Good morning, everyone, and thank you for waiting. Welcome to Marfrig Global Foods S.A Fourth Quarter and Full Year of 2020 Results Conference Call. With us here today we have Mr. Marcos Molina, Founder and Chairman; Tim Klein, Chief Executive Officer of North America Operations; Mr. Miguel Gularte, Chief Executive Officer of South America; Mr. Tang David, Chief Financial and Investor Relations Officer; Mr. Paulo Pianez, Sustainability and Communications Director and Mr. [Eduardo Pocetti] Investor Relations Director. This event is being recorded. And we will start directly in question-and-answer session. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Marfrig website at https://ri.marfrig.com.br/, where all documents related of this earnings result is available. Those following the Q&A session via the webcast may post their questions on our website. They will be answered by the IR team after the conference is finished. Before proceeding, let me mention the forward statements are based on the beliefs and assumptions of Marfrig Global Foods S.A. management and our information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand the conditions related to macroeconomic conditions industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Thank you. The floor is now open for questions.

[Operator Instructions] Our first question comes from Ben Theurer with Barclays.

Hey, good morning, [Munji]. Thank you very much for taking my question. Two questions if I may. So one for Tim Klein so to easy to stay in English. So obviously, it was a very strong 2020 and another strong finish. And thank you very much for giving me an update during the prepared remarks, which was available in regards to the COVID cost. So, Tim, what are you seeing in terms of like cost headwinds still related to COVID? And how do you think this is going to turn out over the course of the year? And would you expect that from the second half perspective once more of your workers getting vaccinated that you can ease a little bit on the cost side because I think it was the number $24 million in the quarter. So just to understand a little bit, the trajectory here and how you're seeing profitability throughout the year, considering the current capital environment as well as, as a pricing environment for your input cost. That would be the first question. Thanks.

Okay. Well, first of all, the biggest percentage of the COVID related costs are labor increases that all packers put into place. So that's really a level playing field across the industry. And so far, we've been able to pass that through and not affect -- impact our margins. As we look at what the ongoing annual cost of that would be, we're estimating somewhere around, in our case, $30 million to $40 million. And that would be the labor penalty that are increase that we've experienced. The other costs are minimal masks and the partitions; we've already spent the money on that. So they're in place. Everything else is very minimal cost. As we look into 2021 and certainly based on where we're at so far in the first quarter I remain very, very comfortable that we're going to show some very, very good numbers, the cut out ratios are going to continue to be strong with the with where we're at in the cattle cycle, and the backlog of cattle that were not processed in 2020 that are being carried in the 2021.

Perfect, and then one on just general capital allocation and you might have to translate that one for Tang. So just to understand so we basically had a very strong year of cash flow on -- as well as the quarter was again, very strong. You done everything you could on the liability management side. We're now at a 1.6x leverage, which I think is even below the level where you want to be. You've just announced a share buyback, you finance the dividend. So what do you think about inorganic growth opportunities? Do you consider some sort of M&A within the regions you're in, within other regions to get maybe point of sale improvements over in Asia, so just to understand a little bit about the potential of inorganic growth considering the strong cash balance?

The strong cash, it's good to notice that in 2020, we made a total CapEx of $1.4 billion within that CapEx we have part for organic growth. And in terms of M&A right now, we are not considering any M&A, but rather organic growth. A very important point is the reduction of our debt. So this strong cash we are generating will lead to a reduction of our debt, and as a result, reduction in our financial debt. And with that, we will generate net income.

Our next question comes from Barbara Halberstadt with JP Morgan.

Hi, good morning. So part of my questions have been answered on the capital allocation. So maybe if I can follow up on other two questions, what would it be on working capital management, if you could provide us with some color, which we should be expecting for working capital for 2021? If there are any changes to the working capital dynamics for the year? And then second question would be on the cattle cycle in Brazil, you can also tell us what you're seeing for the next 18 months. We see cattle prices spiking part of this as a result of the higher exports and competitiveness there. But if you provide us some color, how you're seeing the cattle cycle for the next 18 to 24 months that will be very helpful. Thank you.

Good morning, Barbara. I will speak about working capital. The strong management of our working capital in 2020 is a factor that contributed to this strong cash generation. So we will continue obviously with that focus. And a good working capital management is the exercise we do every day to buy well to process well and to sell well. So inventory management. So you can see that we won't have issues of working capital management in 2021. And about the cattle cycle, you want to know about the cattle cycle in North America or in South America.

Hi, it would be helpful if you could comment [Multiple Speakers] in South America -- and Brazil Mexico -- it would be helpful as well. Thank you.

Excuse me, Barbara, could you please repeat your question?

Sure. So my question would be on the cattle cycle, if you could comment on your outlook for the next 18 to 24 months in particular in Brazil, given that we're seeing much higher cattle prices. So yes, that would be my question.

Good morning, Barbara. This is Miguel Gularte. I will speak about the cattle cycle in South America. 2020 experienced a reduction in the slaughter of heifers, a 22% reduction in the slaughter of heifers in Brazil, along with a smaller rainfall, a reduction in our rainfall. So Brazil had a reduction in slaughter in general not only heifers of about 10%. This also follows a logic because since there is an increased price of young animals and as a result, a retention on the part of producers in order to prioritize the cow calf operation. This is a virtuous cycle. Unlike other moments, like what we saw in Argentina in previous decades, where they eliminated the inventory and a reduction of supply because of that elimination of inventory. In the case of Brazil, it's a virtuous movement, we have retention of animals, it generates more production, and that production goes back to the market and allows the whole process to move forward. We see that acute situation in the first quarter of 2021; we had a reduction in January of 18% in Brazilian slaughter, this is likely to be attenuated in the forthcoming quarters, and it should be normalized started in the second half of the year. It's difficult to predict, what do, we see -- what we see is that the export market will maintain putting pressure on the demand because the dollar will remain stronger vis-à-vis the real. So this helps export companies and in the case of Marfrig, there is something that sets us apart, we experienced a 60% growth in industrialized foods in 2020. That allows us to face this increase in the price of beef in Brazil, because industrialized food has an EBITDA of two digits. And since we increase 60% last year and robust CapEx in 2020, that will allow us to keep on growing, Marfrig will remain competitive to face the increase price of the cattle. I would say that in the first two quarters that price increase remains present starting in May, we can already see a recovery in supply and that supply will recover in the second half. As for other countries, we have a very similar situation in Argentina. There is a retraction in price increases. So the operations in South America are different. Argentina and Brazil have tighter margins in one digit and the Uruguay operations performing very well at two digits and industrialized foods, performing two digits as well. It's important to say a clear example that we have about Uruguay is that Uruguay, in Uruguay we grew our export share last year of 26%, and it went up from 26% to 30%. In the case of slaughter, we went from 23.8% share to 26.9%. So where we have favorable conditions, Marfrig was prepared to capture that opportunity. Another important aspect associated with cattle cycle is that we develop the whole process to capture operational efficiency whenever we have this operational efficiency that we had in 2020 that we expect to have in 2021 as well. You remain competitive in order to face a higher price of the cattle as we expect to have in the first half of 2021. I don't know if I answered your question.

Our next question comes from Ben Theurer with Barclays.

Yes, just taking the opportunity. Tim, actually, two follow up questions for you. The one could you elaborate a little bit on what the impact was from the polar vortex a few weeks ago? How that impacted yield on the animals? And if you've seen anything adverse just because of how cold it got in the vast majority of the country that would be the first follow up questions.

Okay. Yes, it certainly impacted the finish on the cattle, they actually lost anywhere from 40 to 70 pounds during that time period. So obviously when it gets that cold, they're eating just to maintain weight, and it was so cold that they lost weight. So that created a little bit of a weight loss as it came into our plan. So we had less meat or less pounds going down the table. But that has since now recovered, and cattle are again, putting back weight back on. The other impact that we saw with that was on the cut outside, we saw a pretty dramatic increase in ground beef prices here in the US as consumers are stocking up ahead of the cold weather. Other than that we really didn't have a big impact, either for us or for the industry.

Okay, perfect. And then just thinking a little bit into the second and third quarter. How do you think about the profitability packer margins and cut out when food service comes back? So is that just basically a simple shift from retail back into food service? Like it happened from food service into retail about a year ago? But how should we think about the profitability on the high end cuts versus lower end cuts? And how does this impact your overall profitability?

Well, generally, we don't see a big difference in margin structure, whether it's retail or food service, a little bit difference in logistics and product mix, perhaps but overall, we would expect to see maybe a little more upward price pressure on typical restaurant cuts, the state cuts. But that would only help us. We're going into the best seasonal demand time of the year in the second quarter. So we'll get a good look at that. And what we're already seeing on some of the ads that are being booked very good, very good demand out front for beef, both on the retail and food service side. So we're not at all concerned about any shift or change in margin structure due to that shift retail to food service.

And that you've said on the -- because of the polar vortex that basically you're now back to normal, like medium term impact. Have you seen any impact on the calf crop and how that maybe could derail a little bit once they're coming to slaughter weight? Or is that -- just -- that's not enough time to recover?

Yes, that's plenty of time to recover. That's -- these calves are, they're two years away from being at our plant so it would have no impact on that side of it.

This concludes our Marfrig Global Foods fourth quarter and full year of 2020 results conference call. Thank you for your participation. And have a nice day.