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FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
 12 Months Ended
Dec. 31, 2022
Financial Instruments And Risk Management  
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

24.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

24.1.    Overview

In the ordinary course of business, the Company is exposed to credit, liquidity and market risks, which are actively managed in compliance with the Financial Risk Management Policy (“Risk Policy”) and internal guidelines and strategic documents subject to such policy, executing the formal designation of its hedge accounting relations. The Risk Policy was approved by the Board of Directors on December 15, 2022, with a maximum validity of one year and validity in 2023 and is available at the Company’s website.

The Company’s risk management strategy, guided by the Risk Policy, has as main objectives:

»To protect the Company’s operating and financial results, as well as its equity from adverse changes in the market prices, particularly commodities, foreign exchange and interests;
»To protect the Company against counterparty risks in existing financial operations as well as to establish guidelines for sustaining the necessary liquidity to fulfil its financial commitments;
»To protect the cash of Company against price volatilities, adverse conditions in the markets in which the Company acts and adverse conditions in its production chain.

 

The Risk Policy defines the governance of the bodies responsible for the execution, tracking and approval of the risk management strategies, as well as the limits and instruments that can be used.

Additionally, the Management of the Company approved the following policies on November 10, 2021, which are available at the Company’s website:

»Financial Policy, which aims to: (i) establish guidelines for the management of the Company's financial debt and capital structure; and (ii) guide the Company's decision-making in connection with cash management (financial investments).
»Profit Allocation Policy, which aims to establish the practices adopted by the Company regarding the allocation of its profits, providing, among others, the periodicity of payment of dividends and the baseline used to establish the respective amount.

 

24.2.    Credit risk management

The Company is exposed to the credit risk related to the financial assets held: trade and non-trade accounts receivable, marketable securities, derivative instruments and cash and equivalents. The Company’s credit risk exposure can be assessed in notes 4, 5 and 6.

24.2.1.Credit risk in accounts receivable

The credit risk associated with trade accounts receivable is actively managed through specific systems and is supported by internal policies for credit analysis. The significant level of diversification and geographical dispersion of the customer portfolio significantly reduces the risk. However, the Company chooses to complement the risk management by contracting insurance policies for specific markets. The impairment of these financial assets is carried out based on expected credit losses.

24.2.2.Counterparty credit risk

The credit risk associated with marketable securities, cash and cash equivalents and derivative instruments in general is directed to counterparties with Investment Grade ratings. The maintenance of assets with counterparty risk is constantly assessed according to credit ratings and the Company’s portfolio concentration, aligned with the applicable impairment requisites.

On December 31, 2022, the Company held financial investments over R$100,000 at the following financial institutions: Banco Bradesco, Banco Daycoval, Banco do Brasil, Banco Pan, Banco Safra, Banco Santander, Banco Volkswagen, Banco Votorantim, Banco BNP, Banco BTG Pactual, Caixa Econômica Federal, HSBC, J.P. Morgan e XP.

The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco Itaú, Banco Safra, Banco Santander, Banco Votorantim, Bank Of America Merrill Lynch, Banco BNP, Banco BTG Pactual, Citibank, Goldman Sachs, J.P. Morgan Chase Bank, Morgan Stanley, Rabobank, T.Garanti Bankasi A.Ş. e XP.

24.3.    Capital management and liquidity risk

The Company is exposed to liquidity risk as far as it needs cash or other financial assets to settle its obligations in the respective terms. The Company’s cash and liquidity strategy takes into consideration historical volatility scenarios of results as well as simulations of sectorial and systemic crisis. It is grounded on allowing resilience in scenarios of capital restriction.

The ideal capital structure definition at BRF is essentially associated with (i) strong cash position as a tolerance factor for liquidity shocks, which includes minimum cash analysis; (ii) net indebtedness; and (iii) maximization of the capital opportunity cost.

On December 31, 2022, the non-current consolidated gross debt, as presented below, represented 83.75% (86.78% as of December 31, 2021) of the total gross debt, which has an average term higher than nine years.

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

Schedule of debt levels and net debt              
               
  12.31.22   12.31.21
   Current     Non-current     Total     Total 
Foreign currency loans and borrowings  (1,954,086)     (10,595,095)     (12,549,181)     (16,343,552)
Local currency loans and borrowings  (1,925,788)    (9,042,031)     (10,967,819)    (9,112,478)
Derivative financial instruments, net  38,397    (164,416)    (126,019)    (223,949)
Gross debt  (3,841,477)     (19,801,542)     (23,643,019)     (25,679,979)
               
               
Cash and cash equivalents   8,130,929    -     8,130,929     7,528,820
Marketable securities   418,373     406,402     824,775     794,268
Restricted cash  -    89,717    89,717    24,964
    8,549,302     496,119     9,045,421     8,348,052
Net debt   4,707,825     (19,305,423)     (14,597,598)     (17,331,927)

 

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

Schedule of commitments and contractual obligations                              
  12.31.22
  Book
value		   Contractual cash flow   2023   2024   2025   2026   2027   2028 onwards
Non derivative financial liabilities                              
Loans and borrowings 23,517,000   36,139,951     4,326,351     1,602,785     2,704,626     2,263,426     4,420,322   20,822,441
Principal     24,338,376     2,927,191     972,150     1,940,828     1,200,318     3,429,736   13,868,153
Interest     11,801,575     1,399,160     630,635     763,798     1,063,108     990,586     6,954,288
Trade accounts payable 12,743,087   12,924,646   12,917,187     4,115     1,725     1,619   -   -
Supply chain finance   1,393,137     1,421,706     1,421,706   -   -   -   -   -
Lease liabilities   3,044,934     3,854,512     723,229     638,302     534,429     419,449     322,804     1,216,299
Derivative financial liabilities                              
Financial instruments designated as cash flow hedge                              
Interest rate derivatives   206,635     206,635   31,935   52,698   -   -     7,864     114,138
Currency derivatives 17,551   17,551   17,551   -   -   -   -   -
Commodities derivatives 26,730   26,730   26,730   -   -   -   -   -
Financial instruments not designated as cash flow hedge                              
Currency derivatives   6,251     6,251     6,251   -   -   -   -   -

 

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

24.4.    Market risk management

24.4.1.Interest rate risk

The interest rate risk may cause economic losses to the Company resulting from volatility in interest rates that affect its assets and liabilities.

The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for fixed or floating rates. However, the Company continually monitors the market interest rates in order to evaluate any need to enter into hedging transactions to protect from the volatility of such rates and manage the mismatch between its financial assets and liabilities.

The Company’s exposure to interest rates is set forth below:

Schedule of exposure to interest rates                  
 
                  12.31.22
      Notional    
Index     Assets   Liabilities   Derivative financial instruments   Exposure, Net 
Fixed                  
Fixed Reais       163,403   (399,625)   (959,700)    (1,195,922)
Fixed U.S. Dollars (USD)       4,368,536     (13,543,817)     3,430,151    (5,745,130)
Fixed Turkish Liras (TRY)      44,676   (512,500)   (208,708)   (676,532)
Fixed Euros (EUR)      88,925   -     490,107     579,032
Fixed Kwanza (AOA)      74,278   -   -    74,278
Fixed Other      39,841   -   -    39,841
Floating                  
Floating IPCA Reais     -    (5,574,682)     4,590,000   (984,682)
Floating CDI Reais       4,265,762    (2,555,558)    (7,341,850)    (5,631,646)
Floating Libor U.S. Dollars (USD)   -   (130,443)   -   (130,443)
        9,045,421     (22,716,625)   -     (13,671,204)
Interest and fair value adjustment of derivatives -   (800,375)   (126,019)   (926,394)
Total       9,045,421     (23,517,000)   (126,019)     (14,597,598)

 

The derivative financial instruments used to hedge the exposure to interest rates as of December 31, 2022 are presented in the table below:

 

Schedule of derivative financial instruments used to hedge the exposure to interest rates                            
12.31.22
                          Fair value (R$)
Fair value hedge - Derivative instruments   Hedged Object   Maturity   Asset   Liability   Notional   Instrument   Object (1)
Interest rate swap    Debenture - 1st Issue - 3rd series - IPCA + 5.50% p.a.     2nd Qtr. 2026    IPCA + 5.50% p.a.    CDI + 0.29% p.a.      400,000  BRL  8,183   7,290
Interest rate swap    Debenture - 2nd Issue - 1st series - IPCA + 5.30% p.a.     3rd Qtr. 2027    IPCA + 5.30% p.a.    CDI + 2.16% p.a.      705,000  BRL    (7,864)    73,656
Interest rate swap    Debenture - 2nd Issue - 2nd series - IPCA + 5.60% p.a.     3rd Qtr. 2030    IPCA + 5.60% p.a.    CDI + 2.29% p.a.      1,495,000  BRL  (66,888)   194,763
Interest rate swap    Debenture - 3rd Issue - single series - IPCA + 4.78% p.a.     2nd Qtr. 2031    IPCA + 4.78% p.a.    CDI + 0.12% p.a.      1,000,000  BRL    (8,296)    75,119
Interest rate swap    Debenture - 1st Issue - 1st series - IPCA + 6.83% p.a.     3rd Qtr. 2032    IPCA + 6.83% p.a.    109.32% CDI      990,000  BRL  (37,620)     (1,951)
                      4,590,000      (112,485)   348,877
(1)Corresponds to the accumulated amount of fair value hedge adjustments on the hedged items, included in the carrying amount of the debentures.

 

24.4.2.Foreign exchange risk

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

i. Statement of financial position exposure

The Risk Policy regarding statement of financial position exposure has the objective to balance assets and liabilities denominated in foreign currencies, hedging the Company’s statement of financial position by using natural hedges, over-the-counter derivatives and exchange traded futures.

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

       
    12.31.22   12.31.21
Cash and cash equivalents     3,691,668     2,064,631
Trade accounts receivable     6,013,713     6,377,104
Trade accounts payable    (1,484,810)    (1,221,354)
Loans and borrowings     (12,241,309)     (16,726,412)
Other assets and liabilities, net    35,371    49,732
Exposure of assets and liabilities in foreign currencies    (3,985,367)    (9,456,299)
Derivative financial instruments (hedge)     3,721,930     8,454,971
Exposure in result, net    (263,437)    (1,001,328)

 

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

 

       
Net P&L Exposure   12.31.22   12.31.21
Argentinian Peso (ARS)    (4,614)    (5,783)
Angolan kwanza (AOA)    53,723     318,660
Euros (EUR)   (43,445)    33,381
Chilean Pesos (CLP)     256,121     169,301
Yen (JPY)    (3,268)    77,178
Turkish Liras (TRY)     214,936     266,541
U.S. Dollars (USD)    (736,890)    (1,860,606)
Total    (263,437)    (1,001,328)

 

The Company is exposed to other currencies, although they have been grouped in the currencies above due to its high correlation or for not being individually significant.

The Company holds more financial liabilities in foreign currencies than assets and, therefore, holds derivative financial instruments to reduce such exposure. The derivative financial instruments acquired to hedge the foreign currency statement of financial position exposure on December 31, 2022 and are set forth below:

                         
12.31.22
Derivative instruments not designated   Asset   Liability   Maturity   Notional   Exercise rate   Fair value (R$)
Non-deliverable forward    EUR     BRL    1st Qtr. 2023    EUR    88,000    5.7452    (2,059)
Futures - B3    USD     BRL    1st Qtr. 2023    USD    90,000    5.3240     3,939
Non-deliverable forward    USD     TRY    1st Qtr. 2023    USD    30,000     19.2285    (1,294)
Non-deliverable forward    USD     TRY    2nd Qtr. 2023    USD    10,000     20.0300    (2,898)
                           
                           (2,312)

 

                           
12.31.22
                          Fair value (R$)
Fair value hedge - Derivative instruments   Hedged Object   Maturity   Asset   Liability   Notional   Instrument   Object (1)
FX and interest rate swap    BRF SA BRFSBZ 3.95     2nd Qtr. 2023    FX + 3,95% p.a.    98.77% CDI      234,033  USD  (31,935)    39,107
FX and interest rate swap    BRF SA BRFSBZ 4 3/4     3rd Qtr. 2024    FX + 4,75% p.a.    104.48% CDI      295,363  USD  (52,698)    22,058
                      529,396     (84,633)    61,165
(1)Corresponds to the accumulated amount of fair value hedge adjustments on the hedged items, included in the carrying amount of the senior unsecured notes.

 

ii.Operating income exposure

The Risk Policy regarding operating income exposure has the objective to hedge revenues and costs denominated in foreign currencies. The Company is supported by internal models to measure and monitor these risks, and uses financial instruments for hedging, designating the relations as cash flow hedges.

The Company has more sales in foreign currency than expenditures and, therefore, holds derivative financial instruments to reduce such exposure. The derivative financial instruments designated as cash flow hedges for foreing exchange operating income exposure on December 31, 2022 are set forth below:

                             
12.31.22
Cash flow hedge - Derivative instruments   Hedged object   Asset   Liability   Maturity   Notional   Designation rate   Fair value
Non-deliverable forward    USD Exports     BRL     USD    1st Qtr. 2023    USD    268,000    5.3950     27,249
Non-deliverable forward    USD Exports     BRL     USD     2nd Qtr. 2023     USD   25,000    5.5406    3,337
Non-deliverable forward    USD Exports     BRL     USD    4th Qtr. 2023    USD  3,000    5.5740    (53)
Collar    USD Exports     BRL     USD    1st Qtr. 2023    USD    130,000    5.3785    2,437
Collar    USD Exports     BRL     USD    2nd Qtr. 2023    USD   50,000    5.5296    2,929
Collar    USD Exports     BRL     USD    3rd Qtr. 2023    USD   15,000    5.6892    1,273
Collar    USD Exports     BRL     USD    4th Qtr. 2023    USD  5,000    5.7500    503
                                37,675

 

iii.Investments exposure

The Company holds both investments (net assets) and loans (financial liabilities) denominated in foreign currency. To balance the accounting effects of such exposures, some non-derivative financial liabilities are designated as hedging instruments for the investments exposure. The non-derivative financial instruments designated as net investment hedge instruments on December 31, 2022 are set forth below:

                         
12.31.22
Net investment hedge -
Non-derivative instruments		   Object (Investment)   Liability   Maturity   Notional   Rate   Exchange variation (1)
Bond - BRF SA BRFSBZ 4.35   Federal Foods LLC    USD    3rd Qtr. 2026    USD (2)   75,673     3.7649   (110,672)
Bond - BRF SA BRFSBZ 4.35   BRF Kuwait Food Management Company WLL    USD    3rd Qtr. 2026    USD (2)    108,757     3.7649   (140,614)
Bond - BRF SA BRFSBZ 4.35   Al Khan Foodstuff LLC    USD    3rd Qtr. 2026    USD (2)   65,570     3.7649     (94,776)
Bond - BRF SA BRFSBZ 4.35   BRF Foods GmbH    USD    3rd Qtr. 2026    USD (3)   90,000     5.1629   (4,932)
Bond - BRF SA BRFSBZ 4.35   Al-Wafi Al-Takamol International for Foods Products    USD    3rd Qtr. 2026    USD (3)   40,000     5.1629   (2,306)
                          (353,300)
(1)Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.
(2)Designated on August 1st, 2019.
(3)Designated on November 9, 2022.

 

24.4.3.Commodities price risk

The Company uses commodities as production inputs and is exposed to commodities price risk arising from future purchases. The management of such risk is performed through physical inventories, future purchases at fixed price and through derivative financial instruments.

The Risk Policy establishes coverage limits to the flow of purchases of corn and soy with the purpose of reducing the impact due to a price increase of these raw materials. The hedge may be reached using derivatives or by inventory management.

The Company performs purchases at variable prices in future and spot markets and, to hedge such exposure, it holds derivative financial instruments in long position (buy) to fix these prices in advance. The financial instruments designated as cash flow hedges for the variable commodities price exposure on December 31, 2022 are set forth below:

                         
12.31.22
Cash flow hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     1st Qtr. 2023    32,999  ton    441.42   13,379
Non-deliverable forward - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     2nd Qtr. 2023    20,000  ton    435.41    7,566
Collar - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     1st Qtr. 2023    35,999  ton    478.95    3,647
Collar - buy    Soybean meal purchase - floating price     Soybean meal - CBOT     2nd Qtr. 2023    33,992  ton    495.63    1,172
Collar - buy    Corn purchase - floating price     Corn - CBOT     1st Qtr. 2023     113,077  ton    256.32    3,643
Collar - buy    Corn purchase - floating price     Corn - CBOT     2nd Qtr. 2023    67,986  ton    261.09    1,458
Corn future - buy    Corn purchase - floating price     Corn - B3     1st Qtr. 2023    18,009  ton    1,514.07   83
Corn future - buy    Corn purchase - floating price     Corn - B3     2nd Qtr. 2023      2,700  ton    1,550.00     2
Collar - buy    Corn purchase - floating price     Corn - B3     1st Qtr. 2023    79,326  ton    1,674.15   (414)
Collar - buy    Corn purchase - floating price     Corn - B3     2nd Qtr. 2023    94,635  ton    1,650.76    229
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     1st Qtr. 2023      3,000  ton    1,353.20    928
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     2nd Qtr. 2023      5,000  ton    1,336.53    1,800
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     3rd Qtr. 2023      5,997  ton    1,328.23    1,428
Non-deliverable forward - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     4th Qtr. 2023     501  ton    1,360.69     -
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT     2nd Qtr. 2023      8,001  ton    1,410.96   (1,451)
Collar - buy    Soybean oil purchase - floating price     Soybean oil - CBOT    3rd Qtr. 2023     2,000  ton    1,410.85   (253)
                 523,223         33,217
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

In certain cases, the Company performs futures purchases at fixed prices and, to hedge such exposure, it holds derivative financial instruments in short position (sell) to keep these prices at market value. The financial instruments designated as fair value hedges for the fixed commodities price exposure on December 31, 2022 are set forth below:

12.31.22
Fair value hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise price (1)   Fair value
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    2nd Qtr. 2023   80,660  ton    255.31   (3,849)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    3rd Qtr. 2023    106,019  ton    244.26   (1,376)
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    4th Qtr. 2023     6,658  ton    247.27    226
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    1st Qtr. 2024   17,999  ton    245.66    209
Non-deliverable forward - sell    Corn purchase - fixed price     Corn - CBOT    2nd Qtr. 2024     3,999  ton    246.88   45
Corn future - sell    Corn purchase - fixed price     Corn - B3    2nd Qtr. 2023    594  ton    1,583.55     -
Corn future - sell    Corn purchase - fixed price     Corn - B3    3rd Qtr. 2023    212,922  ton    1,474.01   (1,618)
Corn future - sell    Corn purchase - fixed price     Corn - B3    4th Qtr. 2023     9,990  ton    1,520.03     (94)
                 438,842         (6,457)
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.
12.31.22
Fair value hedge -
Derivative instruments		   Protection object   Assets   Liabilities   Maturity   Notional   Exercise price   Fair value
Non-deliverable forward    Cost in USD     BRL     USD     2nd Qtr. 2023     USD   18,372   5.8861   7,435
Non-deliverable forward    Cost in USD     BRL     USD     3rd Qtr. 2023     USD   11,984   5.6260   1,069
Non-deliverable forward    Cost in USD     BRL     USD     4th Qtr. 2023     USD  1,646   5.5859    (40)
Non-deliverable forward    Cost in USD     BRL     USD     1st Qtr. 2024     USD  4,422   5.8015   428
Non-deliverable forward    Cost in USD     BRL     USD     2nd Qtr. 2024     USD  987   5.8548     84
                              8,976

 

24.5.    Effects of hedge instruments on financial information

The effects of the financial instruments for hedging exchange rate, commodities price and interest rates in the income (loss) for the year, in Other Comprehensive Income (Loss) and in the financial position are set forth below:

                           
Income (loss) for the year                    
12.31.22   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Net Sales                54,047,327    -     -    54,047,327
Derivatives result        Operating Results     Cash flow    202,655    -     -   202,655
Non-derivatives result        Operating Results     Cash flow     (444,954)    -     -    (444,954)
Net Revenue   26            53,805,028    -     -    53,805,028
                             
Cost of Sales                -   (45,235,052)     -   (45,235,052)
Derivatives result        Operating Results     Cash flow / Fair value     -    (437,324)     -    (437,324)
Cost of Sales                -   (45,672,376)     -   (45,672,376)
                             
Interests on loans and borrowings                -    -     (1,570,190)    (1,570,190)
Interest Rate Derivatives result        Interest expenses     Fair value     -    -     (281,453)    (281,453)
Foreign Exchange variation on assets and liabilities               474,052    -     -   474,052
Foreign Exchange Derivatives result        Financial Position     Not designated     (899,953)    -     -    (899,953)
Foreign Exchange Derivatives result        Loans in foreign currency     Fair value     (138,218)    -     -    (138,218)
Effects on Financial Result   28            (564,119)    -     (1,851,643)    (2,415,762)
                             
                     
Other Comprehensive Income                    
12.31.22       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow      33,711   (60,348)     -   (26,637)
Non-derivative Instruments – current        Operating Results     Cash flow     (103,686)    -     -    (103,686)
Non-derivative Instruments – non-current        Operating Results     Cash flow    548,639    -     -   548,639
Non-derivative Instruments - non-current        Foreign investments     Net investment      87,929    -     -    87,929
Other Comprehensive Income (1)               566,593   (60,348)     -   506,245
(1)All effects are presents gross of taxes.
Statement of financial position                    
12.31.22   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value      46,651    26,760     (197,118)    (123,707)
Not designated derivatives        Financial Position     Not designated      (2,312)    -     -     (2,312)
Asset / (Liability) net                 44,339    26,760     (197,118)    (126,019)
                             
Derivative Instruments - current (2)        Operating Results     Cash flow      37,675    43,398     -    81,073
Non-derivative instruments – current        Operating Results     Cash flow     (548,639)    -     -    (548,639)
Non-derivative Instruments - non-current        Foreign investments     Net investment     (353,300)    -     -    (353,300)
Other Comprehensive Income (1)                (864,264)    43,398     -    (820,866)
                             
Derivatives result        Operating Results     Cash flow / Fair value     -   (18,853)     -   (18,853)
Inventories   7            -   (18,853)     -   (18,853)
(1)All effects are presented gross of taxes.
(2)Includes R$4,127 related to the time value of the commodity options contracts.
Income (loss) for the year                    
12.31.21   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Net Sales                48,327,703    -     -    48,327,703
Derivatives result        Operating Results     Cash flow      15,602    -     -    15,602
Net Revenue   26            48,343,305    -     -    48,343,305
                             
Cost of Sales                -   (37,858,788)     -   (37,858,788)
Derivatives result        Operating Results     Cash flow / Fair value     -    (318,821)     -    (318,821)
Cost of Sales                -   (38,177,609)     -   (38,177,609)
                             
Interests on loans and borrowings                -    -     (1,681,078)    (1,681,078)
Interest Rate Derivatives result        Interest expenses     Fair value     -    -    (33,084)   (33,084)
Foreign Exchange variation on assets and liabilities                (408,269)    -     -    (408,269)
Foreign Exchange Derivatives result        Financial Position     Not designated    157,573    -     -   157,573
Effects on Financial Result   28            (250,696)    -     (1,714,162)    (1,964,858)
                             
                     
Other Comprehensive Income                    
12.31.21       Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results     Cash flow    (43,978)   (67,560)     -    (111,538)
Non-derivative Instruments – current        Operating Results     Cash flow     (444,953)    -     -    (444,953)
Non-derivative Instruments – non-current        Operating Results     Cash flow    334,577    -     -   334,577
Non-derivative Instruments - non-current        Foreign investments     Net investment    (96,555)    -     -   (96,555)
Other Comprehensive Income                (250,909)   (67,560)     -    (318,469)

 

Statement of financial position                    
12.31.21   Note   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Designated derivatives        Operating Results     Cash flow / Fair value    (10,342)    47,620    (30,108)   7,170
Not designated derivatives        Financial Position     Not designated     (231,119)    -     -    (231,119)
Asset / (Liability) net                (241,461)    47,620    (30,108)    (223,949)
                             
Derivative Instruments - current        Operating Results     Cash flow    3,964   103,746     -   107,710
Non-derivative instruments – current        Operating Results     Cash flow     (444,953)    -     -    (444,953)
Non-derivative instruments – non-current        Operating Results     Cash flow     (548,640)    -     -    (548,640)
Non-derivative Instruments - non-current        Foreign investments     Net investment     (441,229)    -     -    (441,229)
Other Comprehensive Income                 (1,430,858)   103,746     -    (1,327,112)
                             
Derivatives result        Operating Results     Cash flow / Fair value     -   531,732     -   531,732
Inventories   7            -   531,732     -   531,732

 

On December 16, 2021, the cash flow hedge relations presented below was discontinued because the hedging instruments was non-derivative financial instruments (loans) and no longer met the Company’s strategies and objectives.

                               
12.31.22
Cash flow hedge - Non-derivative instruments   Hedged object   Liability   Maturity   Notional   Designation rate   Rate (1)   Balance (2)
Bond BRF SA BRFSBZ 3.95    USD Exports     USD    2nd Qtr. 2023    USD    150,000    2.0387     5.6963   (548,639)
                               
                              (548,639)
(2)Average discontinuance rates.
(3)Effective portion of the accumulated foreign exchange variations on the designated loans.

 

The amount above will be maintained in Other Comprehensive Income (Loss) until its maturity, according to the previous designation and effectiveness. During the year ended December 31, 2022, the loan Bond BRF SA BRFSBZ 5 7/8, previously designated as hedging instrument for exports, was settled and the amount of R$(444,954) previously accumulated in Other Comprehensive Income (Loss) was reclassified to the statement of income (loss) within Net Sales.

Summarized financial position of derivative financial instruments:

 

       
  12.31.22   12.31.21
Assets      
Designated as hedge accounting      
Currency derivatives   64,202     27,617
Commodities derivatives   53,490   105,228
Interest rate derivatives  9,517     10,457
Not designated as hedge accounting      
Currency derivatives  3,939    2,053
  131,148   145,355
       
Current assets 120,865   134,551
Non-current assets   10,283     10,804
       
Liabilities      
Designated as hedge accounting      
Currency derivatives  (17,551)    (37,959)
Commodities derivatives  (26,730)    (57,608)
Interest rate derivatives   (206,635)    (40,565)
Not designated as hedge accounting      
Currency derivatives (6,251)     (233,172)
    (257,167)     (369,304)
       
Current liabilities  (82,468)     (327,443)
Non-current liabilities   (174,699)    (41,861)

 

 

24.6.    Sensitivity analysis

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

The amounts below represent the possible impacts (incremental results) of the hedging instruments and their respective hedged positions, considering situations of increase and decrease in the selected risk factors.

The information used in the preparation of the analysis is based on the position as of December 31, 2022, which has been described in the items above. The estimated values may differ significantly to numbers and results that will be effectively registered by the Company. Positive values indicate gains and negative values indicate losses.

                           
    Scenario
Exchange rate - Balance   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.2177   2.6089   3.9133   4.6959   5.7395   6.5221   7.8266
                             
Monetary Assets and Liabilities         2,088,710     1,044,355     417,742    (417,742)    (1,044,355)    (2,088,710)
Derivative Instruments - Not designated        (1,720,265)    (860,133)    (344,053)     344,053     860,133     1,720,265
Net effect         368,445     184,222    73,689   (73,689)    (184,222)    (368,445)
                             
EUR   5.5694   2.7847   4.1771   5.0125   6.1263   6.9618   8.3541
                             
Monetary Assets and Liabilities         266,776     133,388    53,355   (53,355)    (133,388)    (266,776)
Derivative Instruments - Not designated        (245,054)    (122,527)   (49,011)    49,011     122,527     245,054
Net effect        21,722    10,861   4,344    (4,344)   (10,861)   (21,722)
                             
JPY   0.0396   0.0198   0.0297   0.0356   0.0435   0.0495   0.0594
                             
Monetary Assets and Liabilities       1,634   817   327    (327)    (817)    (1,634)
Net effect       1,634   817   327    (327)    (817)    (1,634)
                             
TRY   0.2788   0.1394   0.2091   0.2509   0.3067   0.3485   0.4182
                             
Monetary Assets and Liabilities        (211,822)    (105,911)   (42,364)    42,364     105,911     211,822
Derivative Instruments - Not designated         104,354    52,177    20,871   (20,871)   (52,177)    (104,354)
Net effect        (107,468)   (53,734)   (21,493)    21,493    53,734     107,468
                             
                             
AOA   0.0104   0.0052   0.0078   0.0093   0.0114   0.0130   0.0156
                             
Monetary Assets and Liabilities       (26,862)   (13,431)    (5,372)   5,372    13,431    26,862
Net effect       (26,862)   (13,431)    (5,372)   5,372    13,431    26,862
                             
CLP   0.0061   0.0031   0.0046   0.0055   0.0067   0.0077   0.0092
                             
Monetary Assets and Liabilities        (128,060)   (64,030)   (25,612)    25,612    64,030     128,060
Net effect        (128,060)   (64,030)   (25,612)    25,612    64,030     128,060

 

    Scenario
Exchange rate - Operating results   Base   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.2177   2.6089   3.9133   4.6959   5.7395   6.5221   7.8266
                             
Revenue in USD        (1,293,990)    (646,995)    (258,798)     258,798     646,995     1,293,990
NDF         772,220     386,110     154,444    (154,444)    (386,110)    (772,220)
Collar         511,095     250,210    93,679   (34,277)    (179,827)    (440,712)
Net effect       (10,675)   (10,675)   (10,675)    70,077    81,058    81,058
    Scenario
Exchange rate - Operating results   Base (1)   - 50%   - 25%   - 10%   + 10%   + 25%   + 50%
USD   5.2177   2.6089   3.9133   4.6959   5.7395   6.5221   7.8266
                             
Cost of Sales       (97,601)   (48,801)   (19,520)    19,520    48,801    97,601
NDF        97,601    48,801    19,520   (19,520)   (48,801)   (97,601)
Net effect         -     -     -     -     -     -
                             
                             
                             
Soybean Meal - CBOT   514   257   385   462   565   642   771
                             
Cost of Sales        31,589    15,795   6,318    (6,318)   (15,795)   (31,589)
Collar       (13,454)    (4,519)    (576)   1,860   7,243    16,214
NDF       (13,648)    (6,824)    (2,730)   2,730   6,824    13,648
Net effect       4,487   4,452   3,012    (1,728)    (1,728)    (1,727)
                             
Soybean Oil - CBOT   1,397   698   1,048   1,257   1,537   1,746   2,095
                             
Cost of Sales        17,112   8,556   3,422    (3,422)    (8,556)   (17,112)
Collar        (6,802)    (3,296)    (1,174)   1,168   3,311   6,817
NDF       (10,100)    (5,050)    (2,020)   2,020   5,050    10,100
Net effect       210   210   228    (234)    (195)    (195)
                             
Corn - CBOT   260   130   195   234   285   324   389
                             
Cost of Sales        (4,447)    (2,223)    (889)   889   2,223   4,447
Collar        (142,169)   (62,790)   (15,926)    10,338    57,544     136,924
NDF        27,258    13,629   5,452    (5,452)   (13,629)   (27,258)
Net effect        (119,358)   (51,384)   (11,363)   5,775    46,138     114,113
                             
Corn - B3   1,517   759   1,138   1,366   1,669   1,897   2,276
                             
Cost of Sales       (21,876)   (10,938)    (4,375)   4,375    10,938    21,876
Collar        (122,349)   (55,057)   (14,682)   7,402    47,444     114,736
Future         151,686    75,843    30,337   (30,337)   (75,843)    (151,686)
Net effect       7,461   9,848    11,280   (18,560)   (17,461)   (15,074)
(1)Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.

 

24.7.    Financial instruments by category

               
  12.31.22
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank 1,865,077   -   -   1,865,077
Cash equivalents  -   -     6,265,852   6,265,852
Marketable securities 379,145   11,752    433,878   824,775
Restricted cash  89,717   -   -    89,717
Trade accounts receivable 3,918,570   -    274,493   4,193,063
Other receivables  38,443   -   -    38,443
Derivatives not designated  -   -     3,939   3,939
Derivatives designated as hedge accounting (1)  -   -    127,209   127,209
               
Liabilities              
Trade accounts payable (12,743,087)   -   -   (12,743,087)
Supply chain finance  (1,393,137)   -   -    (1,393,137)
Loans and borrowings (2) (16,055,704)   -   (7,461,296)   (23,517,000)
Derivatives not designated  -   -    (6,251)     (6,251)
Derivatives designated as hedge accounting (1)  -   -   (250,916)    (250,916)
  (23,900,976)   11,752   (613,092)   (24,502,316)
(1)All derivatives are classified at fair value through profit and loss. Those designated as hedge accounting instruments have their gains and losses also affecting Equity and Inventories.
(2)The part of the loans and borrowings that is object in a fair value hedge is classified as Fair value through profit and loss. The rest of the loans and borrowings balance is classified as amortized cost and those designated as cash flow or net investment hedge accounting instruments have their gains and losses also affecting Equity.

 

   
  12.31.21
  Amortized cost   Fair value through other comprehensive income Fair value through profit and loss   Total
    Equity instruments    
Assets              
Cash and bank 2,193,508   -   -   2,193,508
Cash equivalents  -   -     5,335,312   5,335,312
Marketable securities 418,637   13,338    362,293   794,268
Restricted cash  24,964   -   -    24,964
Trade accounts receivable 3,709,399   -    335,566   4,044,965
Other receivables  97,169   -   -    97,169
Derivatives not designated  -   -     2,053   2,053
Derivatives designated as hedge accounting  -   -    143,302   143,302
               
Liabilities              
Trade accounts payable (11,714,624)   -   -   (11,714,624)
Supply chain finance  (2,237,975)   -   -    (2,237,975)
Loans and borrowings (22,087,599)   -   (3,368,431)   (25,456,030)
Derivatives not designated  -   -   (233,172)    (233,172)
Derivatives designated as hedge accounting  -   -   (136,132)    (136,132)
  (29,596,521)   13,338     2,440,791   (27,142,392)

 

24.8.    Fair value of financial instruments

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

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

»Level 1 – Uses quoted prices (unadjusted) for identical instruments in active markets. In this category are classified investments in stocks, savings accounts, overnights, term deposits, Financial Treasury Bills (“LFT”) and investment funds;
»Level 2 – Uses prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable. In this level are classified the investments in Bank Deposit Certificates (“CDB”) and derivatives, which are measured by well-known pricing models: discounted cash flows and Black-Scholes. The observable inputs are interest rates and curves, volatility factors and foreign exchange rates;
»Level 3 – Instruments for which significant inputs are non-observable. The Company does not have financial instruments in this category.

The table below presents the overall classification of financial instruments accounted at fair value by measurement hierarchy. For the year ended December 31, 2022, there were no changes among the 3 levels of hierarchy.

 

                       
  12.31.22   12.31.21
  Level 1   Level 2   Total   Level 1   Level 2   Total
Financial Assets                      
Fair value through other comprehensive income                      
Stocks   11,752     -     11,752     13,338     -     13,338
Fair value through profit and loss                      
Savings account and overnight   12,720     -     12,720    701,386     -    701,386
Term deposits  2,495,438     -    2,495,438    179,071     -    179,071
Bank deposit certificates   -    3,754,202    3,754,202     -    4,451,214    4,451,214
Financial treasury bills 364,543     -   364,543    324,771     -    324,771
Investment funds   19,018     -     19,018     35,718     -     35,718
Trade accounts receivable   -   274,493   274,493     -    335,566    335,566
Derivatives   -   131,148   131,148     -    145,355    145,355
Other titles   53,809     -     53,809    5,445     -    5,445
Financial Liabilities                      
Fair value through profit and loss                      
Derivatives   -     (257,167)     (257,167)     -     (369,304)     (369,304)
Loans and borrowings   -     (7,461,296)     (7,461,296)     -     (3,368,431)     (3,368,431)
   2,957,280     (3,558,620)     (601,340)    1,259,729    1,194,400    2,454,129

 

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

                       
         
            12.31.22   12.31.21
    Currency   Maturity   Book
value		   Fair
value		   Book
value		   Fair
value
BRF S.A.                        
BRF SA BRFSBZ 4 3/4   USD   2024     (1,525,727)     (1,513,221)     (1,653,847)     (1,726,951)
BRF SA BRFSBZ 3.95   USD   2023     (1,185,479)     (1,209,990)     (1,303,821)     (1,337,246)
BRF SA BRFSBZ 4 7/8   USD   2030     (3,119,390)     (2,602,599)     (3,914,280)     (3,993,593)
BRF SA BRFSBZ 5 3/4   USD   2050     (3,463,081)     (2,503,033)     (4,423,083)     (4,521,103)
BRF SA BRFSBZ 5 7/8   USD   2022    -    -    (396,802)    (409,454)
BRF SA BRFSBZ 2 3/4   EUR   2022    -    -     (1,072,454)     (1,076,964)
Debenture - 1st Issue   BRL   2032     (2,571,080)     (2,521,309)    (823,946)    (821,444)
Debenture - 2nd Issue   BRL   2030     (2,355,427)     (2,319,296)     (2,351,363)     (2,382,298)
Debenture - 3rd Issue   BRL   2031     (1,013,639)    (877,103)     (1,034,706)    (915,353)
BRF GmbH                        
BRF SA BRFSBZ 4.35   USD   2026     (2,608,613)     (2,367,075)     (2,779,725)     (2,854,701)
            (17,842,436)   (15,913,626)   (19,754,027)   (20,039,107)