Investment in intangible assets
17.3
8.8
9.0
Total investment
639.3
810.6
754.9
(R$ million)
(b) Sources of investment financing
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According to the Executive Officers of the Corporation, the main sources of financing are: (i) cash flow from
operations; (ii) short- and long-term bank debt; (iii) share issues (equity); and (iv) debt issues (bonds and
debentures).
The Corporation is assessing the viability of its subsidiary in the United Kingdom, Moy Park, going public,
which, subject to market conditions, is expected to occur over the course of 2015.
(c) Relevant ongoing and projected divestments
In June 2013, the Corporation concluded the sale of the ownership interest held in Columbus Netherlands
BV, the company owning the leather business of the Marfrig Group in Uruguay (Zenda) and, as a result, the
control over said company was transferred to JBS on that date. In September 2013, the Corporation
concluded the sale of ownership interest in the following entities: Pine Point Participações Ltda., a company
incorporated for the purposes of conducting a corporate reorganization of the following companies: União
Frederiquense Participação Ltda. Secculum Participação Ltda. Babicora Holding Participações Ltda. Seara
Alimentos S.A. Athena Alimentos S.A. Seara Holding (Europe) BV. Excelsior Alimentos S.A. and Baumhardt
Comércio e Participações Ltda. With this, the Corporation transferred the control over these companies to
JBS on that date. The transaction value was initially established at R$5.85 billion and was paid via the
assumption of Marfrig’s debt by JBS.
In April 2012, the sale of the logistics services business specializing in serving the quick service restaurant
industry in the United States, Europe, Oceania and Asia of its subsidiary Keystone Foods LL and McKey
Luxembourg Sarl. to The Martin-Brower Company, L.L.C for US$400.0 million was concluded, of which
US$390.1 million already comprise our cash.
The Executive Officers would like to clarify that the settlement of the residual amount of US$9.9 million was
made after the corporate and legal approvals related to the operations in Dubai, in the United Arab Emirates
and in Malaysia, which were concluded in the fourth quarter of 2012.
According to the Executive Officers, the sale of these logistics assets enables the Corporation to focus on its
core business, which is the development, production and marketing of processed, value-added food
products made from poultry, beef, pork, lamb and fish, on a global scale.
According to the Executive Officers, there is no plan of material divestments to be made by the Corporation.
(d) Acquisition of plants, equipment, patents or other assets that could materially influence the Company’s
production capacity
In the opinion of the Officers, all acquisitions expected to materially influence the Corporation’s production
capacity were already mentioned in items 6.5 and 10.3(b) of the Reference Form.
The Officers further inform that the Corporation does not disclose any plans or projects involving the
acquisition of plants, equipment, patents or other assets that could materially influence its production
capacity.
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10.11 Other factors with material impacts
Asset swap operation
The following table shows, for the periods indicated, certain operating results for the assets acquired and
divested as part of the asset swap operation between the Corporation and BRF – Brasil Foods S.A.
Five-month period ended May 31,
2012
BRF Assets
Quickfood
Net Operating Revenue
828,141
672,259
Cost of goods sold
(647,231)
(653,176)
Gross income
180,910
19,083
Gross margin
21.8%
2.8%
EBITDA
56,290
2,279
EBITDA margin
6.8%
0.3%
(R$ thousand)
For more information about the asset swap operation, see items 6.5 and 10.3(b) of this Reference Form.
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APPENDIX II
BRIEF BIOGRAPHICAL DESCRIPTION AND ADDITIONAL INFORMATION REGARDING
NOMINEE CANDIDATE FOR THE BOARD OF DIRECTORS AND FISCAL COUNCIL MEMBERS
PER SUBSECTIONS 12.6 THROUGH 12.10 OF SECTION 12 OF THE REFERENCE FORM
Subsections 12.6 through 12.8: Composition of the board of directors, executive board of officers and fiscal council; Professional background of
directors, executive officers and fiscal council members.
BOARD OF DIRECTORS
Name:
Age
Profession/
Occupation
Taxpayer ID (CPF) –
Passport No.
Position
Election
date:
Investiture
date
Term of office
Other positions
Elected by
controlling
shareholder
Yes
Marcos Antonio
Molina dos Santos
45
Businessman
102.174.668-18
Chairman of the Board
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Member and Coordinator of the
Management Committee;
Member of the Audit Committee;
the Compensation, Corporate
Governance and Human Resources
Committee; the Finance and Risk
Management Committee
Marcia Aparecida
Pascoal Marçal dos
Santos
42
Businesswoman
182.070.698-21
Non-independent
Director
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Audit Committee
member
Yes
Rodrigo Marçal Filho
40
Businessman
184.346.398-90
Non-independent
Director
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Executive Officer
with no specific title
Yes
Alain Emilie Henry
Martinet
72
Business
administrator
233.887.318-10
Non-independent
Director
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Management Committee
member
Yes
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BOARD OF DIRECTORS
Name:
Age
Profession/
Occupation
Taxpayer ID (CPF) –
Passport No.
Position
Election
date:
Investiture
date
David G. McDonald
50
Business
administrator
233.461.648-61
Independent Director
April 24,
2015
April 24,
2015
Carlos Geraldo
Langoni
Marcelo Maia de
Azevedo Correa
Antonio dos Santos
Maciel Neto
70
59
57
Economist
Civil Engineer
Mechanical
Engineer
110.847.077-72
425.052.917-72
532.774.067-68
Other positions
Elected by
controlling
shareholder
Through to the
date of the 2017
annual meeting
----
Yes
Yes
Term of office
Independent Director
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Member and Coordinator of the
Finance and Risk Management
Committee;
Member of the Compensation,
Corporate Governance and Human
Resources Committee
Independent Director
April 24,
2015
April 24,
2015
Through to the
date of the 2017
annual meeting
Member and Coordinator of the
Audit Committee;
Member of the Management
Committee
Yes
Through to the
date of the 2017
annual meeting
Member and Coordinator of the
Compensation, Corporate
Governance and Human
Resources Committee
Member of the Finance and Risk
Management Committee
Yes
Independent Director
April 24,
2015
April 24,
2015
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FISCAL COUNCIL
Name:
Age
Profession
Taxpayer ID (CPF)
– Passport No.
Position
Election
date:
Investiture
date
Term of office
Other
positions
Elected by
controlling
shareholder
Eduardo Augusto Rocha
Pocetti
60
Accountant
837.465.368-04
Effective fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
----
Yes
Roberto Lamb
66
Professor
009.352.630-04
Effective fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
-
Yes
Alexandre Mendonça
39
Electrical
Engineer
252.249.718-96
Effective fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
----
Yes
Peter Vaz da Fonseca
47
Accountant
073.247.468-02
Alternate fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
----
Yes
Carlos Roberto de
Albuquerque Sá
65
Accountant
212.107.217-91
Alternate fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
----
Yes
Marcelo Silva
41
Bachelor of
Laws
118.990.828-08
Alternate fiscal council
member
April 24,
2015
April 24,
2015
Through to the date
of the 2016 annual
meeting
----
Yes
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Subsections 12.6 through 12.8: COMPOSITION OF THE BOARD OF DIRECTORS, EXECUTIVE BOARD OF OFFICERS AND FISCAL COUNCIL;
PROFESSIONAL BACKGROUND OF DIRECTORS, EXECUTIVE OFFICERS AND FISCAL COUNCIL MEMBERS.
BOARD OF DIRECTORS
Marcos Antonio Molina dos Santos – Taxpayer ID 102.174.668-18
Mr. Molina dos Santos serves as Chairman of the Board of Directors of Marfrig Global Foods S.A. He has amassed over 20 years of
experience in the food industry since opening his first business, a food distribution company, at 16 years of age. Since first founding Marfrig
years ago, Mr. Molina dos Santos has actively worked towards maintaining strong and fruitful relationships with key customers in Brazil and
elsewhere, thus boosting the Company’s ability to grow and expand, while sustaining its drive to improve the quality of its industrial
processes and tackle the challenges of the global economic landscape. Additionally, Mr. Molina dos Santos is a shareholder and the chief
executive officer of MMS Participações S.A, which is the controlling shareholder of Marfrig.
a.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Molina dos Santos in any criminal
proceedings or any disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect
could be that of having him banned or barred from practicing or performing, or disqualified to practice or perform professional or business
activities of any kind.
b.
Marcia Aparecida Pascoal Marçal dos Santos - Taxpayer ID 182.070.698-21
Ms. Marçal dos Santos has been a member of the Board of Directors of Marfrig Global Foods S.A since March 2007. With long
experience in the food industry, she has been serving the Company for many years first as a management member and since 2007 as
director. From 2000 to 2006, she served as chief financial officer and chief audit executive. In addition, Ms. Marçal dos Santos is an active
participant and Executive President of the Instituto Marfrig Fazer and Ser Feliz de Responsabilidade Social, Marfrig’s social investing institute,
and a shareholder and deputy chief executive of MMS Participações S.A., the controlling shareholder of the Company.
a.
No judgment of guilty (final or otherwise) has been entered in the last five years against Ms. Marçal dos Santos in any criminal
proceedings or any disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect
b.
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could be that of having her banned or barred from practicing or performing, or disqualified to practice or perform professional or business
activities of any kind.
Rodrigo Marçal Filho - Taxpayer ID 184.346.398-90
a.
Mr. Marçal Filho has been a member of the Board of Directors of Marfrig Global Foods S.A since March 2007 and as executive officer
of the Company since January 2014 (elected on January 7, he took office on January 23, 2014). He started his career in the a gribusiness
sector and worked as farm manager until joining the Company in May 2000, where he served in multiple roles, from livestock purchaser to
director of construction.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Marçal Filho in any criminal proceedings
or any disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect c ould be that
of having him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of
any kind.
Alain Emilie Henry Martinet - Taxpayer ID 233.887.318-10
a.
Mr. Martinet has been a member of the Board of Directors of Marfrig Global Foods S.A since December 2009. A French-Argentine
business administrator, Mr. Martinet has worked for over 30 years in the beef industry. He first joined Marfrig in October 2006 and has since
performed various roles in the Company, including as lead executive for the group’s operations in Argentina and the United States and chief
executive of the group’s trading companies. Previously, Mr. Martinet served as executive officer of Swift Argentina (2001-2005); as executive
officer for trade affairs (1991 – 1992) and general manager (1985 – 1991) of Frigorífico Rio - Platense; and as lead executive for the
international beef operations of U.S.-based Louis Dreyfus Corporation (1978 - 1984).
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Martinet in any criminal proceedings or
any disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect coul d be that of
having him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of
any kind.
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David G. McDonald - Taxpayer ID 233.461.648-61
a.
Mr. McDonald has been an independent member of the Board of Directors of Marfrig Global Foods S.A since December 2008, after
the Company acquired the OSI Group operations in Brazil and in Europe. He serves as President, chief operating officer and a member of
the board of directors of the OSI Group, LLC (OSI Industries), which he joined in 1987 as project manager, having served in various roles
over time. The OSI Group, LLC, is a food processing international conglomerate with over 70 manufacturing facilities and office premises located
in 38 countries (www.osigroup.com). Mr. McDonald holds a degree in Animal Science from the Iowa State University, United States.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. McDonald in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Carlos Geraldo Langoni - Taxpayer ID 110.847.077-72
a.
Mr. Langoni has been an independent member of the Board of Directors of Marfrig Global Foods S.A since May 2007. He currently
serves as a member of the board of directors of Souza Cruz (a subsidiary of British American Tobacco), member of the Advisory Board of
the Guardian Industries group, President of Projeta Consultoria Economica Ltda. and Senior Adviser to Compan hia Vale do Rio Doce. He
also served as Chairman of the Board of Governors of the Central Bank of Brazil between 1980 and 1983. Mr. Langoni holds a graduate
degree in Economics (1968) from the Federal University of Rio de Janeiro, Brazil, and a PhD degree in Economics (1970) from the University
of Chicago, United States.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Langoni in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Marcelo Maia de Azevedo Correa - Taxpayer ID 425.052.917-72
a.
Mr. Correa has been an independent member of the Board of Directors of Marfrig Global Foods S.A since May 2007. He formerly
served as chief executive officer of Grupo Neoenergia S.A., as a member of the board of governors of ONS ( Operador Nacional do
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Sistema Elétrico) the Brazilian Electric Power System Operator, and as director of electric power ut ilities in the Brazilian states of Bahia
(Coelba), Rio Grande do Norte (Cosern) and Pernambuco (Celpe), and as director of local power utilities, thermal power stations and small
hydropower plants (Itapebi , Termopernambuco, Bahia PCH I, Afluente, Goiás Sul and Baguari I) operated by the Neoenergia group.
Previously, he served as chairman of the board of CPFL – Piratininga (2001 – 2002), chief executive officer of VBC Energia S.A. (1997 – 2004),
member of the fiscal council of RGE – Rio Grande Energia (1997 – 1999) and of CPFL – Paulista (2000). Mr. Correa holds a graduate degree
in engineering (1982) from the Pontifical Catholic University of Rio de Janeiro and a master’s degree in Finance (1992) from the IBMEC.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Correa in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Antonio dos Santos Maciel Neto - Taxpayer ID 532.774.067-68
a.
Mr. Maciel Neto has been an independent member of the Board of Directors of Marfrig Global Foods S.A since May 2007.
Additionally, he currently serves as Chief Executive Officer of the CAOA Group and as a member of the board of directors of Archer
Daniels Midland Company, a U.S.-based global food processing and commodities trading corporation. Previously, he served as chief
executive officer of Suzano Papel e Celulose S/A (pulp and paper producer). In addition, from 1999 to May 2006, Mr. Maciel N eto held
various executive positions with the Ford conglomerate, including as corporate vice president of the Ford Motor Company (2004) ,
President of Ford’s South America Operations (2003 – 2006) and chief executive officer of Ford Brazil (1999 – 2003). He is a former
Chairman of the Itamarati Group (sugarcane, renewable energy; from 1997 to 1999) and of CECRISA - Revestimentos Cerâmicos
(ceramic tiles, from 1993 to 1997). Between 1990 and 1993, he held various positions in the federal government of Brazil, in cluding as
Adjunct Director of the Manufacturing and Commerce Department of the Ministry of Development Manufacturing and Trade, and
National Adjunct Secretary of Economics of the Ministry of Finance, and Vice Minister of the Ministry of Industry, Commerce a nd
Tourism. In the same period he was technical coordinator of the Brazilian Quality and Productivity Program ( Programa Brasileiro de
Qualidade e Produtividade) or PBQP. He began his professional career at Petrobras in 1980, where he worked for ten years. Mr. Maciel
Neto holds a graduate degree in Mechanical Engineering (1979) from the Federal University of Rio de Janeiro.
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b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Maciel Neto in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
FISCAL COUNCIL
Eduardo Augusto Rocha Pocetti - Taxpayer ID 837.465.368-04
a.
Mr. Pocetti has been an effective member of the fiscal council of Marfrig Global Foods S.A since April 2014. He holds a graduate degree
in accounting and a master’s degree in business administration from the Business Administration School of the Getúlio Vargas Foundation
(FGV). Mr. Pocetti serves as Chairman of the Board of Directors of the Brazilian Institute of Independent Auditors (IBRACON). With over 30
years of experience in auditing, he was formerly a partner of the audit firm KPMG Auditores Independentes; chief executive officer of the
audit firm BDO Auditores Independentes and the representative of BDO Brazil before the global network of BDO member firms (2004 - 2011).
He is highly experienced in finance, accounting, independent auditing, economic and financial planning, and in coordinating middle and upper
management operations in multiple domestic and international large-cap manufacturing companies and financial conglomerates. He was also
lead partner in multiple IPOs and project finance transactions in preparation of mergers and acquisitions. Mr. Pocetti has not previously
occupied other positions in the Board or Management of Brazilian public companies.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Pocetti in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Roberto Lamb - Taxpayer ID 009.352.630-04
a.
Mr. Lamb has been an effective member of the fiscal council of Marfrig Global Foods S.A since April 2011. He holds a graduate degree
in Physics from the Federal University of Rio Grande do Sul (1972), a post-graduate degree in Monetary Economics from the Federal
University of Rio Grande do Sul (1987) and a master’s degree in Business Administration (Finance) from the same University (1993). Mr.
Lamb is an IBGC-certified fiscal councilman. He is a Professor of Financial Management for the undergraduate and post-graduate business
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administration programs of the Federal University of Rio Grande do Sul (has been since 1998). In addition, he has been an eff ective fiscal
council member at AES Tietê S.A. (power utility) since April 2012 and at Gerdau S.A. (steelworks) since April 2013. He is also an alternate
fiscal council member at AES Elpa S.A. (AES holding company, AES being a power distribution company); alternate fiscal counci l member at
Petrobras S.A. (oil & gas, energy), both of which are public companies. Previously, he served as effective fiscal council member of the
following public companies: Seara Alimentos (food products, Brazil), Marcopolo S.A. (truck & bus body shells producer, Brazil ), Gerdau S.A.
(steelworks, Brazil – in 2007-2008), Rio Grande Energia S.A. (power distribution, Brazil), AES Eletropaulo (power distribution, Brazil).
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Lamb in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Alexandre Mendonça – Taxpayer ID 252.249.718-96
a.
Mr. Mendonça holds a degree in Electrical Engineering from the Engineering School of the São Paulo University and a degree in
Business Administration (with majors in Finance and Entrepreneurship) from the Getúlio Vargas Foundation (São Paulo School). He is a
project manager and consultant specializing in development of financial, accounting and marketing strategies, having advised companies in
Brazil and elsewhere, including Mineradora Aripuanã (mining company); Gradda Business Solutions (a consultancy firm); Galeazzi &
Associados (consultancy specializing in corporate management strategies); Península Participações (asset management firm); Libbs
Farmacêutica (pharmaceuticals); Suavipan Alimentos (bakery company); TNL Contax (business processes outsourcing); Credigy Receivables
(debt collector); Banco WestLB do Brasil (banking); Merrill Lynch and others.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Mendonça in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Peter Vaz da Fonseca - Taxpayer ID 073.247.468-02
a.
Mr. Fonseca has been an alternate member of the fiscal council of Marfrig Global Foods S.A since April 2014, a position he held previously
in the years 2010, 2011. He also held the position of effective fiscal council member of the Company in the year 2012. Mr. Fonseca holds a
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graduate degree in accounting. He is currently attending the Business Administration master’s degree program of the Mackenzie Presbyterian
University. In addition, he specialized in Business Economics (MBA degree from the São Paulo University) and attended specialization programs
in Auditing and Expert Inspections at Faculdade Álvares Penteado (FECAP). He is an independent corporate accounting consultant experienced in
multiple market segments. He is also external audit committee member for a number of companies across industries. He is an experienced fiscal
councilman.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Fonseca in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Carlos Roberto de Albuquerque Sá - Taxpayer ID 212.107.217-91
a.
Mr. Albuquerque Sá has been an alternate member of the fiscal council of Marfrig Global Foods S.A since April 2013, a position he also
held in the year 2011. Mr. Albuquerque Sá holds graduate degrees in Accounting Sciences and Economic Sciences and a post-graduate
degree in Finance from the Pontifical Catholic University of Rio de Janeiro (PUC/RJ). Until 2012 he was a Professor of Enterprise Risk
Management & Internal Controls for the MBA program of the Armando Alvares Penteado Foundation, and taught Enterprise Risk
Management in the Directors Education Program of the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança
Corporativa), or IBGC. Mr. Albuquerque Sá has been a fiscal council member of the Local Council of the city of Goiânia (state of Goiás) since
July 2011.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Albuquerque Sá in any criminal proceedings
or any disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of
having him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
Marcelo Silva - Taxpayer ID 118.990.828-08
a.
Mr. Silva served as alternate member of the fiscal council of Marfrig Global Foods S.A in the year 2011. Mr. Silva is an accounting
technician (undergraduate degree from the Commercial Apprenticeship National Service, São Paulo Chapter – SENAC/SP), holds a Law degree
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from Universidade Paulista (UNIP) and a post-graduate degree in Tax Law from the Brazilian Institute of Tax Studies (Instituto Brasileiro de
Estudos Tributários – IBET), in addition to certifications from a number of graduate specialization programs he attended at the São Paulo
Association for Tax Studies (Associação Paulista de Estudos Tributários – APET), the IOB Corporate Education Center, the FISCOSOFT Continuing
Education Center and others. With over 18 years of experience in tax planning and team leadership, he provides consulting services to midand large-sized companies across a number of industries, with focus on tax credit analysis and recovery.
b.
No judgment of guilty (final or otherwise) has been entered in the last five years against Mr. Silva in any criminal proceedings or any
disciplinary proceedings processed before the CVM, or in any other court or administrative proceedings, whose effect could be that of having
him banned or barred from practicing or performing, or disqualified to practice or perform professional or business activities of any kind.
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SUBSECTION 12.7. COMPOSITION OF STANDING COMMITTEES, AUDIT COMMITTEE, FINANCE COMMITTEE AND COMPENSATION COMMITTEE
- Name
- Taxpayer ID (CPF)
- Work performed for the issuer in any other capacity
- Committee type
- Description of other
Committees
- Position held
- Description of other positions held
- Career background;
Liability statement, if any
- Profession or
occupation
- Age
- Election date
- Investiture date
Marcelo Maia de Azevedo Correa
Audit Committee
Committee Coordinator
Civil Engineer
January 23, 2014
425.052.917-72
Independent Director
Management Committee
59
January 23, 2014
Marcia Aparecida Pascoal Marçal dos Santos
Audit Committee
Businesswoman
January 23, 2014
42
January 23, 2014
Management Committee
Compensation, Corporate
Governance and Human
Resources Committee
102.174.668-18
Chairman of the Board (non-independent)
Member of the Audit Committee;
Member of the Compensation, Corporate Governance and
Human Resources Committee and the Finance and
Risk Management Committee
Committee member (sitting member)
Business
administrator
72
January 23, 2014
January 23, 2014
2015
Annual Meeting
Committee Coordinator
Mechanical
Engineer
January 23, 2014
57
January 23, 2014
Economist
January 23, 2014
70
January 23, 2014
Businessman
January 23, 2014
45
January 23, 2014
2015
Annual Meeting
See Subsections 12.6 to 12.8.
Finance and
Risk Management Committee
110.847.077-72
Independent Director
Member of the Compensation, Corporate Governance and
Human Resources Committee
Marcos Antonio Molina dos Santos
2015
Annual Meeting
See Subsections 12.6 to 12.8.
532.774.067-68
Independent Director
Member of the Finance and Risk Management Committee
Carlos Geraldo Langoni
Committee member (sitting member)
Vide item 12.6/8.
233.887.318-10
Non-Independent Director
Antonio dos Santos Maciel Neto
2015
Annual Meeting
See Subsections 12.6 to 12.8.
182.070.698-21
Non-Independent Director
Alain Emilie Henry Martinet
- Term of office
Committee Coordinator
2015
Annual Meeting
See Subsections 12.6 to 12.8.
Management Committee
Committee Coordinator
2015
Annual Meeting
See Subsections 12.6 to 12.8.
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12.9. SPOUSAL AND FAMILIAL RELATIONSHIPS (TO THE SECOND DEGREE) BETWEEN THE DIRECTORS AND OFFICERS OF THE ISSUER, AND BETWEEN THE
DIRECTORS, OFFICERS AND SHAREHOLDERS OF THE ISSUER OR ITS PARENT AND SUBSIDIARY COMPANIES
Name
Position
Taxpayer ID
(CPF)
Corporate name of the issuer,
or parent or subsidiary company
Corporate Taxpayer ID
(CNPJ)
Type of relationship with the director / officer
of the issuer or parent or subsidiary company
Director/officer of the issuer or parent or subsidiary company
Marcos Antonio Molina dos Santos
102.174.668-18
Marfrig Global Foods S.A.
Chairman of the Board of Directors
03.853.896/0001-40
st
Spouse (1 degree relative)
Related person
Marcia Aparecida Pascoal Marçal dos Santos
182.070.698-21
Marfrig Global Foods S.A.
03.853.896/0001-40
102.174.668-18
Marfrig Global Foods S.A.
03.853.896/0001-40
184.346.398-90
Marfrig Global Foods S.A.
03.853.896/0001-40
Non-independent director
Note
Nihil
Director/officer of the issuer or parent or subsidiary company
Marcos Antonio Molina dos Santos
nd
Sibling-in-law (2 degree relative)
Chairman of the Board of Directors
Related person
Rodrigo Marçal Filho
Non-independent director
Executive Officer (Executive Board of Officers)
Note
Mr. Rodrigo Marçal Filho is the brother of Ms. Marcia Aparecida Pascoal Marçal dos Santos, who in turn is married to Mr. Marcos Antonio Molina dos Santos, the Chairman of
our Board of Directors.
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12.10. REPORT SUBORDINATE RELATIONSHIPS (EMPLOYMENT OR OTHER WORK RELATIONSHIP), SERVICES RELATIONSHIPS OR CONTROL
RELATIONSHIPS IN THE PAST THREE YEARS CONNECTING THE DIRECTORS AND OFFICERS OF THE ISSUER WITH PARENT OR SUBSIDIARY COMPANIES, OR
WITH MATERIAL SUPPLIERS, CUSTOMERS, DEBTORS OR CREDITORS.
Identification
Position or function
Taxpayer ID
(CPF or CNPJ)
Type of Relationship
Type of related person
Year ended December 31, 2014
Director of the Issuer
Marcos Antonio Molina dos Santos
102.174.668-18
Controlling interest
Direct controlling shareholder
Chairman of the Board of Directors
Related Person
MMS PARTICIPAÇÕES LTDA.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
Director of the Issuer
Marcia Aparecida Pascoal Marçal dos Santos
182.070.698-21
Controlling interest
Direct controlling shareholder
Director
Related Person
MMS PARTICIPAÇÕES LTDA.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
Year ended December 31, 2013
Director of the Issuer
Marcos Antonio Molina dos Santos
102.174.668-18
Controlling interest
Direct controlling shareholder
Chairman of the Board of Directors and Chief Executive Officer
Related Person
MMS PARTICIPAÇÕES S.A.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
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Director of the Issuer
Marcia Aparecida Pascoal Marçal dos Santos
182.070.698-21
Controlling interest
Direct controlling shareholder
Director
Related Person
MMS PARTICIPAÇÕES S.A.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
Year ended December 31, 2012
Director of the Issuer
Marcos Antonio Molina dos Santos
102.174.668-18
Controlling interest
Direct controlling shareholder
Chairman of the Board of Directors and Chief Executive Officer
Related Person
MMS PARTICIPAÇÕES S.A.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
Director of the Issuer
Marcia Aparecida Pascoal Marçal dos Santos
182.070.698-21
Controlling interest
Direct controlling shareholder
Director
Related Person
MMS PARTICIPAÇÕES S.A.
08.542.030/0001-31
Note
MMS Participações is the controlling shareholder of Marfrig Global Foods S.A. Its only shareholders are Mr. Marcos Antonio Molina dos Santos and Ms. Marcia Aparecida
Pascoal Marçal dos Santos.
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APPENDIX III
EXECUTIVE COMPENSATION
PER SECTION 13 OF THE REFERENCE FORM
13.1 Compensation policy or practices, including executive officers not specified in the bylaws
(a) Objectives of the compensation policy or practice
The compensation policy of the Corporation establishes the criteria, responsibilities and definitions for
the compensation of its managers. The policy also aims to motivate executives of the Corporation to
grow and develop to reach their maximum potential, to align their performance with the business
objectives of the Corporation, recognizing their performance through the payment of incentives (shortand long-term).
The Compensation, Corporate Governance and Human Resources Committee is the deliberative
body charged with evaluating the managers of the Corporation and subsequent compensation owed
to each one of them pursuant to the compensation policy. The committee is formed by members of
the Board of Directors.
The parameters used to determine the compensation of the managers are based on market practices.
(b) composition of the compensation
(i) description of compensation elements and their individual purposes
Board of Directors
The compensation of the members of the Board of Directors of the Corporation is composed of:

a fixed portion, which includes a monthly salary that is set annually for each of the members
and various benefits, seeking to reward monetarily the members of the Board of Directors in
accordance with their responsibilities and professional experience with the Corporation; and

a variable portion, which includes (i) a share in the profits of the Corporation; and
(ii) compensation based on the stock option plan of the Corporation.
Executive Officers
The compensation of the Executive Officers of the Corporation is composed of:

a fixed portion, which includes a monthly salary that is set annually for each of the members
and various benefits, seeking to reward monetarily the Executive Officers in accordance with
their responsibilities and professional experience with the Corporation; and

a variable portion, which includes (i) a share in the profits of the Corporation; and
(ii) compensation based on the stock option plan of the Corporation.
Fiscal Council
The compensation of the members of the Fiscal Council is composed only of a fixed portion, which
includes one fixed monthly salary established annually for each of its members and benefits, aiming
to reward monetarily the members of the Fiscal Council in accordance with their responsibilities and
professional experience with the Corporation.
Committees
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All participants in the various advisory committees to the Board of Directors, such as the Financial
Committee, Audit Committee and Compensation, Corporate Governance and Human Resources
Committee, are not remunerated for their participation in said committees, since they already hold
other positions in the Corporation, such as officer, director or Fiscal Council member. A breakdown of
the compensation was described in the items above.
(ii) the proportion of each element in the total compensation
Board of Directors
Compensation of members of the Board of Directors consists of a single fixed portion.
Executive Officers

Fixed portion: represents 59% of the total compensation; and

Variable portion: (i) share in the profits of the Corporation: represents 28% of the total
compensation; and (ii) compensation based on the stock option plan of the Corporation:
represents 14% of the total compensation.
Fiscal Council
The compensation of the members of the Fiscal Council is composed only of a fixed portion.
(iii) the calculation and adjustment methodology used for each compensation element
Board of Directors
The composition of the compensation of directors is determined through a market survey of the main
companies in the segment to determine a base for the compensation, which is validated by the
Compensation, Corporate Governance and Human Resources Committee of the Corporation. Each of
the elements of director compensation is subject to annual adjustment as deemed necessary to
accompany the industry median as determined by the annual salary survey.
Executive Officers
The composition of the compensation of Executive Officers is determined based on an annual salary
survey of a select group of companies (peer group) in the food segment and of Brazilian publicly
traded companies with a presence abroad, which analyzes the competitiveness of various
components of the aggregate compensation of executives (base salary, short- and long-term
incentives and benefits). Based on the results of the annual salary survey, a revision is made to the
Marfrig Global Foods’ Salary Table, which forms the structure of the Corporation's positions and
salaries. The macro policies and their revisions are submitted to approval by the Compensation,
Corporate Governance and Human Resources Committee. Each of the elements of executive officer
compensation is subject to annual adjustment as deemed necessary to accompany the industry
median as determined by the annual salary survey.
Fiscal Council
The composition of the compensation of the members of the Fiscal Council is determined based on
an annual salary survey of a select group of Brazilian publicly traded companies (peer group), which
analyzes the competitiveness of various components of the aggregate compensation of these
executives (base salary and benefits). The macro policies and their revisions are submitted to
approval by the Compensation, Corporate Governance and Human Resources Committee. Each of
the elements of the compensation of the members of the Fiscal Council is subject to annual
adjustment as deemed necessary to accompany the industry median as determined by the annual
salary survey.
(iv) the reasons justifying the composition of the compensation
The composition of the remuneration of the managers and the members of the Fiscal Council of the
Corporation is justified, since it follows market practices, as identified by the annual salary surveys of
Brazilian publicly traded companies, which allows the Corporation to maintain its competitiveness.
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(c) Key performance indicators considered to determine each compensation element
The indicators considered in determining the short-term variable compensation and long-term
incentives of the Corporation's managers are shown below:

Net revenue: Corporation’s revenue net of direct taxes, cancellations and discounts

EBITDA Margin: Percentage value obtained by dividing EBITDA by the net revenue of the
Corporation.

Free Cash Flow: The Corporation’s operating cash flow, less capex and financial expenses.

Capex deviation: It is the percentage attainment of the amount invested by the Corporation
in property, plant and equipment, as well as intangible and biological assets in the period.

Individual: up to five targets are proposed for the management of the executive’s area, which
focus on results that are aligned with the guidelines defined by the immediate leader, taking
into account, among other things, the budget, sales, revenue and productivity.
The indicators and targets of the Board of Directors are aligned with the structure used to determine
the targets of the Board of Executive Officers and management contracts are drafted that include
function-specific factors and the indicators of the overall performance of the Corporation.
(d) How the compensation is structured to reflect the evolution in performance indicators
The variable compensation is determined by the performance indicators of each of the divisions of the
Corporation. Individual targets are established for each target, as identified in item (c) above, which
are compared at the end of the fiscal year to the proposed target, which generates the index to be
applied to those involved.
e) How the compensation policy or practice is aligned with the short-, medium- and long-term
interests of the issuer
Since the Corporation adopts market practices to determine its compensation policy (both fixed and
variable), the practices motivate and recognize the executives’ efforts towards achieving the business
objectives, which further aligns the relationship between the Corporation and the manager. The sum
of the compensations (fixed, variable and indirect/benefits) should be compatible with the peer group,
always considering the lowest overall cost.
The fixed remuneration (or base salary) aims to reward executives in accordance with the level of
contribution of their positions within the position and salary structure of the Corporation. The salary
table of the Corporation is reviewed annually in accordance with the salary survey conducted of the
peer group, as mentioned above.
The short-term variable compensation aims to recognize the results obtained by the Corporation in
the financial, operational and human dimensions, in accordance with the mix of annual corporate
objectives, as indicated in item (c) above.
The long-term incentive aims to retain executives and provide a deferred long-term reward through
the annual assessment of targets, as indicated in item (c) above, and is granted on an annual basis
through the specific stock option plan with 25% deferred each year.
(f) existence of compensation borne by the subsidiaries or direct or indirect controlling
shareholders
Not applicable, since the entire compensation of executives is directly supported by the Corporation,
through a central payroll.
(g) existence of any compensation or benefits linked to the occurrence of certain corporate
events, such as the transfer of control of the issuer
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Not applicable, since no component of the compensation of the managers of the Corporation is linked
to ownership events.
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13.2 Total compensation attributable to members of the board of directors, board of executive
officers established by the bylaws and Fiscal Council
Total compensation estimated for the current fiscal year (2015) – Annual Amounts
Board of Directors
Board of Executive
Officers
Fiscal Council
Total
8.00
5.00
6.00
19.00
Regular remuneration
5,717,692.82
6,712,193.12
674,309.13
13,104,195.07
Direct and indirect benefits
77,874.55
198,251.93
9,818.25
285,944.73
Participation in committees
-
-
-
-
Other
1,143,538.56
2,467,903.72
134,861.83
3,746,304.11
Description of other fixed
compensation
Charges (INSS)
Charges (INSS and
FGTS)
Charges (INSS)
-
Bonuses
-
-
-
-
Profit sharing
-
7,825,218.18
-
7,825,218.18
Attendance to meetings
-
-
-
-
Commissions
-
-
-
-
Other
-
-
-
-
Description of other variable
compensation
-
-
-
-
Post-employment benefits
-
-
-
-
Severance benefits
-
-
-
-
Share-based payments
-
2,038,337.91
-
2,038,337.91
Notes
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
-
Total compensation
6,939,105.93
19,241,904.86
818,989.21
27,000,000.00
Number of members
Annual fixed compensation
Variable compensation
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Total compensation for the fiscal year ending 12/31/2014 – Annual Amounts
Board of Directors
Board of Executive
Officers
Fiscal Council
Total
Number of members
8.33
5.00
6.00
19.33
Annual fixed compensation
7,317,323.86
6,746,088.79
734,676.52
14,798,089.17
Regular remuneration
5,245,825.30
5,114,702.80
609,541.19
10,970,069.29
Direct and indirect benefits
43,634.04
80,113.85
3,227.09
126,974.98
Participation in committees
-
-
-
-
Other
1,027,864.52
1,496,099.73
121,908.24
3,701,044.90
Description of other fixed
compensation
Charges (INSS)
Charges (INSS and
FGTS)
Charges (INSS)
-
Variable compensation
5,000,000.00
4,075,862.08
-
9,075,862.08
Bonuses
5,000,000.00
275,862.07
-
5,275,862.07
Profit sharing
-
3,800,000.01
-
3,800,000.01
Attendance to meetings
-
-
-
-
Commissions
-
-
-
Other
1,000,000.00
55,172.41
-
1,055,172.41
Description of other variable
compensation
Charges (INSS)
Charges (INSS)
-
-
Post-employment benefits
-
-
-
-
Severance benefits
-
-
-
-
Share-based payments
-
916,704.15
-
916,704.15
Notes
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
-
Total compensation
12,317,323.86
11,738,655.02
734,676.52
24,790,655.40
117/141
Total compensation for the fiscal year ended 12/31/2013 – Annual Amounts
Board of Directors
Board of Executive
Officers
Fiscal Council
Total
9.00
4.00
6.00
19.00
Regular remuneration
2,194,491.96
6,206,576.69
641,414.00
9,042,482.65
Direct and indirect benefits
-
57,301.02
-
57,301.02
Participation in committees
-
-
-
-
Other
438,898.40
1,589,599.97
128,283.30
2,156,781.67
Description of other fixed
compensation
Charges (INSS)
Charges (INSS)
Charges (INSS)
-
Variable compensation
-
Bonuses
-
5,930,000.00
-
5,930,000.00
Profit sharing
-
-
-
-
Attendance to meetings
-
-
-
-
Commissions
-
-
-
-
Other
-
1,225,200.00
-
1,225,200.00
Description of other variable
compensation
-
Charges (INSS)
-
-
Post-employment benefits
-
-
-
-
Severance benefits
-
-
-
-
Share-based payments
-
-
-
-
Notes
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
-
Total compensation
2,633,390.36
15,008,677.68
769,697.30
18,411,765.34
Number of members
Annual fixed compensation
118/141
Total compensation for the fiscal year ended 12/31/2012 – Annual Amounts
Board of Directors
Board of Executive
Officers
Fiscal Council
Total
8.00
4.00
6.92
18.92
Regular remuneration
2,194,492.00
6,124,592.55
601,500.00
8,920,584.55
Direct and indirect benefits
-
75,038.00
-
75,038.00
Participation in committees
-
-
-
-
Other
438,898.00
1,714,885.91
120,300.00
2,274,083.91
Description of other fixed
compensation
Charges (INSS)
Charges (INSS)
Charges (INSS)
-
Variable compensation
-
-
-
-
Bonuses
-
2,003,952.00
-
2,003,952.00
Profit sharing
-
-
-
-
Attendance to meetings
-
-
-
-
Commissions
-
-
-
-
Other
-
561,106.60
-
561,106.60
Description of other variable
compensation
-
Charges (INSS)
-
-
Post-employment benefits
-
-
-
-
Severance benefits
-
-
-
-
Share-based payments
-
602,021.00
-
602,021.00
Notes
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
Number of members
calculated pursuant to
the criteria in Circular
Letter
CVM/SEP/Nº03/2012.
-
Total compensation
2,633,390.00
11,081,596.06
721,800.00
14,436,786.06
Number of members
Annual fixed compensation
119/141
13.3 Variable compensation of the members of the board of directors, board of executive
officers established by the bylaws and Fiscal Council
Variable compensation estimated for fiscal year 2015
Board of
Executive
Officers
Board of
Directors
Number of members
Fiscal Council
Total
8.00
5.00
6.00
19.00
Lowest amount foreseen in the compensation plan
-
-
-
-
Highest amount foreseen in the compensation plan
-
-
-
-
Amount foreseen in the compensation plan for goals
attained
-
-
-
-
Bonuses
Profit sharing
Lowest amount foreseen in the compensation plan
-
7,042,696.36
-
7,042,696.36
Highest amount foreseen in the compensation plan
-
9,390,261.81
-
9,390,261.81
Amount foreseen in the compensation plan for goals
attained
-
7,825,218.18
-
7,825,218.18
Variable compensation for fiscal year ended December 31, 2014
Board of
Executive
Officers
Board of
Directors
Number of members
8.00
Fiscal Council
5.00
Total
6.00
19.00
Bonuses
-
Lowest amount foreseen in the compensation plan
5,829,120.00
4,595,798.37
-
10,424,918.37
Highest amount foreseen in the compensation plan
7,772,160.00
6,127,731.15
-
13,899,891.15
Amount foreseen in the compensation plan for goals
attained
6,476,800.00
5,106,442.63
-
11,583,242.63
5,000,000.00
275,862.07
-
5,275,862.07
Lowest amount foreseen in the compensation plan
-
-
-
-
Highest amount foreseen in the compensation plan
-
-
-
-
Amount foreseen in the compensation plan for goals
attained
-
-
-
-
Amount effectively recognized in income for the year
-
3,800,000.01
-
3,800,000.01
Amount effectively recognized in income for the year
Profit sharing
120/141
Variable compensation – fiscal year ended December 31, 2013
Board of Directors
Number of members
Board of
Executive
Officers
9.00
Fiscal Council
Total
4.00
6.33
19.33
Bonuses
Lowest amount foreseen in the compensation plan
562,500.00
11,541,429.00
-
12,103,929.00
Highest amount foreseen in the compensation plan
750,000.00
15,388,572.00
-
16,138,572.00
Amount foreseen in the compensation plan for goals
attained
625,000.00
7,155,200.00
-
7,780,200.00
Amount effectively recognized in income for the year
-
5,930,000.00
-
5,930,000.00
Profit sharing
Lowest amount foreseen in the compensation plan
-
-
-
-
Highest amount foreseen in the compensation plan
-
-
-
-
Amount foreseen in the compensation plan for goals
attained
-
-
-
-
Amount effectively recognized in income for the year
-
-
-
-
Variable compensation – fiscal year ended December 31, 2012
Board of
Executive
Officers
Board of
Directors
Fiscal Council
Total
8.00
4.00
6.92
18.92
Lowest amount foreseen in the compensation plan
562,500.00
2,670,060.00
-
3,232,560.00
Highest amount foreseen in the compensation plan
750,000.00
4,272,096.00
-
5,022,096.00
Amount foreseen in the compensation plan for goals
attained
750,000.00
3,560,080.00
-
4,310,080.00
Amount effectively recognized in income for the year
-
2,003,952.00
-
2,003,952.00
Lowest amount foreseen in the compensation plan
-
-
-
-
Highest amount foreseen in the compensation plan
-
-
-
-
Amount foreseen in the compensation plan for goals
attained
-
-
-
-
Amount effectively recognized in income for the year
-
-
-
-
Number of members
Bonuses
Profit sharing
121/141
13.4 Share-based compensation plan attributable to directors and statutory officers
a) General terms and conditions
On May 29, 2009, the shareholders convened in an Extraordinary Shareholders' Meeting approved
the general guidelines of the stock option plan of the Corporation ("Stock Option Plan"). The specific
terms of the Stock Option Plan are as follows:
Administration of the Stock Option Plan
The Stock Option Plan targets the managers, employees in leadership positions and outsourced
service providers of the Corporation or its subsidiaries (“Beneficiaries”). The Plan is managed by the
Board of Directors of the Corporation, which may delegate its functions, observing the restrictions
provided for by law, to a committee especially created for such purpose (“Committee”).
If a Committee is created, it must be formed by at least three (3) members, one of whom must be a
Director at the Corporation, while the other members must be elected by the Board of Directors. The
members of the Board of Directors and of the Committee are not eligible to become beneficiaries of
the Stock Option Plan.
If the general conditions of the Stock Option Plan and the guidelines established by the Shareholders’
Meeting of the Corporation have been fulfilled, the Board of Directors shall have broad powers to take
all the necessary and appropriate measures to manage the Stock Option Plan, including:
(i) granting options under the terms of the Stock Option Plan, as well as drafting and applying
the specific rules for each grant;
(ii) defining goals for the performance of the managers, employees and service providers of the
Corporation or other legal entities under its control, with the aim of establishing objective
criteria for selecting the Beneficiaries;
(iii) selecting the Beneficiaries of the Stock Option Plan and authorizing the granting of stock
options to them, establishing all the conditions for the options to be granted and modifying
such conditions when required to align the options with governing law and regulations;
(iv) issuing new shares in the Corporation within the authorized capital limit in order to meet the
needs for exercising the options granted under the terms of the Stock Option Plan;
(v) creating Specific Programs (defined below) for granting the stock options.
In the exercise of its powers, the Board of Directors shall be subject only to the limits established by
law and in the Stock Option Plan, with it clear that the Board of Directors may adopt different
treatments for the managers, employees and service providers of the Corporation or the other legal
entities under its control in similar situations, and that it is not obliged by any equal-treatment rule to
extend to everyone conditions that it deems applicable only to certain individuals or groups of
individuals.
Creation of Specific Programs
Periodically, the Board of Directors or Committee may create stock option grant programs with
specific conditions concerning the members, the number of options granted, the performance goals to
be met, the option exercise price and other conditions (“Specific Programs”), which may not have
any relationship to the general conditions established by the Stock Option Plan.
As of the date hereof, eight Specific Programs have been created.
The Board of Directors of the Corporation will determine the Beneficiaries to whom stock options will
be granted pursuant to the Stock Option Plan, the number of shares that may be acquired through the
exercise of each option, the strike price of each option and payment conditions, the vesting period
and conditions for exercise of each option and any other conditions related to such options.
The granting of stock options pursuant to the Stock Option Plan is effected by executing the stock
option agreement between the Corporation and the Beneficiaries, which must specify, without
harming the other conditions determined by the Board of Directors: (a) the number of shares being
122/141
granted; (b) the vesting conditions; (c) the expiration of the stock options; and (d) the strike price and
payment conditions (“Option Agreement”).
The Option Agreements will be individually prepared for each Beneficiary and the Board of Directors
may establish specific terms and conditions for each Option Agreement, without the need to apply any
rule of isonomy or analogy among Beneficiaries, regardless of the event of similar or identical
conditions.
Duration of the Stock Option Plan
The Stock Option Plan shall be in force from the date of its approval by the Shareholder’s Meeting of
the Corporation and may be terminated at any time by decision of the Shareholders’ Meeting. The
termination of the Stock Option Plan does not affect the validity of the options still in force granted
under the plan.
General Provisions
To satisfy the exercise of stock options granted under the terms of the Stock Option Plan, the
Corporation may, at the discretion of the Board of Directors: (a) issue new shares within the limit of
the capital authorized; or (b) sell shares held in treasury.
The Shares acquired due to the exercise of options under the terms of the Stock Option Plan shall
maintain all rights inherent to their type, except in the case of item 7.2.1. of the Stock Option Plan, as
well as any provision to the contrary established by the Board of Directors.
No provision of the Stock Option Plan or option granted under the terms of the Stock Option Plan
should entitle any Beneficiary to remain an manager and/or employee of the Corporation and should
not interfere in any way in the right of the Corporation to, at any time and subject to the legal and
contractual conditions, terminate the employment agreement of the employee and/or suspend their
mandate as manager.
Each Beneficiary must explicitly comply with the terms of the Stock Option Plan and sign a written
declaration without any qualifications and in accordance with the terms of the Stock Trading Policy of
the Corporation.
In the interest of the Corporation and its shareholders, the Board of Directors may review the
conditions of the Stock Option Plan, provided it does not change its basic principles.
(b) Main objectives of the plan
The objective of the Stock Option Plan is to allow the managers, employees and service providers of
the Corporation and other legal entities under its control, subject to certain conditions, to acquire stock
in the Corporation, in order to: (a) promote the expansion, success and execution of the corporate
objectives; (b) align the interests of the Corporation’s shareholders with those of its directors, officers,
employees and service provides or other companies under its control; and (c) enable the Corporation
or its subsidiaries to contract and retain directors, officers, employees and service providers.
(c) How the plan contributes to these objectives
As mentioned in the previous item, the objectives of the Stock Option Plan are: (a) to promote the
expansion, success and execution of the corporate objectives; (b) to align the interests of the
Corporation’s shareholders with those of its directors, officers, employees and service provides or
other companies under its control; and (c) to enable the Corporation or its subsidiaries to contract and
retain directors, officers, employees and service providers.
Therefore, by establishing the guidelines and rules, the Stock Option Plan motivates the executives of
the Corporation to grow and develop in order to reach their maximum potential, consistent with the
business objectives, and to recognize this performance through the payment of Incentives.
123/141
(d) How the plan contributes as an element of the issuer’s compensation policy
The Stock Option Plan is aligned with the compensation policy of the Corporation, which aims to
promote the professional growth of its managers, employees and service providers by valuing
individual merit. In this sense, the options are granted in accordance with the achievement of preestablished targets, enabling the managers, employees and service providers of the Corporation to
determine their variable portion based on their individual performance.
(e) How the plan aligns the short-, medium- and long-term interests of the directors and
officers and those of the issuer
The Stock Option Plan aligns the interest of managers, the Corporation and shareholders though
benefits that are aligned with the performance of the stock of the Corporation traded on the Brazilian
Stock Exchange (BM&FBovespa). Therefore, in order for executives to maintain their total
compensation competitive and aligned with the market, they must generate results and ensure that
the value of the Corporation continues to increase.
In addition, through a vesting period, the Beneficiaries of the Stock Option Plan commit to their
individual performance and to the performance of the Corporation over the long term, effectively
contributing to the creation of an environment marked by consistent growth and talent retention.
(f) Maximum number of shares involved
The stock options granted under the terms of the Stock Option Plan may grant rights to acquire and/or
subscribe to a certain number of Stocks that shall not exceed 0.5% of the shares issued by the
Corporation, provided that the total number of shares issued or that may be issued under the terms of
the Stock Option Plan is always within the limits of the authorized capital of the Corporation.
Regardless of the particular conditions in each program, the stock options of each Specific Program
shall not grant rights to a number of Shares that exceeds zero point five percent (0.5%) of the total
number of shares issued by the Corporation, while also respecting the overall limit of 2% of the total
number of shares issued by the Corporation.
(g) Maximum number of options to be granted
As informed in item (f) above, stock options may be granted pursuant to the Stock Option Plan that
assign subscription and/or acquisition rights over a number of shares that may not exceed 5% of all
shares issued by the Corporation.
(h) conditions for acquiring shares
Beneficiaries wishing to exercise their stock options shall inform the Corporation in writing of their
intent, in accordance with communication template to be disclosed by the Board of Directors.
The Corporation shall inform the Beneficiary, within three business days of the receipt of the
abovementioned notice, the exercise price to be paid based on the number of shares informed by the
Beneficiary, with the Corporation responsible for taking all measures necessary to formalize the
acquisition of the underlying shares.
The stock options granted under the terms of the Plan may confer rights for the acquisition of a
number of Shares that does not exceed five percent (5%) of the shares issued by the Corporation,
provided that the total number of shares issued or to be issued under the terms of the Plan always
remains within the limit of the authorized capital of the Corporation.
The Corporation may request the temporary suspension of the right to exercise an option in any
situation that, pursuant to the law and to the regulations in force, restricts or prevents the trading of
shares by the beneficiary. The exercise price of the option will be paid in cash by the beneficiary. No
share will be delivered to the beneficiary as a result of the exercise of the option unless he/she has
complied with all legal and regulatory requirements.
124/141
i) Criteria for determining the acquisition or exercise price
The Board of Directors shall be responsible for setting the exercise price of the options granted under
the terms of the Stock Option Plan, based on the average price weighted by volume of the
Corporation’s stock observed in the last 20 trading sessions on the Brazilian Stock Exchange
(BM&FBovespa) immediately prior to the option grant date, with a discount of up to 20% on the value
ascertained.
The Board of Directors may create specific programs with specific rules and conditions, as already
mentioned in the item “creation of specific programs”.
The exercise price shall be paid by the Beneficiaries in cash, in accordance with the methods and
periods determined by the Board of Directors.
Until the exercise price is fully paid, the shares acquired through the exercise of options under the
terms of the Stock Option Plan may not be sold to third parties, except with the prior authorization of
the Board of Directors, in which case the proceeds from the sale will first be used to settle the debits
of the Beneficiary owed to the Corporation.
j) Criteria for setting the vesting period
The options granted under the terms of the Stock Option Plan may be exercised: (i) 25% at the end of
the first year; (ii) 25% at the end of the second year; (iii) 25% at the end of the third year; and (iv) 25%
at the end of the fourth year; as of the execution of the corresponding Stock Option Agreement and
also observing the terms and conditions stipulated by the Board of Directors and the terms and
conditions provided for in the respective Grant Agreements.
The Beneficiary shall have 12 months to exercise the options as of the dates described above.
The portions of the option not exercised within the stipulated periods and conditions shall be
considered automatically terminated, with no right to indemnification.
k) Payment method
The exercise of the option must be settled in cash, using the Beneficiary’s own funds, within 3
business days after the registration of the shares acquired by the Beneficiary in the records of the
depositary bank of the shares issued by the Corporation.
l) Restrictions on transferring the shares
The Board of Directors may impose precedent terms and/or conditions for the exercise of the options,
observing the minimum clauses defined in the Stock Option Plan, impose restrictions on the transfer
of the shares acquired from the exercise of the options and reserve for the Corporation the option to
buy back the shares or preemptive rights in the event of the sale by the Beneficiary of these shares,
until the expiration of the period and/or the fulfillment of the conditions established.
There are currently no restrictions by the Board of Directors on the transfer of shares acquired
through the exercise of stock options.
m) Criteria and events that if verified cause the suspension, modification or termination of the
plan
The granting of options under the terms of the Stock Option Plan does not prevent the Corporation
from being involved in ownership reorganizations, such as conversions, mergers, consolidations and
spin-offs. The Board of Directors of the Corporation and the legal entities involved in such operations
may, at their discretion, decide, without prejudice to the other measures they decide based on fair
treatment: (a) to substitute the shares that are the object of the option with shares in the Corporation’s
successor company; (b) to move forward the acquisition of the right to exercise the stock option in
order to ensure the inclusion of corresponding shares in the operation in question; and/or (c) to effect
a payment in cash of the amount that the Beneficiary would be entitled to under the terms of the Stock
Option Plan.
If the number, type and class of existing shares on the Stock Option Plan approval date are changed
as a result of bonuses, stock splits, stock groupings or the conversion of shares from one type or
class to another or the conversion into shares of other securities issued by the Corporation, the Board
of Directors will be responsible for adjusting the corresponding number, type and class of shares that
125/141
are the object of the options granted and their respective exercise price in order to prevent any
distortions in the application of the Stock Option Plan.
Furthermore, the Board of Directors may determine the suspension of the right to exercise the options
whenever situations are verified that, subject to governing law and regulations, restrict or prevent
stock trading by the Beneficiaries.
n) Effects of the termination of the director and officer from the issuer’s entities on their rights
under the share-based compensation plan
In the event of the termination of a Beneficiary due to voluntary or involuntary termination of the
service agreement, with or without just cause, resignation or abandonment, retirement, permanent
disability or death, the rights granted to them under the Stock Option Plan may be terminated or
modified.
Moreover, if at any time during the validity of the Stock Option Plan the Beneficiary:


terminates their relationship with the Corporation on their own initiative, voluntarily terminating
their relationship, or resigning their function as manager: (i) the rights not yet exercised under
respective Option Agreement, on the date of their termination, shall automatically and lawfully
expire, regardless of prior notice or indemnification; and (ii) the rights that may already be
exercised on the date of their termination, may be exercised within 30 days from said date, after
which such rights will automatically and lawfully expire, regardless of prior notice or
indemnification;
if the termination is caused by the Corporation upon involuntary termination, with or without just
cause, or the removal from office for violating his or her duties and attributions, all rights that may
not yet be exercised under the respective Option Agreement, on the date of their termination, will
become automatically and lawfully expire, regardless of prior notice or indemnification. The
Board of Directors of the Corporation is responsible, upon analysis of each specific case, for
providing a different solution to the Beneficiary, if applicable;

in the event of termination from the Corporation due to retirement or permanent disability: (i) the
rights not yet exercised on the date of their termination, will automatically become exercisable for
a period of up to six months after said termination, by moving forward the grace period; and (ii)
the rights that may already be exercised on the date of their termination shall remain unchanged
and may be exercised normally under the terms of each specific Program; and

in the event of death: (i) the rights that may not yet be exercised on the date of their death, will
automatically become exercisable by anticipating the grace period, and the heirs and legal
successors of the Beneficiary will be entitled to exercise the respective stock option, provided
they do so within six (6) months from the date of death, after which period said rights
automatically and lawfully expire, regardless of any prior notice or compensation or over the
rightful extinction of said rights; and (ii) the rights that may already be exercised on the date of
their death, may be exercised by the heirs and legal successors of the Beneficiary provided they
do so within six months from the date of death, after which such rights will automatically and
lawfully expire, regardless of prior notice or indemnification.
126/141
13.5 Interests in shares and convertible securities held by the directors and officers and the
members of the Fiscal Council, by body
Corporation
Shares
%
Board of Directors
162,797,009
31.16%
Board of Executive Officers
220,209
0.04%
Fiscal Council
0
0.0%
MMS Participações Ltda.
Shares
%
Board of Directors
162,637,554
100.00%
Board of Executive Officers
0
0.0%
Fiscal Council
0
0.0%
127/141
13.6 Share-based compensation attributable to directors and executive officers
Share-based compensation estimated for the current fiscal year 2015
Board of Directors
Board of Executive
Officers
-
5.00
Grant date
-
-
Number of options granted
-
854,651
Vesting period
-
1 year
End of exercise period (Expiration)
-
4 years
Holding period
-
None
Number of members
Grant of stock options
Price-weighted average :
a)
for options outstanding at start of year
-
2.45
b)
for options forfeited over the period
-
-
c)
for options exercised over the period
-
-
d)
for options expired over the period
-
-
Fair value as of the grant date
-
4.05
Potential dilution upon exercise of all outstanding
stock option grants
-
0.16%
Share-based compensation for the fiscal year ended December 31, 2014
Board of Directors
Board of Executive
Officers
-
4.00
Grant date
-
03/03/2014
Number of options granted
-
470,829
Vesting period
-
1 year
End of exercise period (Expiration)
-
4 years
Holding period
-
None
Number of members
Grant of stock options
Price-weighted average :
a)
for options outstanding at start of year
-
2.56
b)
for options forfeited over the period
-
6.32
c)
for options exercised over the period
-
4.88
d)
for options expired over the period
-
-
Fair value as of the grant date
-
3.82
Potential dilution upon exercise of all outstanding
stock option grants
-
0.09%
128/141
Share-based compensation - fiscal year ended December 31, 2013
Board of Directors
Board of Executive
Officers
8.00
4.00
Grant date
-
04/05/2013
Number of options granted
5,000
47,928
Vesting period
-
1 year
End of exercise period (Expiration)
-
4 years
Holding period
-
None
Price-weighted average :
-
Number of members
Grant of stock options
a)
for options outstanding at start of year
6.00
5.82
b)
for options forfeited over the period
6.37
6.24
c)
for options exercised over the period
0.68
4.60
d)
for options expired over the period
-
-
Fair value as of the grant date
9.45
9.45
Potential dilution upon exercise of all outstanding
stock option grants
0.00%
0.03%
Share-based compensation - fiscal year ended December 31, 2012
Board of Directors
Board of Executive
Officers
8.00
4.00
Grant date
-
4/24/2012
Number of options granted
-
126,264
Vesting period
-
1 year
End of exercise period (Expiration)
-
4 years
Holding period
-
None
Price-weighted average :
-
10.07
Number of members
Grant of stock options
a)
for options outstanding at start of year
-
8.99
b)
for options forfeited over the period
-
3.36
c)
for options exercised over the period
-
3.65
d)
for options expired over the period
-
3.36
Fair value as of the grant date
-
9.454
Potential dilution upon exercise of all outstanding
stock option grants
-
0.0728%
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13.7 Information on unexercised options held by the board of directors and by the officers
established in the bylaws
Unexercised options at the end of the fiscal year ended December 31, 2014
Board of Directors
Board of Executive Officers
8
5
-
578,153
-
03/03/2015, 03/03/2016,
03/03/2017 and 03/03/2018
-
09/02/2015, 09/02/2016,
09/02/2017 and 09/02/2018
Holding period
-
None
Price-weighted average
-
2.56
Fair value of the options on the last day of the
fiscal year
-
3.82
Number
-
-
End of exercise period (expiration)
-
-
Holding period
-
-
Price-weighted average
-
-
Fair value of the options on the last day of the
fiscal year
-
-
Fair value of all options on the last day of the
fiscal year
-
-
Number of members
Options not yet vested
Number
Vesting date
End of exercise period (expiration)
Vested options
130/141
13.8 Options exercised and shares delivered relative to the share-based compensation of
directors and executive officers
Exercised Options - fiscal year ended 12/31/2014
Board of Directors
8
Board of Executive
Officers
5
-
19,054
4.88
-
1.22
-
-
-
-
Board of Directors
Board of Executive
Officers
8
4
Number of shares
27,675
63,789
Average weighted exercise price
9.02
9.02
-0.775
-0.279
Number of shares
0
0
Average weighted exercise price
0
0
0
0
Board of Directors
Board of Executive
Officers
8.00
4.00
Number of shares
27,675
54,100
Average weighted exercise price
6.7783
3.46773
-5.0084
-8.0284
Number of shares
0
0
Average weighted exercise price
0
0
0
0
Number of members
Exercised options
Number of shares
Average weighted exercise price
Difference between the exercise price and price of the
shares underlying the exercised options
Delivered shares
Number of shares
Average weighted exercise price
Difference between the exercise price and price of the
shares underlying the exercised options
Exercised Options - fiscal year ended 12/31/2013
Number of members
Exercised options
Difference between the exercise price and price of the
shares underlying the exercised options
Delivered shares
Difference between the exercise price and price of the
shares underlying the exercised options
Exercised Options - fiscal year ended 12/31/2012
Number of members
Exercised options
Difference between the exercise price and price of the
shares underlying the exercised options
Delivered shares
Difference between the exercise price and price of the
shares underlying the exercised options
131/141
13.9 Information for an understanding of data disclosed under items 13.6 through 13.8 –
Method adopted for the pricing of shares and options
(a) Pricing model:
Black Scholes model.
(b) Data and assumptions used in the pricing model, including the average weighted share
price, exercise price, expected volatility, option lifetime, expected dividends and risk-free
interest rate
The fair value of the options was measured directly, based on the Black-Scholes pricing model and
the following premises:
 Risk-free interest rate: 5% p.a. The Corporation uses as risk-free interest rate the Long Term
Interest Rate (TJLP) annualized on the calculation date and available at the federal revenue service
website - www.receita.fazenda.gov.br/pessoajuridica/refis/tjlp.htm.
 Standard Deviation: 56.57%. Volatility is measured taking into consideration the daily prices of
Corporation shares traded on THE Brazilian Stock Exchange under the ticker MRFG3, from 7/1/2014
to 12/31/2014;
 The fair value of the shares on 12/31/2014 was established from the minimum of R$0.27 to the
maximum of R$4.57 per share for the SPECIAL plans.
The following criteria were adopted to date for the granting of stock options to executives at Marfrig:
In 2008:
 Average weighted price in the 20 trading sessions prior to 03/03/2008: R$15.097/share
In 2009:
 SP LT 07-08: Average weighted price in the 20 trading sessions prior to 03/03/2008:
R$15.097/share
 SP ST 08-09: Average weighted price in the 20 trading sessions prior to 05/11/2009:
R$10.3823/share
 SP LT 08-09: Average weighted price in the 20 trading sessions prior to 03/03/2009:
R$6.7783/share
In 2010:
 Specific Plan IV – Long Term 2009/2010: Average weighted price in the 20 trading sessions prior
to 03/03/2010: R$11.02605/share
The exercise prices are:
I.
II.
III.
IV.
R$0.75485/share for SP LT 07-08
R$1.03823/share for SP ST 08-09
R$0.67783/share for SP LT 08-09
R$11.02605/share for SP LT 09-10
In 2011:
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 Specific Plan V – Long Term 2010/2011: Average weighted price in the 20 trading sessions prior
to 03/03/2011: R$0.251/share
The exercise prices are:
I.
II.
III.
IV.
V.
R$0.75485/share for SP LT 07-08
R$1.03823/share for SP ST 08-09
R$0.67783/share for SP LT 08-09
R$11.02605/share for SP LT 09-10
R$7.0251/share for SP LT 10-11
In 2012:

Specific Plan VI – Long Term 2011/2012: Average weighted price in the 20 trading sessions
prior to 03/03/2012: R$9.535904/share
The exercise prices are:
I.
II.
III.
IV.
V.
VI.
R$0.75485/per share for ESP LP 07-08.
R$1.03823/per share for ESP CP 08-09.
R$0.67783/per share for ESP LP 08-09.
R$11.02605/per share for ESP LP 09-10.
R$7.0251/per share for ESP LP 10-11.
R$ 4.767952/per share for ESP LP 11-12
Option lifetime: four years (for each Specific Plan).
In 2013:
 Specific Plan VII - Long Term 2012/2013: Average weighted price in the 20 trading
sessions prior to March 3, 2013: R$10.016 per share
The exercise prices will be:
I.
II.
III.
IV.
V.
VI.
VII.
R$0.75485/per share for ESP LP 07-08.
R$1.03823/per share for ESP CP 08-09.
R$0.67783/per share for ESP LP 08-09.
R$11.02605/per share for ESP LP 09-10.
R$7.0251/per share for ESP LP 10-11.
R$ 4.767952/per share for ESP LP 11-12
R$5.008273 per share for ESP LP 12-13.
Option lifetime: four years (for each Specific Plan).
133/141
In 2014:

Specific Plan VIII - Long Term 2013/2014: Average weighted price in the 20 trading
sessions prior to March 3, 2014: R$3.92 per share
The exercise prices will be:
I.
R$0.75485 per share for ESP LP 07-08.
II.
R$1.03823 per share for ESP CP 08-09.
III.
R$0.67783 per share for ESP LP 08-09.
IV.
R$11.02605 per share for ESP LP 09-10.
V.
R$7.0251 per share for ESP LP 10-11.
VI.
R$ 4.767952 per share for ESP LP 11-12.
VII.
R$ 5.008273 per share for ESP LP 12-13
VIII.
R$ 1.9470 per share for ESP LP 13-14
Option lifetime: four years (for each Specific Plan)
All dividends and distributions, or their equivalent (whether in cash, stock or other form), on Restricted
Shares not exercised are rights to which participants are entitled and are credited by the Corporation
in their account and released on the expiration of the restrictions.
The Corporation has the option to pay such credits in accumulated dividends or distributions or their
cash equivalent, in stock in the Corporation in lieu of cash or by any other means. For payments
made in shares, the conversion is made by the average price in the last 20 trading sessions on the
Brazilian Stock Exchange prior to the payment date, adjusted for the net value of income tax levied on
the credit made.
(c) Method and assumptions used to incorporate the expected effects from the anticipated
accounting period
The options granted under the terms of the Plan may be exercised: (i) 25% at the end of the first year;
(ii) 25% at the end of the second year; (iii) 25% at the end of the third year; and (iv) 25% at the end of
the fourth year; as of the execution of the corresponding Stock Option Agreement and also observing
the terms and conditions stipulated by the Board of Directors and the terms and conditions provided
for in the respective Stock Option Grant Agreements.
For each of the Plans mentioned above, the Corporation has stipulated a time interval in which the
beneficiary may exercise the option. This period is six months, from March 3 to September 2 of each
year. Beneficiaries may not exercise their options prior to this period.
(d) How to determine the expected volatility
Calculated using the standard deviation, taking into consideration the daily prices of the Corporation’s
shares traded on the Brazilian stock exchange (BM&FBOVESPA) under the ticker MRFG3 in the sixmonth period.
(e) If any other characteristic of the option was incorporated when measuring its fair value
All characteristics of the option were mentioned in the previous items of this Reference Form.
13.10 Pension schemes offered to directors and statutory officers
134/141
The Corporation does not have a pension plan.
135/141
13.11 Maximum variable compensation of the Board of directors, officers established in the bylaws and the Fiscal Council
Annual amounts
Board of Executive Officers
Board of Directors
Fiscal Council
12/31/2014
12/31/2013
12/31/2012
12/31/2014
12/31/2013
12/31/2012
12/31/2014
12/31/2013
12/31/2012
5.00
4.00
4.00
8.33
9.00
8.00
6.00
6.00
6.00
Highest compensation
(in Brazilian real)
5,043,942.98
8,678,686.72
2,426,427.04
9,578,242.04
720,000.00
720,000.00
177,374.64
147,138.00
120,000.00
Lowest compensation
(in Brazilian real)
779,979.72
2,205,330.03
1,161,330.32
591,644.78
323,832.44
491,497.32
72,322.80
60,000.00
40,500.00
Average compensation
(in Brazilian real)
2,347,731.00
3,200,607.04
1,668,450.00
2,463,464.77
658,347.59
636,784.00
81,630.84
120,300.00
80,000.00
No. of members
Note
Board of Directors
12/31/2014
12/31/2013
12/31/2012
Fiscal Council
12/31/2014
In the Board of Directors, in 2014 two directors chose not to receive compensation and one director is also an Executive Officer, and therefore were not
included in the amounts above.
In the Board of Directors, in 2013 three directors were manager at the Corporation and two directors chose not to receive compensation and were not included
in the amounts above.
In the Board of Directors, in 2012 one director was manager at the Corporation and two directors chose not to receive compensation and were not included in
the amounts above.
In the Fiscal Council, in 2014, the lowest individual compensation effectively received was taken into consideration, including only members who remained as
members for 12 months and excluding those who remained in the position for a shorter period.
136/141
13.12 Compensation mechanisms or indemnification for the directors and officers in the
event of their termination or retirement
We do not maintain contractual arrangements, insurance policies or other instruments that form
compensation or indemnification mechanisms for managers in the event of their termination or
retirement.
137/141
13.13 Percentage of the total compensation received by directors and officers and members
of the Fiscal Council who are parties related to the controlling shareholders
Year
Board of Directors
Board of Executive
Officers
Fiscal Council
2014
42.13%
0.00%
0.00%
2013
41.88%
0.00%
0.00%
2012
32.79%
0.00%
0.00%
138/141
13.14 Compensation of the directors and officers and members of the Fiscal Council, by
body, received for any reason other than for the position they hold
The managers and the members of the Fiscal Council of the Corporation do not receive and did
not receive in the last three fiscal years compensation for purposes other than the position they
occupy at the Corporation.
139/141
13.15 Compensation of the directors and officers and the members of the Fiscal Council
recognized in the results of the direct or indirect controlling shareholders of the companies
under joint control and of the subsidiaries of the issuer
The managers and members of the Fiscal Council of the Corporation do not receive and did not
receive in the last three fiscal years compensation recognized in the results of the direct or indirect
controlling shareholders of the companies under joint control and of the subsidiaries of the
Corporation.
140/141
13.16 Other information deemed material
There is no other information the Corporation deems relevant in relation to item 13 that was
disclosed in the other items of this Reference Form.
141/141