Marfrig Global Foods S.A. Separate and Consolidated Interim Financial Statements (ITR)

Transcription

1 Marfrig Global Foods S.A. Separate and Interim Financial Statements (ITR) On June 30, 2018

2 CONTENTS Independent Auditors Report on the Separate and Interim Financial Statements Financial Statements Balance sheet Statement of Income Statement of Changes in Equity Statement of Cash Flows Statement of Added Value Statement of Comprehensive Income Operations Presentation and preparation of the parent company and consolidated interim financial information Summary of significant accounting practices Assets 4. Cash and cash equivalents Marketable securities Trade accounts receivable domestic and foreign customers Inventories of products and merchandise Biological assets Recoverable taxes Notes receivable Assets and Liabilities Held for Sale Deferred income and social contribution taxes - Assets Investments Property, plant and equipment Intangible assets Liabilities and Equity 16. Trade payables Supply chain finance Accrued payroll and related charges Taxes payable Loans, financing and debentures Lease payable Notes payable Tax, labor and civil contingencies Deferred income and social contribution taxes - Liabilities Shareholders' Equity Profit or Loss 26. Net sales revenue Costs and expenses by nature Net financial result Earnings (loss) per share Financial Instruments 30. Financial instruments - derivatives and risk management consolidated... 51

3 Taxes on income 31. Income and social contribution taxes Other information 32. Segment reporting Insurance coverage Result from discontinued operations Related parties Management compensation Additional information of the statement of cash flows Events after the reporting period... 69

4 3 (Free translation from the original issued in Portuguese. In the event of any discrepancies, the Portuguese language version shall prevail.) Independent Auditor Review Report on Quarterly Information Form (IT R) Grant Thornton Auditores Independentes Av. Engenheiro Luis Carlos Berrini, floor Berrini One Itaim Bibi São Paulo SP Brazil T To the Board of Directors and Shareholders of Marfrig Global Foods S.A. São Paulo SP We have reviewed the accompanying individual and consolidated interim financial information of Marfrig Global Foods S.A. ( the Company ), identified as Parent and, respectively, comprised in the Quarterly Information Form (ITR) for the quarter ended June 30, 2018, comprising the balance sheet as of June 30, 2018 and the respective statements of income and comprehensive income for the periods of three and six months then ended, and statements of changes in shareholders equity and cash flows for the period of six months then ended, including the footnotes. Management is responsible for the preparation of the individual interim financial information in accordance with the Technical Pronouncement CPC 21(R1) - Interim Financial Information, and the consolidated interim financial information in accordance with CPC 21(R1) and the international standard IAS 34 Interim Financial Reporting, as issued by the International Accounting Standards Board - IASB, such as for the presentation of these information in accordance with the standards issued by the Brazilian Securities Commission - CVM, applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Review scope We conducted our review in accordance with the Brazilian and International standards on reviews of interim information (NBC TR Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for the financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the audit standards and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

5 4 Conclusion on the individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the individual interim financial information included in the Quarterly Information (ITR) referred to above has not been prepared, in all material respects, in accordance with CPC 21(R1) applicable to the preparation of Quarterly Information (ITR), and presented in accordance with the standards issued by the Brazilian Securities Commission. Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial information included in the Quarterly Information - ITR referred to above has not been prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, as issued by IASB applicable to the preparation of Quarterly Information (ITR), and presented in accordance with the standards issued by the Brazilian Securities Commission. Other matters Statements of value added We have also reviewed the individual and consolidated statements of value added (DVA), related to the period of six months ended June 30, 2018, prepared under the responsibility of the Company s management, which presentation in the interim information is required in accordance with standards issued by the Brazilian Securities Commission applicable to the preparation of Quarterly Information (ITR), and is considered as a supplementary information under IFRS, which do not require the presentation of DVA. These statements were subject to the same review procedures described above, and based on our review, nothing has come to our attention that causes us to believe that it has not been prepared, in all material respects, in accordance with the individual and consolidated interim financial information taken as a whole. São Paulo, August 14, 2018 Jefferson Coelho Diniz CT CRC 1SP /O-8 Grant Thornton Auditores Independentes CRC 2SP /O-1

6 Balance Sheets As of June 30, 2018 and December 31, 2017 (In thousands of Brazilian reais - R$) Assets Liabilities and Shareholders' Equity Parent Parent Note 6/30/ /31/2017 6/30/ /31/2017 Note 6/30/ /31/2017 6/30/ /31/2017 Current Assets Current liabilities Cash and cash equivalents 4 417, ,400 1,546,180 1,213,572 Trade accounts payable , ,440 1,650,975 2,159,031 Marketable securities 5 1,546,467 1,127,685 4,113,705 3,188,781 Supply chain financing , , , ,041 Trade accounts receivable - domestic 6 129, ,287 1,260, ,556 Accrued payroll and related charges ,066 66, , ,071 Trade accounts receivable - foreign 6 251, , , ,442 Taxes payable , , , ,131 Inventories of goods and merchandise 7 970, ,938 2,299,597 1,759,871 Loans, financing and debentures 20 1,481, ,404 6,615,915 1,846,164 Biological assets , ,621 Notes payable , , , ,550 Recoverable taxes 9 1,907,507 1,908,721 2,092,704 2,089,129 Lease payable 21 2,775 2,545 3,802 11,963 Prepaid expenses 11,305 12,165 60, ,913 Advances from customers 685, ,443 1,023, ,783 Notes receivable , , ,716 24,108 Liabilities related to held-for-sale assets 11 2,238 5,590 5,465,149 82,232 Advances to suppliers 49,463 26,639 73,933 50,012 Other payables 93, , , ,203 Assets held for sale ,875 96,942 6,189, ,860 3,735,619 2,936,783 16,184,570 6,021,169 Other receivables 94,369 47, ,108 94,783 6,162,629 4,885,521 18,170,933 9,738,648 Non-Current Assets Non-current liabilities Court deposits 42,610 65,669 49,422 72,922 Loans, financing and debentures ,880 12,168,352 10,581,034 Notes receivable , , ,899 Taxes payable , , , ,442 Deferred income and social contribution taxes 12 2,009,719 2,080,202 2,220,704 2,227,316 Deferred income and social contribution taxes , ,088 Recoverable taxes 9 1,752,685 1,752,685 1,779,083 1,763,641 Provisions for contingencies 23 83,203 83,203 93,079 88,828 Other receivables 8,575 10, ,025 50,968 Lease payable 21 2,804 2,936 3,128 19,819 4,276,915 4,268,207 4,242,596 4,208,746 Notes payable 22 14,419,221 11,138, , ,085 Advances from clients , ,800 Other payables ,129 47,824 15,379,564 12,846,415 13,981,237 12,645,920 Investments 13 5,580,830 4,940,423 13,785 21,064 Property, plant and equipment 14 2,826,869 2,709,413 4,928,469 4,435,194 Biological assets ,758 Equity Intangible assets ,426 1,372,166 5,257,447 2,843,389 Share Capital ,427,677 7,427,677 7,427,677 7,427,677 9,311,125 9,022,002 10,199,701 7,354,405 (-) Share issue expenses (108,210) (108,210) (108,210) (108,210) Capital reserve 179, , , ,224 Issue of common shares 180, , , ,382 13,588,040 13,290,209 14,442,297 11,563,151 Acquisition of shares in subsidiaries (158) (158) (158) (158) Profit reserves 37,784 38,362 37,784 38,362 Legal reserve ,476 44,476 44,476 44,476 Retained earnings 7,348 7,348 7,348 7,348 Treasury shares (2,350) (1,772) (2,350) (1,772) Treasury shares canceled (11,690) (11,690) (11,690) (11,690) Other comprehensive income (1,444,138) (425,222) (1,444,138) (425,222) Asset valuation adjustment (4,490,446) (2,037,640) (4,490,446) (2,037,640) Cumulative translation adjustment 2,690,666 1,753,876 2,690,666 1,753,876 Equity amounts related to assets held for sale 355,642 (141,458) 355,642 (141,458) Accumulated losses (5,457,555) (4,721,299) (5,457,555) (4,721,299) Controlling shareholders' equity 635,486 2,392, ,486 2,392,532 Non-controlling interest - - 1,527, ,178 Non-controlling interest in held-for-sale assets , ,486 2,392,532 2,447,423 2,634,710 Total Assets 19,750,669 18,175,730 32,613,230 21,301,799 Total liabilities and shareholders' equity 19,750,669 18,175,730 32,613,230 21,301,799 The management notes are an integral part of the interim individual and consolidated financial statements. 5

7 Statement of income Periods ended June 30, 2018 and 2017 (In thousands of Brazilian reais - R$, except earnings per share) Reclassified Reclassified Reclassified Reclassified 2nd Quarter YTD 2nd Quarter YTD 2nd Quarter YTD 2nd Quarter YTD Note Net sales 26 2,130,178 4,367,467 1,554,135 3,109,103 5,114,997 8,178,483 2,180,068 4,334,076 Cost of products and goods sold 27 (1,895,229) (3,895,736) (1,359,518) (2,729,350) (4,360,411) (7,050,625) (1,906,715) (3,802,369) Gross profit 234, , , , ,586 1,127, , ,707 Operating income (expenses) (768,661) (1,004,784) (251,685) (508,334) (1,038,428) (1,319,269) (247,946) (482,477) Selling expenses 27 (149,840) (306,706) (85,697) (195,136) (261,552) (450,754) (115,367) (254,462) General and administrative expenses 27 (99,638) (149,311) (39,620) (74,070) (131,079) (194,475) (64,149) (121,546) Equity in earnings (losses) of subsidiaries , ,054 (66,774) (146,839) Other operating income (expenses) (629,502) (648,821) (59,594) (92,289) (645,797) (674,040) (68,430) (106,469) Net income (loss) before net financial income (losses) (533,712) (533,053) (57,068) (128,581) (283,842) (191,411) 25,407 49,230 Financial income (expenses) 28 (450,157) (826,933) (399,664) (803,008) (517,478) (988,511) (477,080) (992,123) Financial income 15,622 42,057 24,197 85, , ,789 47, ,720 Exchange gain 270, , , , , , , ,962 Financial expenses (495,124) (857,149) (375,989) (814,232) (563,780) (1,036,867) (460,059) (1,036,005) Exchange Loss (240,832) (482,558) (395,742) (858,979) (441,590) (787,896) (457,186) (993,800) Loss before tax effects (983,869) (1,359,986) (456,732) (931,589) (801,320) (1,179,922) (451,673) (942,893) Income and Social Contribution taxes 401, , , , , , , ,237 Current and deferred income tax , , , , , , , ,746 Current and deferred social contribution , ,989 51,524 86, , ,557 51,662 87,491 Net income (loss) in the period from continuing operations (582,285) (829,634) (262,085) (603,715) (434,208) (681,509) (262,058) (603,656) Net income (loss) in the period from discontinued operations 34 44,618 89,280 95, ,462 51,632 97, , ,559 Net income (loss) in the period before interest (537,667) (740,354) (167,043) (400,253) (382,576) (583,533) (154,716) (376,097) Attributable to: Controlling interest continuing operations (582,285) (829,634) (262,085) (603,715) (582,285) (829,634) (262,085) (603,715) Controlling interest discontinued operations 44,618 89,280 95, ,462 44,618 89,280 95, ,462 Controlling interest - Total (537,667) (740,354) (167,043) (400,253) (537,667) (740,354) (167,043) (400,253) Non-controlling interest - continuing operations , , Non-controlling interest - discontinued operations ,014 8,696 12,300 24,097 Total non-controlling interest , ,821 12,327 24,156 (537,667) (740,354) (167,043) (400,253) (382,576) (583,533) (154,716) (376,097) Basic and diluted losses per common share - continuing operations 29 (0.9825) (1.4000) (0.4423) (1.0187) (0.9825) (1.4000) (0.4423) (1.0187) Basic losses (earnings) per share - common - discontinued operations Total basic and diluted losses per common share 29 (0.9072) (1.2493) (0.2819) (0.6754) (0.9072) (1.2493) (0.2819) (0.6754) Parent The management notes are an integral part of the interim individual and consolidated financial statements. 6

8 Statement of changes in shareholders equity Periods ended June 30, 2018 and 2017 (In thousands of Brazilian reais - R$) Attributable to controlling shareholders Profit reserves Other comprehensive income Share issue expenses Capital reserve Legal reserve Profit retention Treasury shares Treasury shares cancelled Total shareholders' Share Capital Total interest interest equity At December 31, ,278,127 (108,210) 184,642 44,476 7,348 (12) (11,690) (2,054,151) 1,812,179 - (4,246,093) 906, , ,186 1,100,802 Capital increase 2,149, ,149,550 2,149,550-2,149,550 Exchange variation on investments, net ,066 - (178,513) - (153,447) (153,447) 5,833 (147,614) Exchange variation - balance sheet translation (68,118) 53,603 - (14,515) (14,515) - (14,515) Realization of Deemed Cost (4,126) - - 4, Write-off (acquisition) of treasury shares (4,692) (4,692) (4,692) - (4,692) Net income (loss) in the period (400,253) (400,253) (400,253) 24,156 (376,097) At June 30, ,427,677 (108,210) 184,642 44,476 7,348 (4,704) (11,690) (2,033,211) 1,744,061 (124,910) (4,642,220) 2,483,259 2,483, ,175 2,707,434 Equity valuation adjustment Cumulative translation adjustments Equity amounts related to held-forsale assets Accumulated losses Total controlling Total noncontrolling Attributable to controlling shareholders Profit reserves Other comprehensive income Share issue expenses Capital reserve Legal reserve Profit retention Treasury shares Treasury shares cancelled Equity valuation adjustment Equity amounts related to held-forsale assets Total non-controlling interest in held-for- Share Capital Total interest interest sale assets equity At December 31, ,427,677 (108,210) 181,224 44,476 7,348 (1,772) (11,690) (2,037,640) 1,753,876 (141,458) (4,721,299) 2,392,532 2,392, ,178-2,634,710 Exchange variation on investments, net (2,180,071) - 347,670 - (1,832,401) (1,832,401) 1,137,121 - (695,280) Exchange variation - balance sheet translation ,790 3, , , ,577 Realization of Deemed Cost (4,098) - - 4, Reclassification to held for sale (268,637) - 145,643 - (122,994) (122,994) - 275, ,823 Write-off (acquisition) of treasury shares (578) (578) (578) - - (578) Goodwill - Stock Option - - (1,296) (1,296) (1,296) - - (1,296) Net income (loss) in the period (740,354) (740,354) (740,354) 148,125 8,696 (583,533) At June 30, ,427,677 (108,210) 179,928 44,476 7,348 (2,350) (11,690) (4,490,446) 2,690, ,642 (5,457,555) 635, ,486 1,527, ,513 2,447,423 Cumulative translation adjustments Total controlling OK OK OK OK OK OK OK OK OK VERIFICAR OK OK OK OK Accumulated losses Total noncontrolling Total shareholders' The management notes are an integral part of the interim individual and consolidated financial statements. 7

9 8 MARFRIG GLOBAL FOODS S.A. Statement of cash flows Periods ended June 30, 2018 and 2017 (In thousands of Brazilian reais - R$) Parent Reclassified Reclassified YTD YTD YTD YTD Note Net loss in the period from continuing operations (829,634) (603,715) (829,634) (603,715) Items not affecting cash 220, ,354 1,119, ,081 Depreciation and amortization 120, , , ,851 Non-controlling interest , Provision for contingencies - 2,472 1,224 3,501 Deferred taxes and tax liabilities 67,392 (118,543) 64,636 (139,593) Equity in earnings (losses) of subsidiaries (100,054) 146, Exchange variation on financing 98,924 5, ,681 5,237 Exchange variation on other assets and liabilities (87,083) 68,677 22,752 75,601 Interest expenses on financial debt 15,095 33, , ,839 Interest expenses on financial leasing Interest expenses on debentures 42,800 63,573-21,126 Cost with issue of financial operations 1,219 3,562 97, ,856 Leasing adjustment to present value Estimated non-realization of inventories 6,000 (4,000) 6,041 (4,174) Estimated losses with doubtful accounts (5,056) 7,752 (5,474) 7,687 Estimated losses with non-realization of recoverable taxes 58,722 60,018 58,722 60,018 Disposal of fixed asset 1,392 4,635 2,610 6,367 Equity changes 1,464, ,670 (475,163) 778,708 Trade accounts receivable 259, , , ,243 Current inventory and biological assets (176,404) 115 (252,493) (47,809) Court deposits 23,058 14,039 23,723 13,430 Accrued payroll and related charges 62,465 81, ,514 74,817 Trade payables and supplier chain financing (232,276) (88,274) (374,248) (108,068) Current and deferred taxes (75,708) (103,657) (39,966) (126,699) Notes receivable and payable 1,654, ,505 (39,960) 771,657 Other assets and liabilities (50,013) 47,933 (81,544) 88,137 Cash flow from (used in) operating activities 855, ,309 (185,083) 812,074 Investing activities Investments - (15,425) - - Acquisition of subsidiary, net of cash - - (3,656,869) - Investments in fixed and non-current biological assets (223,527) (107,748) (263,147) (115,845) Investments in intangible assets (5,578) (4,625) (5,712) (4,627) Cash flow from investing activities (229,105) (127,798) (3,925,728) (120,472) Financing activities Interest settled debentures / Bonds (43,512) (321,918) (334,636) (587,899) Loans and financing (54,302) (448,549) 5,219,930 77,918 Loans granted 691, ,555 7,855,471 3,034,732 Loans settled (745,524) (853,104) (2,635,541) (2,956,814) Leasing payable (473) (2,992) (700) (3,155) Leasing granted 1, , Leasing settled (2,052) (3,120) (2,279) (3,283) Mandatory deed convertible into shares - (83,271) - (83,271) Treasury shares (578) (4,692) (578) (4,692) Capital increase Dividends received 15, Dividends (subsidiaries) paid to non-controlling shareholders - - (77,696) - Cash flow from (used in) financing activities 37 (83,744) (861,422) 4,806,320 (601,099) Exchange variation on cash and equivalents 78,510 4, ,569 77,396 Discontinued operations, net of cash 34 55,829 83,505 (198,546) (10,597) Cash flow in the period 676,678 (427,724) 1,257, ,302 Cash and cash equivalents Balance at end of period 1,963,763 1,484,469 5,659,885 5,435,944 Balance at start of period 1,287,085 1,912,193 4,402,353 5,278,642 Changes in the period 676,678 (427,724) 1,257, ,302 The management notes are an integral part of the interim individual and consolidated financial statements.

10 9 MARFRIG GLOBAL FOODS S.A. Statement of added value Periods ended June 30, 2018 and 2017 (In thousands of Brazilian reais - R$) Parent Reclassified Reclassified YTD YTD YTD YTD Revenue 4,691,016 3,296,222 8,492,555 4,507,162 Sales of goods and services 4,673,817 3,300,858 8,475,690 4,521,441 Other revenues 12,143 3,116 11,084 (6,543) Losses with doubtful accounts 5,056 (7,752) 5,781 (7,736) Inputs purchased from other firms (including taxes - ICMS, IPI, PIS and Cofins) 4,509,679 2,646,193 7,441,781 3,640,146 Cost of goods sold and services rendered 3,016,524 2,164,327 5,522,173 3,036,736 Material, energy, outsourced services and other 1,493, ,866 1,919, ,410 Loss / Recovery of assets Gross value added 181, ,029 1,050, ,016 Depreciation and amortization 120, , , ,851 Net value created by company 61, , , ,165 Value added received through transfer 702, ,236 1,888,699 2,446,735 Equity In Earnings (Losses) of Subsidiaries 100,054 (146,839) - - Financial income and exchange rate gains 512, , ,252 1,037,682 Other (including Discontinued Operations) 89, ,872 1,052,447 1,409,053 Total value added to be distributed 763,158 1,453,966 2,778,889 3,194,900 Value added distribution 763,158 1,453,966 2,778,889 3,194,900 Employees 378, , , ,893 Direct compensation 310, , , ,218 Benefits 50,618 32,484 54,903 36,653 FGTS (severance pay fund) 17,587 12,287 18,957 14,022 Taxes payable (236,004) (90,122) (217,503) (104,765) Federal (421,410) (271,255) (403,873) (277,875) State 182, , , ,861 Municipal 2,415 2,200 2,441 2,249 Value distributed to providers of capital 1,360,830 1,710,969 2,821,812 3,266,869 Interest 1,339,707 1,673,211 1,824,763 2,029,805 Rentals 21,123 22,166 31,423 23,062 Other (including Discontinued Operations) - 15, ,626 1,214,002 Value distributed to shareholders (740,354) (400,253) (583,533) (376,097) Net loss in the period from operations (740,354) (400,253) (740,354) (400,253) Non-controlling interest 156,821 24,156 The management notes are an integral part of the interim individual and consolidated financial statements.

11 Statement of comprehensive income Periods ended June 30, 2018 and 2017 (In thousands of Brazilian reais - R$) Parent Reclassified Reclassified Reclassified Reclassified 2nd Quarter YTD 2nd Quarter YTD 2nd Quarter YTD 2nd Quarter YTD Net income (loss) in the period (537,667) (740,354) (167,043) (400,253) (382,576) (583,533) (154,716) (376,097) Exchange variation on net investments (2,030,901) (1,832,401) (364,245) (153,447) (2,030,901) (1,832,401) (364,245) (153,447) Exchange variation on balance sheet translation 876, , ,278 (14,515) 876, , ,278 (14,515) (1,154,186) (891,824) (143,967) (167,962) (1,154,186) (891,824) (143,967) (167,962) Total comprehensive income (loss) for the period (1,691,853) (1,632,178) (311,010) (568,215) (1,536,762) (1,475,357) (298,683) (544,059) Attributable to: Controlling interest continuing operations (1,736,471) (1,721,458) (406,052) (771,677) (1,736,471) (1,721,458) (406,052) (771,677) Controlling interest discontinued operations 44,618 89,280 95, ,462 44,618 89,280 95, ,462 Controlling interest - Total (1,691,853) (1,632,178) (311,010) (568,215) (1,691,853) (1,632,178) (311,010) (568,215) Non-controlling interest - continuing operations , , Non-controlling interest - discontinued operations ,014 8,696 12,300 24,097 Total non-controlling interest , ,821 12,327 24,156 The management notes are an integral part of the interim individual and consolidated financial statements. 10

12 1. Operations Marfrig Global Foods S.A. is a multinational corporation operating in the food industry, in the food service, retail and convenience, industrial and export channels in Brazil and around the world. It has a diversified and comprehensive portfolio of products and its operations are founded on its commitment to excellence and quality, which has assured its products presence in the world s largest restaurant chains and supermarkets, as well as homes in nearly 100 countries. The Corporation s activities include the production, processing, further processing, sale and distribution of animal-based proteins (poultry, beef, lamb, pork and fish) and a variety of other food products, such as breaded products, ready-to-eat meals, frozen vegetables and desserts, among others. The Corporation is domiciled in Brazil and headquartered in the city of São Paulo. The Corporation is a publicly held corporation with its shares listed on the Novo Mercado listing segment of the B3 S.A. - Securities, Commodities and Futures Exchange (Brazilian Stock Exchange) under the stock symbol MRFG3. Because it is listed on the Novo Mercado special corporate governance segment of the Brazilian Stock Exchange, the Corporation is subject to arbitration under the Market Arbitration Chamber, pursuant to the arbitration clause in its by-laws. The Corporation s stock is also a component of the main performance indicators of Brazil s Capital Markets, such as the Bovespa Index (Ibovespa, the most important indicator of the average performance of Brazilian stocks). Marfrig stock is also a component of the stock indexes of the Brazilian Stock Exchange: Broad Brazil Index (IBRA); Brazil Index (IBrX); Consumption Sector Index (ICON); Corporate Governance Trade Index (IGCT); Special Corporate Governance Stock Index (IGCX); Novo Mercado Corporate Governance Index (IGNM); Industrial Sector Index (INDX); Special Tag-Along Stock Index (ITAG); Small Cap Index (SMLL). 2. Presentation and preparation of the parent company and consolidated interim financial statements The Management of the Corporation approved the issue of these parent company and consolidated financial statements on August 14, 2018, and warrants that, based on its judgment, all material information is substantiated and corresponds to that used in its management activities Statement of compliance (with IFRS and CFC accounting standards) interim financial statements The Corporation s interim consolidated financial statements were prepared and are presented in accordance with accounting practices adopted in Brazil and with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The separate financial statements of the parent company were prepared in accordance with the accounting practices adopted in Brazil and are disclosed jointly with the consolidated interim financial statements. The accounting practices adopted in Brazil include those provided for in Brazilian Corporations Law, the Brazilian Accounting Standards (NBCs) and resolutions and instructions issued by the Securities and Exchange Commission of Brazil (CVM). The parent company and consolidated Statement of Added Value (DVA) is required under Brazilian Corporation Law and the accounting practices adopted in Brazil applicable to public companies. IFRS standards do not require said statement. As a result, under IFRS, this statement is being presented as 11

13 supplementary information, without prejudice to the complete set of financial statements. Parent company financial statements The parent company interim financial statements were prepared based on the accounting practices adopted in Brazil and resolutions issued by CFC, observing the accounting guidelines based on Brazilian Corporation Law (Federal Law 6,404/76), which include the provisions introduced, amended and revoked by Law 11,638 of December 28, 2007, Law 11,941 of May 27, 2009 (former Provisional Presidential Decree 449 of December 3, 2008) and Law 12,973 of May 13, There is no difference between the Group s shareholders equity and consolidated income (loss) and the parent company s shareholders equity and income (loss) disclosed in the parent company interim financial statements. Thus, the Group s consolidated/parent company interim financial statements are being presented in the same document Basis of presentation The parent company and interim consolidated financial statements are denominated in Brazilian real (R$), which is the reporting currency, and all amounts are rounded to thousands of Brazilian real, unless otherwise stated. The interim consolidated financial statements were prepared on the historical cost basis, unless otherwise stated. Certain assets and financial instruments may be stated at fair value. The preparation of parent company and consolidated financial information in accordance with IFRS and NBCs requires Management to make certain accounting estimates. The areas involving considerable judgment or use of estimates for the parent company and consolidated interim financial information are stated in note of the financial statements for the fiscal year ended December 31, Foreign currency translation Functional and reporting currency The interim financial statements of each consolidated subsidiary and those used as a basis for accounting for investments under the equity method are prepared using the functional currency of each entity. Under NBC TG 02/R3 (CVM Resolution 640/10) effect of changes in exchange rates and translation of financial statements, functional currency is the currency of the primary economic environment in which the entity operates. To define the functional currency of each subsidiary, Management considered which currency significantly influences the sale price of their goods and services and the currency in which most of their production input costs are paid or incurred. The interim consolidated financial statements are expressed in Brazilian real (R$), which is the functional and reporting currency of Marfrig Global Foods S.A. 12

14 Transactions and balances Foreign currency transactions are translated into the functional currency of the Corporation using the exchange rate at the transaction date. Gains and losses resulting from the difference between the monetary asset and liability balance translation at the end of the period or year and the translation of the transaction balances are recognized in the income statement. Non-monetary assets and liabilities in foreign currency measured at fair value are translated at the exchange rate on the date on which their fair value is determined and the differences resulting from such translation will be recognized under other comprehensive income on the closing date of each period or fiscal year. Group companies The results of operations and the financial position of all consolidated subsidiaries and investments accounted for under the equity method, whose functional currency differs from the reporting currency, are translated from the reporting currency, as follows: i. Asset and liability balances are translated using the exchange rate in effect at the date of the consolidated interim financial statements; ii. Statement of operation accounts are translated using the monthly average exchange rate; and iii. All differences arising from the foreign currency translation are recognized in shareholders equity and in consolidated comprehensive income (loss) under Cumulative translation adjustments. 3. Summary of significant accounting practices 3.1. Significant accounting practices The quarterly information was prepared in accordance with NBC TG 21 / R3 (CVM Resolution 673/11 Interim Financial Reporting), which sets forth the minimum interim accounting information to be reported and the principles of recognition and measurement for complete or condensed interim statements. Thus, the quarterly information presented here was prepared based on the accounting policies and estimate calculation methods used while preparing the annual financial statements for the fiscal year ended December 31, There has been no change in said policies and estimate calculation methods. As allowed by NBC TG 21 / R3 (CVM Resolution 673/11), and based on the recommendations contained in Official Letter CVM/SNC/SEP/No. 003/2011, management chose to not report once again the details presented in Note 3. Summary of significant accounting practices, in order to avoid repeating the information already disclosed in its latest annual financial statements. Hence, users must read this quarterly information together with the interim financial statements for the fiscal year ended December 31, 2017, to have a better understanding New NBC standards and interpretations Standards issued and amended by the Brazilian Federal Accounting Council that come into force for the fiscal year starting in 2018 had no material impact on the Corporation s interim separate and consolidated 13

15 financial statements. The Corporation describes the main impacts of the review of the following new standards: NBC TG 47 (IFRS 15) Revenue from Contracts with Customers provides a five-step model for measuring revenue and for determining when and how it will be recognized. The Corporation assessed the potential impacts of IFRS 15, based on its current operations, and considers that revenue is recognized when products are delivered and duly accepted by its customers and when the risks and benefits related to ownership are transferred. After conducting such assessment, the Corporation did not identify any relevant impacts with regard to the practices currently used for its separate and consolidated financial statements. NBC TG 48 (IFRS 9) Financial instruments This standard addresses the classification, measurement and recognition of financial assets and liabilities. The main changes are the new criteria for classifying financial assets between measurement at fair value or amortized cost and the new model for impairment of financial assets. The Corporation conducted assessments by examining the business model adopted to manage its financial assets instead of using the classifications established under IAS 39/CPC 38. Accordingly, the Corporation evaluates at fair value all financial assets previously measured at fair value. For financial assets measured at their amortized costs, such as trade accounts receivable and others, the assessment considered the contractual characteristics of cash flows and the assessment of Solely Payments of Principal and Interest (SPPI). IFRS 9 also requires the Corporation to record any expected loan losses from all of its financial assets measured at their amortized cost and at their fair value through other comprehensive income, based on 12 months or throughout their entire lives, when applicable, in accordance with the characteristics of the financial assets. For this assessment, the Corporation segregated financial assets based on their characteristics of risks and operational particularities. The Corporation assessed the potential implications and did not identify any relevant impacts with regard to the practices currently used for its separate and consolidated financial statements Interim consolidated financial statements The interim consolidated financial statements include information on the Corporation and its subsidiaries, in accordance with the chart of ownership interests in Note 13.1 Direct investments of the parent company. The following table provides a summary of main direct and indirect equity interests that comprise the interim consolidated financial statements as of June 30, 2018: 14

16 Equity interests Parent Company Marfrig Global Foods S.A. Core Activity Processing and marketing of product (formed by cattle slaughter facilities in operation, which are also used in beef processing, for slaughtering lamb, for producing home and personal care products, and for producing animal feed, located in the States of São Paulo, Mato Grosso, Mato Grosso do Sul, Para, Rondônia, Goias and Rio Grande do Sul, in addition to Distribution Centers in the States of São Paulo, Rio de Janeiro e Parana, which are also used for beef processing). Subsidiaries Masplen Ltd Holding company Pampeano Alimentos S.A. Producer of canned meat and other processed products Marfrig Overseas Ltd Specific Purpose Entity - SPEs MF Foods USA LLC. Marketing of products MFG Comercializadora de Energia Ltda Energy trading and associated services Marfrig Argentina S.A. Processing and marketing of products Frigorífico Tacuarembó S.A. Processing and marketing of products Core Activity Inaler S.A. Processing and marketing of products Mercomar Empreendimentos e Participações Processing and marketing of products (composed of 05 primary and further processing units) Marfrig Chile S.A. Processing and marketing of products Frigorífico Patagônia S.A. Processing and marketing of products (lamb meatpacker in from December to May and fish, clam and king crab processing in other months) Abilun S.A Holding company Dicasold Marketing and distribution of food products Prestcott International S.A. Holding company Cledinor S.A. Processing and marketing of products: beef and lamb Establecimientos Colonia S.A. Processing and marketing of products Weston Importers Ltd Trading company Marb Bondco PLC Holding company whose purpose is to raise funds Marfrig Peru S.A.C. Marketing of poultry, beef, fish and seafood Marfrig Holdings (Europe) B.V Holding company whose purpose is to obtain funding Keystone Foods (UK) Ltd Holding company Keystone Foods International Ltd Holding company Keystone Foods Global Holdings Ltd. Holding company NBM US Holdings, Inc. Holding company National Beef Packing Company, LLC Processing and marketing of products Discontinued Operation Subsidiaries Keystone Foods Holdings Ltd. Mckey Luxembourg Holdings S.a.r.l MFG (USA) Holdings Inc Core Activity Holding company Holding of the companies Keystone with operations focused on Asia Holding of the companies Keystone with operations focused on the USA (Keystone companies jointly are composed of poultry slaughter plants and further processing plants) The interim 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 accounting practices issued by the International Accounting Standards Board (IASB) at their relating functional currencies. Later, those financial statements were translated into Brazilian Reais, using the exchange rate prevailing on the balance sheet date Reclassification in the statements of income and cash flows in the period ended June 30, 2017 In compliance with NBC TG 31/R4 and for comparison purposes, the Corporation and its subsidiaries restated their statements of income, of cash flows, of comprehensive income and notes to the financial 15

17 statements for the year ended June 30, These reclassifications do not affect the financial position of the company. Note 11 Assets and liabilities held for sale and Note 34 Results from discontinued operations presents details of the reclassified amounts for comparison purposes. 4. Cash and cash equivalents The Corporation adopts the policy of presenting the following items within the cash and cash equivalents group: Cash on hand; Demand deposits. Parent 6/30/18 12/31/17 6/30/18 12/31/17 Cash and banks 351, ,285 1,228, ,327 Cash equivalents 65,943 12, , , , ,400 1,546,180 1,213,572 Parent 6/30/18 12/31/17 6/30/18 12/31/17 Cash and banks: Brazilian real 157,442 80, ,657 81,981 US dollar 246,973 79,128 1,339, ,447 Chinese Yuan ,078 Other 12, , , , ,400 1,546,180 1,213, Marketable Securities Parent 6/30/18 12/31/17 6/30/18 12/31/17 Marketable securities 1,546,467 1,127,685 4,113,705 3,188,781 1,546,467 1,127,685 4,113,705 3,188,781 16

18 The Corporation s financial investments by type are as follows: Parent PMPV (1) Currency Average interest rate p.a.% 6/30/18 12/31/17 Bank deposit certificates - CDB (2) - BRL 6.14% 626, ,685 Repurchase and reverse repurchase agreements - BRL 3.36% 118, ,199 Fixed income bond - BRL 5.62% 20,003 21,073 Time Deposit (2) 0.40 USD 2.97% 765, ,828 FIDC (2) 2.03 BRL 10.11% 16,609 19,900 Total 1,546,467 1,127,685 Total current 1,546,467 1,127,685 PMPV (1) Currency Average interest rate p.a.% 6/30/18 12/31/17 Bank deposit certificates - CDB (2) - BRL 6.14% 626, ,686 Repurchase and reverse repurchase agreements - BRL 3.36% 118, ,199 Time Deposit (2) 0.09 USD 2.02% 3,332,397 2,765,471 Time Deposit (2) - Peso FIDC (2) 2.03 BRL 10.11% 16,609 19,900 Fixed income bonds - BRL 5.62% 20,047 21,135 Total 4,113,705 3,188,781 Total current 4,113,705 3,188,781 (1) Weighted average maturity in years. (2) Transactions have daily liquidity and can be redeemed at any time. Said maturity is the maturity of the operation. The Corporation maintains the following types of financial investments: 5.1 Bank Certificate of Deposit (CDB) Bank certificates of deposit are investments made at prime financial institutions at variable rates and yield on average 96% to 100% of the variation in the Interbank Deposit Rate (CDI). 5.2 Repurchase and reverse repurchase agreements Transactions based on outstanding daily cash denominated in Brazilian real, U.S. dollar and Argentinean peso that bear interest which are pegged to the variation of the Interbank Deposit Rate (CDI). This operation has immediate liquidity, for it can be early redeemed without yield loss. 5.4 Time Deposit Fixed-rate investments issued by top tier financial institutions on international markets. 5.4 FIDC Fundos de Investimentos em Direitos Creditórios (Receivables Backed Investment Funds) These are shares of an investment fund that invests in receivables rights. 17

19 5.5 Fixed Income Bonds These are investments in fixed income securities issued by top tier financial institutions at fixed rates. 6. Trade accounts receivable domestic and foreign customers Parent 6/30/18 12/31/17 6/30/18 12/31/17 Trade accounts receivable - domestic 129, ,287 1,260, ,556 Trade accounts receivable - foreign 251, , , , , ,681 1,507, ,998 Amounts not yet due 279, , , ,306 Amounts overdue From 1 to 30 days 31,372 36, , ,888 From 31 to 60 days 17,952 22,563 60,507 35,970 From 61 to 90 days 51,877 1,294 68,449 6,834 More than 90 days 20,056 25,112 40,788 35,129 (-) Estimated losses with doubtful accounts (20,056) (25,112) (40,788) (35,129) 380, ,681 1,507, ,998 The estimated loss with doubtful accounts was set up in an amount deemed sufficient by Management to cover possible losses on the realization of its receivables, adopting the criteria of provisioning for the full amount of receivables overdue more than 90 days. The Corporation does not have a history of relevant problems with collection, and the Accounts Receivable Department rates each customer upon acceptance and credit granting. Changes in estimated losses for credit risks are as follows: Parent Balance on December 31, 2017 (25,112) (35,129) Estimate accrued (2,683) (2,744) Estimate reversed 7,739 8,791 Reversal for divestment - (3,434) Exchange rate variation - (666) Acquisition through business combination - (10,309) Reclassification - held-for-sale - 2,703 Balance on June 30, 2018 (20,056) (40,788) A receivables-backed investment fund (Fundo de Investimento de Direitos Creditórios - FIDC) was created in June 2014 to sell a portion of the receivables from the installment sale in the domestic market, up to the limit of R$160 million (principal), of which R$16 million consists of mezzanine subordinated shares. On June 30, 2018, there was R$142,813 of bills traded with the fund MRFG. 18

20 In December 2016, the Corporation s wholly-owned subsidiary Keystone Foods Intermediate LLC structured a program to sell non-recourse receivables with a prime financial institution in the United States. The program s main objective is to convert into cash the term sales originated in the United States market. The securitization program has the purpose of trading up to US$70 million and is structured based on a three-year contract. Under the program, the Corporation receives up to 90% of the total balance of eligible receivables sold, in accordance with the rules of the program and limited to the contractual capacity. As of June 30, 2018, US$66.4 million (R$256 million) had been sold under the program. As of December 31, 2017, US$57.6 million (R$190.5 million) had been sold under the program. In March 2017, the Corporation s wholly-owned subsidiary Weston Importers Ltd. structured a program to sell non-recourse receivables with a prime financial institution in Europe. The program s main objective is to convert into cash the term sales involving exports originated by the Beef division. The securitization program may sell, on a rotating basis, up to US$100 million over a contractual period of 3 years. Under the program, the Corporation receives up to 100% of the total balance of eligible receivables sold, in accordance with the program s rules and limited to the contractual capacity. As of June 30, 2018, US$100 million (R$385.6 million) had been negotiated under the program. 7. Inventories of products and merchandise In the period ended June 30, 2018 and fiscal year ended December 31, 2017, inventories of finished products were carried at average purchase and/or production cost, as shown below: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Finished products 950, ,195 1,893,888 1,413,550 Raw materials , ,713 Packaging and storeroom supplies 58,098 48, , ,744 (-) Estimated losses (38,566) (32,566) (40,103) (35,136) 970, ,938 2,299,597 1,759,871 The Corporation grounds its estimates on historical losses, as follows: Parent Balance on December 31, 2017 (32,566) (35,136) Realization of estimates - 87 Recognition of estimates (6,000) (6,128) Translation gains (losses) - (41) Acquisition through business combination - (1,400) Reversal due to divestment - (19) Reclassification - held-for-sale - 2,534 Balance on June 30, 2018 (38,566) (40,103) 19

21 8. Biological Assets Current 6/30/18 12/31/17 Biological assets - cattle 8,472 5,818 Biological assets - poultry - 113,803 Total current biological assets 8, ,621 Non-current Biological assets - poultry - 54,758 Total non-current biological assets - 54,758 Total biological assets 8, ,379 The Corporation's current biological assets are composed of live animals segregated among the categories: poultry and cattle. Animals classified in this group are those intended for slaughtering for production of fresh meat and/or processed products in the next 12 months. Due to the short formation period of poultry, as well as not having a quotation to poultry and pigs market, the Corporation evaluated these biological assets and identified no material adjustments in relation to acquisition cost. In this case, the Corporation believes that the fair value of biological assets is substantially represented by the formation cost, given the short life cycle of the animals. With respect to Beef cattle, these are animals kept in feedlots for fattening and slaughter. The balance presented in this item is available for use over the next 12 months. The Corporation valuated these animals at fair value, based on the "Mark to Market - MtM concept, considering the market prices of the arroba 1 of cattle, and recognized the effects of these valuations directly in the statement of operations. The Corporation s non-current biological assets are composed of live poultry, classified as breeding stock and intended for reproduction. These assets are amortized on a straight-line basis over the useful life of the animals. Poultry for reproduction have an average useful life of up to 60 weeks. The changes in biological assets are as follows: Current biological assets: Balance on December 31, ,621 Increase due to purchases 9,418 (-) Write-off for slaughter (449,093) Costs of input for fattening 461,179 (-) Decrease due to sales (7,120) Net increase (decrease) due to births (deaths) (152) Change in fair value less estimated sale expenses (*) 3,768 Translation gains (losses) 14,130 Reclassification - held for sale (143,279) Balance on June 30, ,472 * Only applicable to cattle 1 Arroba = A unit of weight equivalent to 15 Kg. 20

22 Non-current biological assets: Balance on December 31, ,758 Increase due to purchases 13,405 (-) Write-off for slaughter (1,399) Costs of input for fattening 13,298 Amortization (22,686) Translation gains (losses) 5,691 Reclassification - held for sale (63,067) Balance on June 30, Recoverable taxes Parent 6/30/18 12/31/17 6/30/18 12/31/17 ICMS (State VAT) 469, , , ,687 PIS and Cofins (taxes on sales) credits 3,255,442 3,120,058 3,329,129 3,216,823 IRPF / IRPJ and CSLL (taxes on income) recoverable 741, , , ,275 Other 16,054 15,431 91,223 62,117 (-) Estimated losses from non-realization (823,160) (764,438) (824,854) (766,132) 3,660,192 3,661,406 3,871,787 3,852,770 Current assets 1,907,507 1,908,721 2,092,704 2,089,129 Non-current assets 1,752,685 1,752,685 1,779,083 1,763, ICMS (State VAT) The balance of recoverable ICMS derives from credits taken for ICMS paid on the acquisition of raw, packaging and other materials and inputs, in amounts higher than the debts generated from domestic sales, since foreign market sales are free from this tax. The Corporation has been seeking ways to optimize these balances by offsetting debits under a non-cumulative regime for the domestic market, or through transfers to third parties. 9.2 PIS and COFINS taxes Pursuant to Federal Laws /02 and /03, this line item consists of noncumulative PIS and COFINS credits on the acquisition of raw, packaging, and other materials used in the goods sold in foreign markets. The Corporation has been successful in its efforts to optimize these tax credits, although its export model in Brazil allows the continuous generation of credits. Furthermore, with its adherence to the Special Tax Payment Program (PERT), the Corporation settles its tax liabilities and opens the way for using its tax credits by guaranteeing and approving them with the Federal Revenue Service. 9.3 IRRF / IRPJ and CSLL recoverable Refers to the amounts of withholding of income tax at source on services rendered to related companies located abroad and financial investments, prepayments of income and social contribution taxes, calculated based on estimation, suspense account balance sheet and taxation based on annual taxable income, payable via offsetting of income and social contribution taxes calculated on profit for future periods, as well as offsetting of other federal taxes owed and managed by the Federal Revenue Service of Brazil (SRF). 21

23 9.4 Estimated losses from non-realization of tax credits The estimated losses for non-realization of tax credits were calculated based on the best estimate of realization of the Corporation s recoverable taxes balances, in which main credits are mainly from PIS/COFINS. In the period ended June 30, 2018, the changes in this item were as follows: Parent Balance at December 31, 2017 (764,438) (766,132) Accrual of estimates (58,722) (58,722) Balance at June 30, 2018 (823,160) (824,854) 10. Notes receivable Parent 6/30/18 12/31/17 6/30/18 12/31/17 Related-party transactions (a) 613, , Joint Venture (b) ,211 Market transactions receivable (c) 1,645 18, ,813 33,506 Other notes receivable 362 2,010 1,265 6,290 Total 615, , , ,007 Current assets 151, , ,716 24,108 Non-current assets 463, , ,899 (a) The amount presented under Parent refers predominantly to balances from transactions with subsidiaries, as described in Note 35 Related-party transactions; (b) The amount presented on December 31, 2017 refers to receivables related to 2 joint ventures of the indirect subsidiary Mckey Luxembourg Holdings S.a.r.l, which are not consolidated in the financial statements in accordance with NBC TG 18/R3 Investments in associates, subsidiaries and joint ventures; (c) Note 30 presents details on the Corporation s transactions with financial instruments. The Company and its subsidiaries are subject to market risks related to fluctuations in exchange rates, interest rates and commodity prices. These amounts represent the aggregate amount of the mark-to-market adjustment of derivatives receivable. 11. Assets and liabilities held for sale The Management Committee decided to hold for sale all assets of the Keystone business unit, and authorized the management of the Corporation to carry out all efforts to comply with said decision. In accordance with CVM Resolution 598/09 (NBC TG 31/R4 Non-current assets held for sale and discontinued operations), the units assets and liabilities were recorded under Assets and Liabilities Held for Sale, and additionally the statement of income and of cash flows are presented as discontinued operation, as detailed in Note 34. Also, in conformity with NBC TG 31/R4, the Corporation informs that fixed and intangible assets were measured at their fair value as described in Notes 14 and 15, respectively, and that this impact is reflected in the same line. The business Marfrig Argentina S.A., which is part of the Beef Division, which previously was recognized, measured and presented in the financial statements as held-for-sale non-current assets, in 22

24 accordance with CPC TG 31/R4 (IFRS 5), was reclassified and presented in this interim financial statements as Continuing operation in the statements of income, of comprehensive income and of cash flows. Such decisions are based on the Corporation s strategic plan to increase the group s profitability and streamline its ownership structure. On June 30, 2018, held-for-sale assets and liabilities were as follows: Assets 6/30/ /31/2017 6/30/ /31/2017 Parent Cash and cash equivalents ,079 2,912 Domestic and foreign trade accounts receivable ,794 29,029 Fixed and biological assets - - 1,774,480 5,052 Intangible assets 630,592-2,276, Other assets 3,283 96,942 1,163, ,803 Total assets held for sale 633,875 96,942 6,189, ,860 Parent Liabilities 6/30/ /31/2017 6/30/ /31/2017 Trade accounts payable - 5,590 1,024,773 48,280 Loans and financing - - 3,735,603 5,306 Other liabilities 2, ,773 28,646 Total liabilities 2,238 5,590 5,465,149 82,232 Equity Amounts related to held-for-sale assets 355,642 (141,458) 355,642 (141,458) 355,642 (141,458) 355,642 (141,458) Non-controlling interest ,513 - Total liabilities and equity held for sale 357,880 (135,868) 6,105,304 (59,226) 12. Deferred income and social contribution taxes - assets Parent 6/30/18 12/31/17 6/30/18 12/31/17 Income tax 1,462,810 1,515,237 1,668,813 1,657,318 Social contribution tax 546, , , ,998 Non-current assets 2,009,719 2,080,202 2,220,704 2,227,316 Deferred income and social contribution tax assets and liabilities are offset when there is a legal right to offset tax liabilities using tax credits and provided they are related to the same tax authority and legal person. Deferred tax assets on tax losses and social contribution tax loss carryforwards from previous years is limited to 30% and are booked to the extent that it is probably that the future taxable income will be available for use when the effective payment is made and/or said additions/exclusions of temporary differences are realized, when these will become deductible/taxable for the calculation of the taxable income, based on the assumptions and conditions established in the Corporation s business model. 23

25 The carrying amount of the deferred tax asset is revised periodically and projections, limited to ten years, are revised annually, and if there are relevant factors that modify the projections, they are revised during the Corporation s fiscal year. The estimates for assessing the probability of the occurrence or not of future profits for the offsetting of tax credits described above are based on the judgments and assumptions incorporated into the projections. By definition, the resulting accounting estimates rarely are equal to the corresponding actual results (due to uncertainties and the high level of judgment applicable to determining such assumptions and estimates). Therefore, such estimates and assumptions represent significant risk, with the probability of requiring a significant adjustment to the carrying amounts of the assets in the individual and consolidated financial statements at the time of the respective assessments. Note that the projections were based on the assumptions for net income and historical data on profitability in each segment, taking into account the diverse economic scenarios of each market where the Corporation operates, due to its global and diversified presence (approximately 62% of revenue came from international units, and most of them are located in economically stable countries). The assumptions are described in Note 12 to the financial statements for the fiscal year ended December 31, 2017, and there were no changes for Based on the above, note that expected realization of "Deferred Tax Assets, based on a technical feasibility study as per CVM Instruction 371 of June 27, 2002 is as follows: Year Parent , , , , , , , , , , to ,233,776 1,351,897 2,009,719 2,220,704 24

26 The following table presents the reconciliation of deferred taxes in the year ended June 30, 2018: ASSETS 6/30/ /31/2017 6/30/ /31/2017 Income tax losses 2,110,264 1,749,186 2,313,360 1,749,186 Social contribution tax loss carryforwards 772, , , ,626 Temporary differences 364, , , ,039 Provision for tax, civil and labor risks 28,289 28,289 30,481 28,289 Other provisions 33,043 15,731 33,279 15,731 Estimated losses with doubtful accounts 7,208 6,742 7,281 6,742 Translation on Loan 160, ,847 - Other ,114 Total assets 3,475,612 2,770,613 3,714,251 2,917,727 Parent LIABILITIES Temporary differences (453) - (31,267) - Other provisions (14,704) - (23,799) - Estimated losses with doubtful accounts (2,167) - (2,173) - Translation on Loan (1,340,291) (568,121) (1,341,671) (568,121) Realization of revaluation reserve (18,523) (19,232) (18,918) (19,232) Realization of deemed cost (89,755) (91,866) (102,827) (91,866) Reclassifications - (11,192) - (11,192) Total liabilities (1,465,893) (690,411) (1,520,655) (690,411) Total deferred taxes 2,009,719 2,080,202 2,193,596 2,227,316 (1) Amount of R$589 million related to PRR, as described in Note Investments Parent 6/30/18 12/31/17 6/30/18 12/31/17 Interest in subsidiaries 5,580,820 4,940, Other investments ,785 21,064 5,580,830 4,940,423 13,785 21,064 25

27 13.1 Direct investments by the parent company Investments in Subsidiaries on June 30, 2018: No. of units of interest/shares Ownership percentage in voting capital Country Share capital Equity Net income (loss) for the period Net income in the period from discontinued operation Equity according to % interest (1) Marfrig Chile S.A. 9, Chile 68, ,945 11, ,047 Inaler S.A. 66,247, Uruguay 5,657 17,579 1,299-17,557 Frigorífico Tacuarembó S.A. 163,442, Uruguay 24, ,817 22, ,088 Masplen Ltd 5, Jersey Island 14,234 7,450 14,563 - (6,466) Prestcott International S.A. 79,638, Uruguay 11,267 96,203 9,034-96,203 Establecimientos Colonia S.A. 80,647, Uruguay 101,220 18,289 (8,669) - 17,997 Marfrig Overseas Ltd Cayman Islands - (564,726) (90,836) - (564,726) Marfrig Argentina S.A. 1,220,225, Argentina 162,378 (179,597) 26,999 (2,615) (179,528) MFG Comercializadora de Energia Ltda 149, Brazil - (2,667) (2,667) Marfrig Holdings(Europe) BV 426, Netherlands 1,796,475 3,293,358 (40,247) - 3,293,359 Marfrig Peru S.A.C. 4, Peru 6 (562) (3) - (561) Keystone Foods (UK) Limited 2, UK 1,093, ,853 54,378 24, ,853 Keystone Foods International Limited 2, UK 548,783 1,823, ,497 67,543 1,823,774 Abilun S.A. 400, Uruguay 49 (1,109) (750) - (1,110) Total 3,826,691 5,596, ,718 89,280 5,580,820 (1) The balance corresponds to the Corporation s ownership interest in its subsidiaries, adjusted by any unrealized profits at the time of consolidation. 26

28 The following table presents a summary of the financial information of the subsidiaries on June 30, 2018: Total assets Total liabilities Non-controlling interest Non-controlling interest - held for sale Net Revenue Group equity in earnings / losses(1) Group equity in earnings / losses (1) - Discontinued operations Marfrig Chile S.A. 294, , ,996 11,327 - Inaler S.A. 146, , ,854 1,299 - Frigorífico Tacuarembó S.A. 455, , ,948 22,801 - Masplen Ltd 429, , ,084 14,563 - Prestcott International S.A. 420, , ,118 9,034 - Establecimientos Colonia S.A. 300, , ,939 (8,669) - Marfrig Overseas Ltd 3,258,762 3,823, (90,836) - Marfrig Argentina S.A. 157, ,584 (92) - 234,429 26,986 (2,615) MFG Comercializadora de Energia Ltda 6,517 9, , Marfrig Holdings(Europe) BV 12,385,001 9,091, (40,247) - Marfrig Peru S.A.C (1) - - (3) - Keystone Foods (UK) Limited 9,610,420 8,857,502 1,526,707-2,408,151 54,378 24,352 Keystone Foods International Limited 15,295,373 11,586, ,513 2,261, ,498 67,543 Abilun S.A. 26, ,312 (115) - 5,618 (750) - Total 42,786,305 35,503,903 1,527, ,513 6,720, ,638 89,280 (1) The balance corresponds to the Corporation s ownership interest in its subsidiaries. 27

29 13.2 Breakdown of investments (parent) Effect of reverse equity interest in the equity accounts of subsidiaries. Balance on December 31, 2017 Asset valuation adjustment Dividends Equity in earnings (losses) (1) Discontinued Operation Balance sheet translation effect Reversal due to asset divestment (2) Balance on June 30, 2018 Marfrig Chile S.A. 139,403 4,552-11,279-13, ,047 Inaler S.A. 13, ,277-2,883-17,557 Frigorífico Tacuarembó S.A. 164,346 2 (64,104) 22,482-18, ,088 Masplen Ltd (17,056) (179) - 10, (6,466) Prestcott International S.A. 90, (16,259) 9,034-13,262-96,203 Establecimientos Colonia S.A. 23, (8,923) - 3,318-17,997 Marfrig Overseas Ltd (396,870) (8,503) - (90,836) - (68,517) - (564,726) Marfrig Argentina S.A. - (108,218) - 26,965 (2,615) 39,582 (135,242) (179,528) MFG Comercializadora de Energia Ltda (2,924) (2,667) Marfrig Holdings(Europe) BV 2,867,581 (2,316) - (40,247) - 468,341-3,293,359 Marfrig Peru S.A.C. (480) 15,268 - (3) - (15,346) - (561) Keystone Foods (UK) Limited 604,544 (6,071) (14,837) 54,379 24, , ,853 Keystone Foods International Limited 1,454,738 (41,297) (40,993) 104,498 67, ,285-1,823,774 Abilun S.A. - (333) - (750) - (27) - (1,110) Total 4,940,413 (147,061) (136,193) 100,054 89, ,569 (135,242) 5,580,820 (1) The balance corresponds to the Corporation s ownership interest in its subsidiaries, adjusted by any unrealized profits at the time of consolidation. (2) The balance corresponds to the amounts of the business Marfrig Argentina S.A., reclassified as Continuing operation. 28

30 13.3 Business combinations Acquisition of National Beef Packing Company, LLC On June 5, 2018, the Corporation, through its subsidiary NBM US Holdings Inc., entered into an agreement with Leucadia National Corporation ( Leucadia ) and other shareholders, the parent company of National Beef Packing Company, LLC ( National Beef ), to acquire 51% of the total and voting capital of National Beef Packing Company, LLC ( National Beef ). The study of the final allocation of the surplus price of acquisition will be conducted within one year as from the acquisition, in accordance with NBC TG 15 (R4) Business combination (CVM Resolution 665/11), and the Management of the Company does not expect significant impacts on the result from the conclusion of this allocation. The Company measured preliminarily the assets acquired and the liabilities assumed at their historical amounts, as follows: US$ R$ Acquisition price 974,406 3,711,016 Historical value of net assets acquired 392,662 1,495,447 Surplus acquisition price over the historical value recorded preliminarily as goodwill 581,744 2,215,569 The acquisition costs of R$7,771 were recognized in the statement of income as administrative expenses. 14. Property, plant and equipment The following tables show the weighted average annual depreciation rate determined using the straight-line method and based on the economic useful life of the assets and their balances: 29

31 Changes in property, plant and equipment (Parent Company): Parent Company Description Land, Constructions and Buildings Machinery, equipment, furniture and fixtures Construction in progress Other property, plant and equipment Avg. annual depreciation rates 3.96% 13.73% % Total Acquisition cost 2,700, ,722 46, ,321 3,762,342 Accumulated depreciation (541,001) (393,408) - (118,520) (1,052,929) Net balance on 12/31/2017 2,159, ,314 46, ,801 2,709,413 Additions 12,428 40, ,262 2, ,526 Write-offs - (805) - (542) (1,347) Transfers 141,821 (10) (141,821) 10 - Depreciation in the period (51,038) (38,598) - (15,087) (104,723) Net balance on 6/30/2018 2,262, ,944 73, ,975 2,826,869 Acquisition cost 2,854, ,898 73, ,725 3,981,613 Accumulated depreciation (592,040) (431,954) - (130,750) (1,154,744) Net balance at the end of the period 2,262, ,944 73, ,975 2,826,869 30

32 Changes in property, plant and equipment (): Machinery, equipment, furniture and fixtures Other property, plant and equipment Land, Constructions Construction in Description and Buildings progress Avg. annual depreciation rates 3.83% 11.80% % Total Acquisition cost 3,976,588 1,986, , ,019 6,794,894 Accumulated depreciation (907,635) (1,105,496) - (346,569) (2,359,700) Net balance on 12/31/2017 3,068, , , ,450 4,435,194 Additions 15,087 46, ,214 2, ,147 Acquisition through business combination 561, , ,475 71,934 1,541,597 Write-offs (437) (1,573) - (555) (2,565) Transfers 142,912 7,575 (153,474) 2,987 - Reclassification - (468) - - (468) Held-for-sale assets (647,827) (385,312) (210,608) (33,580) (1,277,327) Reversal due to divestment 2, , ,051 Translation gains (losses) 48,873 35,559 13,099 (1,288) 96,243 Depreciation in the year (58,000) (57,748) - (16,655) (132,403) Net balance on 6/30/2018 3,133,207 1,147, , ,366 4,928,469 Acquisition cost 4,055,316 2,656, , ,206 7,546,838 Accumulated depreciation (922,109) (1,509,420) - (186,840) (2,618,369) Net balance at the end of the year 3,133,207 1,147, , ,366 4,928,469 According to NBC TG 06/R2 (CVM Resolution 645/10) lease operations, the assets acquired by the Corporation under a finance lease started to be recorded as property, plant and equipment, including their respective depreciation, as mentioned above, with an offsetting entry to lease payable, shown in note 21. Pursuant to NBC TG 01/R4 (CVM Resolution 639/10) asset impairment, 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. If any indication of impairment is found, recoverability analysis comprises projecting the profitability and future cash of the Corporation s business units, which are discounted to present value to identify the degree of recoverability of the asset. During the year ended June 30, 2018, the book values of the Corporation s assets were not greater than the amounts which could be obtained by use or sale. The Corporation and its subsidiaries recorded property, plant and equipment that are fully depreciated and still in operation, as well as temporarily idle items, as follows: 31

33 Parent/ 6/30/2018 6/30/2018 Property, plant and equipment fully depreciated and still in operation Property, plant and equipment not in operation and not classified as held for sale Temporarily idle property, Description plant and equipment Land, constructions and buildings 142, Machinery, equipment, furniture and fixtures 32, , Construction in progress Other property, plant and equipment 83,730 12, , , Intangible assets The Corporation has the subgroup intangible assets, composed of non-current assets, presented pursuant to NBC TG 04/R4 (CVM Resolution 644/10) intangible assets, as shown in the summary below: Amortization Useful life rate 6/30/18 12/31/17 6/30/18 12/31/17 Goodwill ,767 1,010,476 4,898,579 1,051,378 Trademark and patents 0.02% ,883 22,883 25, ,636 Software and Licenses 14.90% ,964 33,410 37,542 59,338 Client relationship - Indefinite ,112,808 Client relationship ,650 Right of use 5.50% ,934 46,390 44,934 46,390 Sales channels 5.50% , , , ,007 Other intangible assets , ,426 1,372,166 5,257,447 2,843,389 Parent In the period ended June 30, 2018, there were no significant changes, except for the reclassification of assets from indirect subsidiaries that are classified as held for sale and the goodwill from the business combination. As a result, the Management chose not to present once again the details in this Note to avoid repetitions of previously reported information. Therefore, users must read this quarterly information together with Note 15 to the financial statements for the fiscal year ended December 31, Changes in intangible assets Changes in the intangible assets accounts for the year ended June 30, 2018 are as follows: 32

34 Parent Company Balance on December 31, 2017 Acquisition / Write-off Exchange Variation Held-for-sale assets Amortization Balance on June 30, 2018 Inaler S.A. - Goodwill 70,457-12, ,200 Frigorífico Tacuarembó S.A. - Goodwill 105,776-18, ,690 Masplen Ltd - Goodwill 31,436-5, ,068 Prescott International S.A. -Goodwill 40,959-7, ,123 Establecimientos Colonia S.A - Goodwill 220,845-37, ,685 Keystone International -Goodwill 541,002-2,584 (543,586) - - Sales channels 259, (8,129) 250,879 Rights of use 46, (1,457) 44,932 Software and systems 33,411 5, (5,978) 32,966 Trademarks and patents 22, ,883 Total 1,372,166 5,533 84,877 (543,586) (15,564) 903,426 Acquisition through Balance on December Exchange variation Reclassification Amortization Balance on business combination (1) 31, 2017 Acquisition/ Write-off Held-for-sale assets June 30, 2018 Goodwill 1,051, ,163 4,294, (12,195) (543,586) 4,898,579 Sales channel 259, (8,129) - 250,878 Rights of use 46, (1,456) - 44,934 Software and Licenses 59,337 5, (6,396) (21,708) 37,542 Trademarks and patents 298, (5) (273,295) 25,514 Client relationship 12, (12,650) - Client relationship 1,112, (1,112,808) - Other intangible assets 3,183 - (1) (3,182) - Total 2,843,389 5, ,982 4,294, (28,181) (1,967,229) 5,257,447 (1) Include goodwill resulting from the business combinations and other intangible assets of the company acquired. The goodwill generated from acquisitions of ownership interests abroad is expressed in the business unit s functional currency and is translated at the closing rate, in accordance with NBC TG 02/R3 (CVM Resolution 540/10) effects of changes in exchange rates and translation of accounting statements. 16. Trade payables Parent 6/30/18 12/31/17 6/30/18 12/31/17 Third parties 626, ,097 1,576,306 2,025,224 Related parties (1) 94, ,343 74, , , ,440 1,650,975 2,159,031 (1) Most of trade and other accounts payable include balances from transactions with its Subsidiaries and other related parties, as described in Note 35 Related-party transactions. 33

35 17. Supply chain finance Parent 6/30/18 12/31/17 6/30/18 12/31/17 Supply chain finance 170, , , , , , , ,041 The Corporation entered into structured supply chain financing operations to extend raw material purchase terms with certain suppliers. The balance of these operations on June 30, 2018 was R$170.5 million at an average rate of 0.87% p.m. On December 31, 2017, these operations amounted to R$195 million at an average rate of 0.98% p.m. 18. Accrued payroll and related charges Parent 6/30/18 12/31/17 6/30/18 12/31/17 INSS (social security contribution) payable 16,840 16,834 17,510 17,582 Salaries and payroll obligations 108,340 44, , ,558 Other social charges and benefits payable 3,886 5,367 4, , ,066 66, , ,071 The Corporation decided to change its strategy for social security liabilities, and no longer use its PIS and COFINS tax credits to settle such liabilities, thereby ending a series of legal claims and improving its relationship with the applicable government authorities. On September and October 29, 2017, the Corporation adhered to the Special Tax Payment Program (PERT) for liabilities due from January 2014 to April 2017 (See Note 19. Special Installment Plans). As a result, the Corporation took another important step towards its full tax compliance. 19. Taxes payable Parent 6/30/18 12/31/17 6/30/18 12/31/17 Income and Social contribution taxes payable 53,475 52,762 89, ,375 Special tax debt installment plans 960,042 1,023, ,206 1,024,603 Other taxes, fees and contributions payable 130,024 94, , ,595 1,143,541 1,170,458 1,212,366 1,260,573 Current liabilities 269, , , ,131 Non-current liabilities 874, , , ,442 34

36 Special Tax Debt Installment Payment Plan Laws 11,941/09, 12,865/2013, 12,996/2014, PRT MP 766/2017, PERT Law 13,496/2017, amended by MP 807/2017 and TA 120 of the state of Mato Grosso do Sul On September 30, 2009, December 20, 2013, August 25, 2014, the Corporation joined Special Tax Debt Installment Payment Programs (New REFIS, Reopening and Copa), established by the above-mentioned laws, which provide for the payment in installments of debts due to the Brazilian Federal Revenue Service (SRF), the Office of the National Treasury Attorney-General (PGNF), and the Brazilian Social Security Institute (INSS). The Corporation declared debts with those agencies and transferred to the plan debts included in other payment plans (Special Tax Debt Installment Payment Plan - Law No. 10,684/03 PAES and Extraordinary Tax Debt Installment Payment Plan Executive Act No. 303/06 PAEX). These debts will be settled within 180 months. Additionally, on June 30, 2017, the Corporation signed a term for spontaneous submission of debits offset using credits under homologation with the State of Mato Grosso do Sul in TA 120, in the amount of R$85,991, to be paid in 48 monthly installments. On September 29, 2017 and November 14, 2017, based on Law 13,496/2017, as amended by Decree 807 of October 31, 2017, which governs the payment in installments of liabilities owed to the Federal Revenue Service (SRF), the Office of the General Counsel for the National Treasury (PGFN) and the National Social Security Institute (INSS), the Corporation adhered to the Special Tax Amnesty Program ( PERT ) for its federal tax liabilities in litigation with the aforementioned authorities. This led to the adherence to the program in an amount of R$1,259.7 million, of which R$550.0 million by migrating liabilities registered in Refis COPA/PRT and R$710.0 million related to liabilities due from January 2014 to April Of the total consolidated in the program, 20% (equivalent to R$251.9 million) was paid by December 2017, with a reduction in the outstanding liabilities due to discounts applied under PERT in the amount of R$318.2 million and the use of income tax losses and social contribution tax loss carryforwards in the amount of R$200.0 million, with the remaining outstanding liabilities of R$489.6 million to be paid in 145 installments of R$3.4 million, since January Changes in special installment payment plans are as follows: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Opening balance 1,023, ,197 1,024, ,382 (+) Adhesion to the installment payment program 3, ,013 3, ,259 (-) Exclusion of installment payment program - (27,606) - (27,606) (-) Offsetting of fine and interest using tax losses and tax loss carryforwards - (22,635) - (22,635) (+) Inflation adjustment interest 23,056 60,221 23,082 60,311 (-) Reduction of Fine and Interest (-) Payments made/tax credits (90,079) (344,772) (90,126) (345,108) Debt balance 960,042 1,023, ,206 1,024,603 Current liabilities 139, , , ,399 Non-current liabilities 820, , , ,204 35

37 20. Loans, financing and debentures Parent Credit facility Charges (% p.a.) Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 6/30/18 Balance on 12/31/17 Local currency FINAME/FINEP TJLP + Fixed Rate 5.50% NCE/Working Capital Fixed Rate+%CDI 7.91% , ,651 Debentures/Interest on debentures 609, ,232 Total local currency 7.91% 754, ,920 Foreign currency: NCE/Prepayment (US$) / ACC (US$) Fixed Rate+ FX 5.95% , ,364 Total foreign currency 5.95% 727, ,364 Total loans, financing and debentures 6.27% 1,481,044 1,385,284 Current liabilities 1,481, ,404 Non-current liabilities ,880 Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 6/30/18 Balance on 12/31/17 Credit facility Charges (% p.a.) Local currency FINAME/FINEP TJLP + Fixed Rate 4.00% ,911 12,881 NCE/Working capital Fixed Rate+%CDI 7.91% , ,651 Total local currency 7.66% 154, ,532 Foreign currency Prepayment/NCE / ACC (US$) Fixed Rate + FX 5.95% , ,364 Bonds (US$) Fixed Rate + FX 7.25% ,769,710 8,582,051 Bank loan (US$) Fixed Rate + FX 5.35% ,829,937 1,693,014 Revolving credit facility Fixed Rate + Libor 3.79% ,264,651 1,331,078 PAE (US$) Fixed Rate + FX 2.10% ,593 33,159 Total foreign currency 6.56% 18,629,906 12,170,666 Total Loans, financing and debentures 6.57% 18,784,267 12,427,198 Current liabilities 6,615,915 1,846,164 Non-current liabilities 12,168,352 10,581,034 The main type of loans and financings contracted by the Corporation is described as follows: Senior Notes BONDS There were no changes in the types of loan and financing of the Corporation for the period ended June 30, The main capital raising operation Senior Notes BONDS - from previous fiscal years, are described in Note 20 to the Financial Statements for the year ended December 31, 2017 and the period ended June 30, 2018 are described below: 36

38 The tenth operation was concluded in January 2018 through the subsidiary Cledinor S.A., and consisted of 10-year Senior Notes issue in Uruguay in the amount of US$60 million. The issue was allocated to local investors in the country. Due in January 2028, the bonds were placed with an interest rate of 5.82% p.a. and rated BBB+ by the credit rating agency FixScr Uruguay (affiliated with Fitch Ratings). The transaction was guaranteed the Corporation s subsidiaries in Uruguay: Frigorífico Tacuarembó S.A. Inaler S.A. and Establecimientos Colonia S.A. The proceeds will be used to optimize the Corporation s capital structure and to finance future investments in its operations in Uruguay. The eleventh operation was concluded in January 2018 and comprised the issue by MARB BondCo PLC of US$1 billion in Senior Notes, with a coupon of 6.875% p.a. and semiannual interest payments and maturity of the principal in 7 years (January 2025), which were assigned foreign currency risk ratings of B+ by S&P and BB- by Fitch Ratings. This operation was guaranteed by Marfrig Global Foods S.A., Marfrig Overseas Limited and Marfrig Holdings (Europe) B.V. with the proceeds used to reduce the debt cost and lengthen the debt profile. In January 2018, the Company repurchased around US$277.1 million, or 58.01%, of the principal of the outstanding Notes of the Third Issue and approximately US$151.9 million, or 23.00%, of the principal of the outstanding Notes of the Seventh Issue. In May 2018, the Corporation fully settled the principal of the outstanding Senior Notes from the Third Issue, in the aggregate amount of US$88.6 million, plus the respective interest of US$3.7 million, representing an aggregate amount of US$92.3 million Guarantees for loans and financing: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Balance of financing 1,481,044 1,385,284 18,784,267 12,427,198 Guarantees: Trade notes - 20,483-20,483 Bank guarantee 231, , , ,801 Surety 145, , , ,218 Leased asset Export document ,943 81,053 Facilities ,245 15,663 Marketable securities - 1,962 3,470 1,962 Mortgage ,904 2,581,339 Shares - - 3,440,700 - No guarantees 1,104, ,996 14,777,720 9,165,642 (1) Shares given as collateral refer to the subsidiary Keystone Foods Global Holdings Limited Covenants The Corporation is party to some loan and financing contracts that contain clauses requiring the maintenance of specific limits of consolidated debt, through covenants. These covenants set the limit of 4.75 for the ratio of Net Debt to EBITDA in the last 12 months. 37

39 Failure to comply therewith could lead creditors to request the early maturity of the Corporation s debt. The leverage ratio is calculated as follows: 6/30/18 gross debt 18,784,267 (-) cash and cash equivalents 5,659,885 net debt 13,124,382 LTM EBITDA in the year ended June 30, 2018* 3,084,092 EBITDA ratio 4.26 net debt 13,124,382 (-) Effect from exchange variation (carve-out) 2,699,976 adjusted net debt 10,424,406 Leverage ratio 3.38 * EBITDA (LTM) is presented on a pro forma basis, including the operations/companies acquired, considering the results of the last 12 months 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 Loans and financing fall due and pay interest as follows: Parent 6/30/18 12/31/17 6/30/18 12/31/ ,173, , ,945 1,846, , ,807 5,713,277 2,344, ,812 1,251, ,952 95, ,470,096 1,231, ,781,948 3,220, ,868,878 2,437, to ,865,359 - Total 1,481,044 1,385,284 18,784,267 12,427,198 The Corporation did not identify any breach of its covenants as of June 30, 2018 and December 31, The consolidated leverage ratio and maturity schedule are shown in note

40 21. Lease payable The Corporation is a lessee in various agreements, classified as operating or finance leases Finance lease According to NBC TG 06/R2 (CVM Resolution 645/10) commercial leasing, finance lease operations are now recognized under the Corporation s current and non-current liabilities, with an offsetting entry of the leased asset recorded in property, plant and equipment, according to note 14, while financial leasing operations are guaranteed by the leased assets themselves: Parent Credit facility Charges (% p.a.) Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 6/30/18 Future payments Balance on 12/31/17 Domestic currency Finance lease of vehicles Rate 7.32% Finance lease of IT equipment Rate 13.52% ,017 1, Finance lease of software license Rate 12.86% ,253 4,903 6,395 Interest payable (1,323) - (1,351) APV financial lease (485) - (683) Total domestic currency 5,579 6,902 5,481 Total Parent Company 5,579 6,902 5,481 Current liabilities 2,775 2,545 Non-current liabilities 2,804 2,936 Credit facility Charges (% p.a.) Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 6/30/18 Future payments Balance on 12/31/17 Domestic currency Finance lease of vehicles Rate 7.32% Finance lease of IT equipment Rate 13.52% ,017 1, Finance lease of software license Rate 12.86% ,253 4,903 6,395 Interest payable (1,323) - (1,351) APV of financial lease (485) - (683) Total domestic currency 5,579 6,902 5,481 Foreign currency Finance lease of vehicles Rate 4.98% Finance lease of machinery and equipment Rate 2.90% ,543 Finance lease of IT Equipment Taxa 7.01% Financial interest payable - - (1,242) Total foreign currency 1,351 1,351 26,301 Total 6,930 8,253 31,782 Current liabilities 3,802 11,963 Non-current liabilities 3,128 19,819 According to NBC TG 12 (CVM Resolution 564/08) present value adjustment, finance lease payable was discounted to present value. 39

41 Lease contracts fall due as follows: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Domestic currency Up to one year 2,775 2,545 2,775 2,545 From one to five years 2,804 2,936 2,804 2,936 Total domestic currency 5,579 5,481 5,579 5,481 Foreign currency Up to one year - - 1,027 9,418 From one to five years ,883 Total foreign currency - - 1,351 26,301 Total 5,579 5,481 6,930 31,782 The schedule for future payments of the finance lease is as follows: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Domestic currency Up to one year 3,509 3,178 3,509 3,178 From one to five years 3,393 3,654 3,393 3,654 Total domestic currency 6,902 6,832 6,902 6,832 Foreign currency Up to one year - - 1,026 10,146 From one to five years ,400 Total foreign currency - - 1,351 27,546 Total 6,902 6,832 8,253 34,378 40

42 21.2. Operating lease Operating lease as at June 30, 2018 is as follows: Parent Financial institution Leased asset Start date Weighted average interest rate (p.a) Weighted average maturity (years) Total amount leased Expense at 6/30/18 Local currency LEONI EMPREEND IMOBIL Meatpacking plant 1/1/14 IGP-M year , BRASIL FOOD SERV. GROUP.SA BFG Meatpacking plant 10/1/14 IGP-M year ,848 7,572 URUPA IND E COM DE ALIM LTDA Meatpacking plant 10/1/15 IGP-M year ,800 2,202 TOTAL S/A Meatpacking plant 7/1/16 IGP-M year ,860 5,517 Total local currency 199,028 15,574 Total Parent Company 199,028 15,574 Financial institution Leased asset Start date Weighted average interest rate (p.a) Weighted average maturity (years) Total amount leased Expense at 6/30/18 Local currency LEONI EMPREENDIMENTOS IMOB. Meatpacking plant 1/1/14 IGP-M year , BRASIL FOOD SERV. GROUP.SA BFG Meatpacking plant 10/1/14 IGP-M year ,848 7,572 URUPA IND E COM DE ALIM LTDA Meatpacking plant 10/1/15 IGP-M year ,800 2,202 TOTAL S/A Meatpacking plant 7/1/16 IGP-M year ,860 5,517 Total local currency 199,028 15,574 Bank of America Aircraft 11/4/10 Fixed rate , Bank of America Machinery and equipment 8/1/17 Fixed rate ,518 1,063 Bank of America Vehicles 4/1/15 Fixed rate ,253 1,207 Various lessors Land and buildings 11/1/15 Fixed rate Various lessors Machinery and equipment 5/1/18 Fixed rate ,480 1,160 Various lessors Vehicles 3/5/18 Fixed rate ,775 2,605 Various lessors IT equipment 7/1/17 Fixed rate , Total foreign currency 487,879 6,950 Total 686,907 22,524 The balance of the operating lease payable falls due as follows: Parent 6/30/18 6/30/18 (at present value) (at present value) Domestic currency Up to one year 21,957 21,957 From one to five years 19,207 19,207 Total domestic currency 41,164 41,164 Foreign currency Up to one year - 83,101 From one to five years - 149,272 Over 5 years - 1,651 Total foreign currency - 234,024 Total 41, ,188 41

43 The operating leases the Corporation enters into have no restrictions or contingencies, follow market practices and include, in some cases, price adjustment clauses during their effective term. In the period ended June 30, 2018, there were no significant changes, except for the reclassification of assets from indirect subsidiaries that are classified as held for sale. As a result, the Management chose not to present once again the details in this Note to avoid repetitions of previously reported information. Therefore, users must read this quarterly information together with Note 21.2 to the financial statements for the fiscal year ended December 31, Notes payable Parent 6/30/18 12/31/17 6/30/18 12/31/17 Notes payable for investments in Brazil (a) 414, , , ,772 Notes payable - Sponsorships (b) 96,759 48,526 96,759 95,075 Market transactions payable (c) 14,078,930 10,765, Other 10,500 17,788 14,278 17,788 14,600,399 11,262, , ,635 Current liabilities 181, , , ,550 Non-current liabilities 14,419,221 11,138, , ,085 (a) The amount refers primarily to the balance of the acquisition of all shares in Mercomar Empreendimentos e Participações Ltda., acquired in May 2015, with final maturity scheduled for March 2024; (b) In the note 30, we break down financial instrument operations practiced by the Corporation. The Corporation and its subsidiaries are subject to market risks related to foreign exchange variations, interest rates fluctuations and commodities prices variations. These represent the amount of mark-tomarket adjustment of derivatives payable. (c) The breakdown of balance can be seen in Note 35 Related-party transactions. 42

44 23. Tax, labor and civil contingencies 23.1 Provisions The Corporation and its subsidiaries are involved in several civil, administrative, tax, social security and tax proceedings, in the ordinary course of business, for which provisions based on legal counsel s estimates have been set up. The principal information about these proceedings is presented below: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Labor and social security 48,033 48,033 57,848 53,439 Tax 1,759 1,759 1,759 1,759 Civil 33,411 33,411 33,472 33,630 83,203 83,203 93,079 88,828 The following table shows the changes in provisions in the year ended June 30, 2018: Parent Labor and social security Tax Civil Total Labor and social security Tax Civil Total Balance on December 31, ,033 1,759 33,411 83,203 53,439 1,759 33,630 88,828 Addition of provision , ,393 Reversal of provision (169) (169) Reversal due to divestment , ,050 Translation gain (loss) (1,023) - - (1,023) Balance on June 30, ,033 1,759 33,411 83,203 57,848 1,759 33,472 93, Labor and social security As at June 30, 2018, the Corporation and its subsidiaries are parties to various labor claims. Based on the Corporation s and its subsidiaries payment history, a provision of R$57,848 was set up. In the opinion of the Management and legal counsel, this provision is sufficient to face probable losses. Most of the labor claims filed against the Corporation and its subsidiaries refer to matters usually questioned in this industry, such as dismissal for just cause, preparation time, breaks for personnel who work in refrigerated environments, commuting time and ergonomic risk, among others. The Management of the Corporation believes no individual labor claim is relevant Tax The Corporation accrues provisions for tax contingencies as a reserve for risks not incurred in the amount of R$1, Civil Based on the opinion of legal advisors, the Management recognized on June 30, 2018 a provision for the amount of actions considered to be of probable risk, totaling R$33,472. The civil suits of the Corporation and its subsidiaries involve disputes typically related to business agreements and indemnities. The early terminations include the agreement for sponsorship of the Brazilian National Football Teams entered into with the Brazilian Football Confederation (CBF). 43

45 23.2 Contingent liabilities Contingent liabilities, which are not recorded in the books of account, according to prevailing legislation, are shown below: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Labor and social security 114, , , ,175 Tax 1,342,120 1,416,277 1,344,246 1,419,122 Civil 2, , ,459,371 1,560,333 1,464,054 1,564, Labor and social security The labor and social security lawsuits in which the Corporation and its subsidiaries are parties typically involve issues usually claimed in the segment, such as dismissal without cause, preparation time, breaks for persons working in refrigerated environments, overtime, ergonomic hazards and others, which are individually insignificant. Furthermore, the reduction in social security liabilities is due to their migration to the Special Tax Amnesty Program (PERT) Tax The main tax matters discussed at court that in the opinion of the Management and legal counsel are rated as possible losses for the Corporation and its subsidiaries is presented below. a) Federal Taxes and Contributions As at June 30, 2018, the Corporation was a party to administrative proceedings and court claims filed by the Federal Government at the total historical value of R$559,162, claiming: (i) Offsetting of IRPJ, CSLL and IE with the deduction of ICMS from PIS and COFINS tax bases. This last lawsuit refers to a refund request at the historical value of R$68,552, for which a provision was not accrued, given that according to the opinion of the legal counsel, they are considered only possible losses. The Corporation has filed administrative defenses that are pending final judgments and allege non-enforceability due to miscalculation of their tax bases, and that inspectors estimated the amounts according to assumptions; (ii) No increase in taxable income and IRPJ/CSLL base for profits earned abroad in calendar years 2008 and 2009, disallowance of goodwill amortization and non-subjection to tax of interest from loan agreements in force with subsidiaries abroad, in the historical amount of R$159,283. Administrative defenses were submitted. (iii) Disallowance of amounts deducted from the calculation base of income and social contribution taxes for the years 2007, 2008 and 2011 in the historical amount of R$37,450; 44

46 (iv) (v) (vi) The Corporation has Tax Deficiency Notices amounting to R$68,045, related to the requirement to pay a fine of 50% for alleged lack of payment of Social Contribution and Income Tax on the calculation base of the monthly estimate. The notice was due to the fact that the Federal Revenue Service did not ignore the rectifying DCTFs submitted by the company within the legal deadline; The Corporation and its subsidiary Pampeano have federal tax debits, whose collection suits are individually immaterial, totaling R$219,916; The Company received a Tax Deficiency Notice in the amount of R$5,916, for the collection of an isolated fine at the percentage of 50%, due to the non-approval of DCOMP, the liability that is the object of said DCOMP was the object of a final order, which in turn is the object of an appeal in an administrative proceeding, seeking its reversal and consequently the recognition of the entire credit. b) State VAT ICMS On June 30, 2018, the Corporation had administrative proceedings, and court claims in the historical amount of R$784,364, claiming the following: (i) (ii) (iii) The most significant proceedings regarding ICMS were filed by the Finance Department of the State of São Paulo claiming amounts related to deemed credit taken on transfer invoices of goods sent by the branches located in the states of Mato Grosso do Sul and Goiás to the branches in the State of São Paulo, that is, a "Tax War. The assessed amounts correspond to the difference between the amount separately identified in the goods receiving documents at the distribution center and that paid to the State of origin. The total historical amount claimed in these proceedings is R$594,248; Tax Deficiency Notices discussing the collection of ICMS taxes in the state of Goiás related to the disallowance of ICMS tax credits due to noncompliance with accessory obligations, error in the basis for calculation of the value due in ICMS taxes, failure to return credits granted after goods were returned, failure to return ICMS credits on the acquisition of inputs/goods proportionally to disbursements, failure to substantiate exports of goods abroad, which amount to a historical amount of R$118,063; The Corporation and its subsidiary Pampeano are parties to administrative proceedings and legal suits, whose collection suits are individually immaterial, totaling R$72,053. c) Taxes on Services of Any Nature (ISSQN) On June 30, 2018, the Corporation had tax deficiency notices issued by the municipalities of Santo André in São Paulo and of Mineiros in Goiás claiming the payment of ISSQN related to the alleged retention and nonpayment of the respective tax credit levied on the provision of services received, in the historical amount of R$ Civil The civil suits of the Corporation and its subsidiaries involve disputes typically related to business agreements and indemnities, which are not individually relevant. 45

47 23.3 Additional information on contingent liabilities Special Rural Tax Amnesty Program ( PRR ) On May 31, 2018, the Corporation adhered to the Special Rural Tax Amnesty Program ( PRR ), which consolidated tax liabilities related to Funrural in the approximate amount of R$1.1 billion. The amounts registered under the program were suspended for the purposes of obligations with the federal government due to lawsuits until then in favor of the Corporation. And, under the rules established by the program, the final impact on other non-operating expenses was R$616 million. The liabilities were paid, mostly, using credits from tax losses, producing a cash impact of R$26 million. The Company understands that such liabilities should be borne by the rural producers and will seek reimbursement of the amount paid Ongoing investigations a) Operation Cui Bono On May 22, 2018, Marfrig Global Foods informed its shareholders and the market that Marcos Antonio Molina dos Santos had notified the Company of the execution with the Federal Prosecution Office of a statement of commitment to remedy any losses related to operation Cui Bono. Note that this is not a plea bargain or collaboration agreement and does not constitute admission of guilt, which means that his business activities will not be affected. Marfrig clarifies that the statement of commitment exempts the Company from any future payment or impact on its financial position. Furthermore, the Corporation clarifies that it publishes and monitors the application of its Code of Ethics and Conduct, which contains guidelines for corporate conduct, and reaffirms that it does not tolerate the practice of any crimes or wrongdoings of any kind by any of its officers, directors, employees, suppliers or partners. 24. Deferred Income and Social Contribution Taxes Liabilities 6/30/18 12/31/17 Income tax 27, ,088 27, ,088 Deferred income tax liabilities refer to the taxes calculated on temporary differences, as well as translation gains and losses recognized as deferred tax liabilities resulting from the translation of balances into foreign currencies other than the Corporation s functional currency, which are recorded at the foreign subsidiaries and settled in future fiscal years. Other highlights include the tax reform approved and sanctioned in December 2017 in the United States, whose key aspect was cutting the corporate income tax rate from 35% to 21%. The tax cut not only benefits the cash flow from operations based in the country, but also has the potential to encourage new investments, create new jobs and drive domestic demand. 46

48 As an initial impact of this Reform, a non-cash benefit was recorded already in fiscal year 2017 at the Keystone Division, resulting in an adjustment to deferred income tax liability of approximately US$ 27 million. Below are the changes in deferred taxes in the period ended June 30, 2018: Description IRPJ Balance on December 31, ,088 Accrual 8,095 Deferred taxes on temporary differences 3,043 Reversal of deferred taxes on temporary differences 4,508 Reclassification - held for sale (238,630) Other (2,712) Translation gain or loss 1,716 Balance on June 30, , Shareholders equity 25.1 Share capital Subscribed and paid-in share capital as at June 30, 2018 and December 31, 2017 totaled R$7,427,677 and was represented by 621,279,822 common shares without par value. On the same date, 219,371,723 shares, or 35.31% of the capital was held by the controlling shareholder: Marcos Antonio Molina dos Santos, Marcia Aparecida Pascoal Marçal dos Santos and MMS Participações Ltda. (company controlled by Marcos and Marcia, each holding a 50% ownership interest). On the same date, the free float was 401,230,925 shares, representing 64.58% of the Share Capital of the Corporation, in addition to 382,339 shares in treasury and 294,835 shares held by its Board of Directors and Executive Board, jointly representing 0.11% of the Capital Income reserves Legal reserve It is 5% (five per cent) of the Corporation s net income, as defined in its by-laws and current legislation. In the periods ended June 30, 2018 and December 31, 2017, the Corporation did not recognize legal reserve given that it recorded loss. Accordingly, the balance as of June 30, 2018 remained at R$44, Treasury shares On June 30, 2018, Corporation held three hundred eighty-two thousand, three hundred thirty-nine (382,339) common shares in treasury, which were booked at the amount of R$2,350, which corresponds to an average cost of six reais and fourteen centavos (R$6.14) per share. Changes in treasury shares in the year are shown in the table below: 47

49 Held in Treasury Number of Shares Value (R$ '000) Balanc e as at Dec ember 31, ,739 1,772 (+) Acquisition - Repurchase program 575,000 3,548 (-) Disposal - Stock options (483,400) (2,970) Balance as at June 30, ,339 2,350 Share buyback program Shares repurchased were held in treasury for exercise of stock options by the beneficiaries of the Corporation's Stock Option Plan and/or subsequent cancellation or sale. On January 9, 2017, the Corporation s Board of Directors approved the use of the available capital reserve to acquire shares. The buyback program includes the acquisition of up to 9,456,917 registered, book-entry common shares without par value issued by the Corporation. The maximum period for effecting the purchase transactions is eighteen (18) months, starting on January 11, 2017 and ending on July 10, Other comprehensive income Asset and liability valuation adjustment This account recognizes, before being recorded in the statement of operations, corresponding entries of increases or decreases in the amount attributed to asset and liability items arising from their adjustment to market price on investments in subsidiaries directly and indirectly held by the Corporation. Such accumulated effect will be transferred to the statement of operations for the year as gain or loss only upon the disposal or write-off of the investment. This account also recognized the effects from the adoption of deemed cost, transactions hedging the interest rate risk of the parent company and the impact of its subsidiaries and currency differences in the translation of transactions abroad Cumulative translation adjustment This account records exchange rate gains (losses) resulting from the translation of the foreign subsidiaries interim financial statements. The investee s functional currency is different from that of the Corporation Amounts under Shareholders Equity related to assets held for sale In compliance NBC TG 31/R4 (CVM Resolution 598/09) Non-Current Assets Held for Sale and Discontinued Operation, the Corporation segregated from the balance of other comprehensive income recorded in its shareholders equity the amounts related to assets held for sale. 48

50 25.4 Dividends The Corporation s mandatory dividend is at least 25% of the adjusted net income determined in the Corporation s financial statements, pursuant to Brazilian Corporate Law and the Corporation s by-laws. The annual statement of dividends, including their payment, in addition to mandatory minimum dividends, are approved at an Annual Shareholders Meeting by majority voting of Marfrig s shareholders and will depend on various factors. Among these factors are the Corporation s operating results, financial conditions, cash needs, future prospects and others which Marfrig s Board of Directors and shareholders deem relevant. At a meeting held on March 27, 2018, in view of the net loss recorded in the period, the Board of Directors submitted to the Annual Shareholders Meeting the proposal for distribution of dividends for Interest on equity capital The Corporation did not recognize interest on shareholders equity for the periods ended June 30, 2018 and December 31, Non-controlling interest Refers to the interest of non-controlling shareholders in the Corporation s equity. 26. Net sales revenue Parent Reclassified 6/30/18 6/30/17 6/30/18 6/30/17 Revenue from sales of products Domestic sales 2,554,585 1,995,333 5,004,878 2,491,629 Foreign sales 2,119,232 1,305,526 3,470,812 2,029,812 4,673,817 3,300,859 8,475,690 4,521,441 Deductions from gross sales Taxes on sales (134,039) (83,968) (118,806) (79,173) Returns and discounts (172,311) (107,788) (178,401) (108,192) (306,350) (191,756) (297,207) (187,365) Net sales 4,367,467 3,109,103 8,178,483 4,334, Costs and expenses by nature The Corporation has decided to present the statements of income by function. The breakdown by nature is below: 49

51 Parent Reclassified Reclassified 6/30/18 6/30/17 6/30/18 6/30/17 Cost of sales Inventory costs 3,452,591 2,401,717 6,226,825 3,314,963 Depreciation 96,396 87, ,133 98,381 Amortization 5,979 4,161 18,240 4,241 Employee salaries and benefits 340, , , ,784 3,895,736 2,729,350 7,050,625 3,802,369 Administrative expenses Depreciation 8,099 5,615 8,617 6,012 Amortization 9,585 9,585 9,941 9,838 Employee salaries and benefits 89,922 53, ,867 56,599 Other 41,705 5,684 60,050 49, ,311 74, , ,546 Selling expenses Depreciation Employee salaries and benefits 24,875 17,693 38,038 27,330 Freight 202, , , ,266 Other 78,940 44, ,855 81, , , , , Net financial result The Corporation s net financial income (expenses) is as follows: Parent Reclassified Reclassified 6/30/18 6/30/17 6/30/18 6/30/17 Financial income Market transactions 16,416 43, ,079 66,432 Interest received, earnings from marketable securities 23,644 40,098 47,813 56,868 Discounts, other 1,997 1,441 4,897 1,420 Total financial income 42,057 85, , ,720 Exchange rate gains 470, , , ,962 Financial expense Provisioned interest, debentures and leasing with financial institutions (425,435) (354,162) (463,504) (410,144) Market transactions (105,388) (32,645) (129,208) (70,811) Bank expenses, commissions, fees, financial discounts, other (326,326) (427,425) (444,155) (555,050) Total financial expense (857,149) (814,232) (1,036,867) (1,036,005) Exchange rate losses (482,558) (858,979) (787,896) (993,800) Net financial result (826,933) (803,008) (988,511) (992,123) 29. Earnings (loss) per share The following table shows the calculation of earnings (loss) per share for the periods ended June 30, 2018 and 2017 (in thousands, unless otherwise stated): 50

52 Reclassified 6/30/18 6/30/17 Profit (loss) attributable to shareholders from continuing operations (829,634) (603,715) Profit (loss) attributable to shareholders from discontinued operations 89, ,462 Profit (loss) attributable to shareholders from the Corporation (740,354) (400,253) Weighted average number of shares in the period (units) 593,035, ,035,591 Weighted average number of shares held in treasury (units) (446,768) (381,779) Weighted average number of outstanding common shares (units) 592,588, ,653,812 Basic and Diluted Earnings (Losses) (in R$) from continuing operations (1.4000) (1.0187) Basic and Diluted Earnings (Losses) (in R$) from discontinued operations Earnings or losses attributable to shareholders of the Company (1.2493) (0.6754) 30. Financial instruments - derivatives and risk management - consolidated Overview The Corporation and its subsidiaries are exposed to market risks related to exchange rate gains (losses), interest rate and commodities price fluctuations of a nature considered normal to their business. In order to minimize these risks, the Corporation has policies and procedures to minimize these exposures and may use hedging instruments, as long as previously approved by the Board of Directors. Among the Corporation s guidelines we highlight: Monitoring levels of exposure to each market risk; measuring these risks; setting limits for making decisions and using hedging mechanisms, always aiming at minimizing the foreign exchange exposure of its debts, cash flows and interest rates. On December 19, 2016, the Board of Directors decided that the Corporation shall be represented exclusively by its Officers and Attorney-in-Fact (Article 26 of the Bylaws) for acts and transactions in amounts of up to R$500 million or US$200 million, depending on the currency in which they are carried out. For acts and transactions in amounts greater than R$500 million or US$200 million, the approval by the Board of Directors is required. The Corporation only enters into transactions with derivatives or similar instruments that offer a minimum protection against: foreign currencies, interest rates and commodity prices, and also adopts a conservative policy of not entering into transactions that could affect its financial position. The Corporation does not enter into leveraged transactions with derivatives or similar instruments The Corporation also has a sound financial policy, maintaining a high level of cash balance, cash equivalents and short-term financial investments. At the same time, the maturity of the Corporation s long-term indebtedness is such way that it is not concentrated in any single year. 51

53 30.2. Financial instruments by category The Corporation s financial assets and liabilities are classified as below: Parent Financial assets Held for Amortized Cost trading 6/30/18 12/31/17 6/30/18 12/31/17 Cash and cash equivalents 351, ,285 65,943 12,115 Marketable Securities - - 1,546,467 1,127,685 Trade accounts receivable 380, , Notes receivable - derivatives - - 1,645 18,012 Related parties 613, , Total financial assets 1,344,678 1,192,577 1,614,055 1,157,812 Financial liabilities Held for Amortized Cost trading 6/30/18 12/31/17 6/30/18 12/31/17 Trade accounts payable and supply chain finance 891,014 1,088, Loans, financing and debentures 1,481,044 1,385, Finance lease 5,579 5, Notes payable - derivatives ,759 48,526 Notes payable - investments Brazil 414, , Related parties 14,078,930 10,765, Total financial liabilities 16,870,777 13,675,856 96,759 48,526 Financial assets Reclassified Held for Amortized cost trading 6/30/18 12/31/17 6/30/18 12/31/17 Cash and cash equivalents 1,228, , , ,245 Marketable Securities - - 4,113,705 3,188,781 Trade accounts receivable 1,507, , Notes receivable - derivatives ,813 33,506 Joint Venture - 78, Total financ ial assets 2,735,825 1,957,536 4,543,885 3,481,532 Financ ial liabilities Held for Amortized cost trading 6/30/18 12/31/17 6/30/18 12/31/17 Trade accounts payable and supply chain finance 1,821,517 2,354, Loans, financing and debentures 18,784,267 12,427, Finance lease 6,930 31, Notes payable - derivatives ,759 95,075 Notes payable - investments Brazil 414, , Total financ ial liabilities 21,026,924 15,243,824 96,759 95,075 52

54 Details of the accounting policies and methods used (including criteria for recognition, measurement bases and criteria for recognition of gains and losses) for each class of financial instruments and equity are presented in note Comparison of market value and respective fair values Market values for the financial instruments are shown below: 6/30/18 12/31/17 Book value Market value Book value Market value Cash and cash equivalents 1,546,180 1,546,180 1,213,572 1,213,572 Marketable Securities 4,113,705 4,113,705 3,188,781 3,188,781 Trade accounts receivable 1,507,012 1,507, , ,998 Notes receivable - derivatives 112, ,813 33,506 33,506 Trade accounts payable and supply chain finance 1,821,517 1,821,517 2,354,072 2,354,072 Loans and financing 18,784,267 18,784,267 12,427,198 12,427,198 Finance lease 6,930 6,930 31,782 31,782 Payables - derivatives 96,759 96,759 95,075 95,075 The fair value of financial instruments is similar to the book value and largely reflects the values that would be obtained if they were traded in the market Breakdown of Derivative Financial Instruments The breakdown of Marfrig Group s derivative financial instruments follows: Notional Instrument Hedged Item Exchange Maturity Long Short USD Notional R$ MTM R$ Transactions designated as Hedge Accounting NDF Exchange Rate OTC 2018 USD GBP 15,479 59,685 1,784 NDF Exchange Rate OTC 2018 USD EUR 2,648 10, NDF Exchange Rate OTC 2019 USD GBP 2,910 11, Transactions not designated as Hedge Accounting Swap Interest Rate CETIP 2019 BRL USD 174, ,967 (96,283) Swap Interest Rate OTC 2019 USD BRL 174, ,967 96, ,623 1,429,049 2,631 NDF Exchange Rate OTC 2018 BRL USD 30, ,674 1,169 NDF Exchange Rate OTC 2018 USD CLP 7,685 29,632 2,297 37, ,306 3,466 Futures Fed cattle BM&F 2018 BRL BRL (283) (1,092) (2) Futures Fed cattle CME 2018 USD USD 75, ,637 9,921 Futures Fed cattle CME 2019 USD USD , ,726 9, ,708 1,865,081 16,054 53

55 Assets and liabilities presented on the balance sheet under securities receivable and trade accounts payable regarding derivative transactions, which are intended for equity hedging, are shown below: 6/30/18 12/31/17 Notes receivable - derivatives (note 10) 112,813 33,506 Notes payable - derivatives (note 22) (96,759) (95,075) Total, net 16,054 (61,569) In the period ended June 30, 2018, a consolidated net financial loss of R$7,129 was recorded from market transactions, of which R$129,208 corresponded to expenses and R$122,079 to income Derivative financial instruments subject to Hedge Accounting As of 2013, the Marfrig group adopted hedge accounting policies for financial instruments exposed to fluctuations. As a result, the variations in fair value of derivatives designated as hedge are recognized directly in shareholders' equity, under 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. The Corporation documents, at the start of the operation, the relation between the hedge instruments and the underlying hedged items, as well as the objectives of the risk management and the strategy to carry out various hedge operations. The documentation for hedge accounting operations evidences control of the effectiveness and the operation, and includes: Hedged item; Financial instrument; Strategy for managing the risk to be hedged; Effectiveness of the hedge instrument, reliably measured; Evaluation of the hedge on an ongoing basis throughout the duration of the contract. The Corporation also documents its assessment, both at the start of the hedge as well as periodically, that the derivatives used in the hedge operations are highly effective in offsetting the variations in the fair value of the underlying hedge items. Therefore, all instruments designated as hedge accounting are effective, highly probable and neutralize the exposure to variations in the cash flow that could affect results. The effectiveness of the operations is periodically controlled in a reliable and documented manner throughout the duration of the contract, through statistical correlation between the fair value or cash flows of the hedged position and the hedging instrument, or by comparing previous changes in the fair value or cash flows of the hedged position attributable to the hedged risk with previous changes in the fair value or in the cash flows of the hedging instrument. 54

56 Gain / Loss Instrument Asset (Hedged Item) Liability (Risk Exposure) Maturity Notional USD Notional BRL Balance (MTM) R$ Equity Result NDF USD GBP ,479 59,685 1, ,661 NDF USD EUR ,648 10, NDF USD GBP ,910 11, , , Market risk The Corporation is exposed to market risks arising from commodity prices, interest rates and exchange rates. For each risk, the Corporation conducts a continuous management and sensitivity studies presented in this note Interest rate risk management Interest rate risk refers to the Corporation s risk of incurring economic losses due to negative changes in interest rates. This exposure basically refers to changes in market interest rates which affect the Corporation s assets and liabilities indexed to the TJLP (long-term interest rate), LIBOR (London Interbank Offered Rate) or CDI (interbank deposit rate). In order to reduce debt service costs, the Corporation and its subsidiaries continually monitor market interest rates to assess the need to enter into new derivative contracts to hedge its operations against the risk of fluctuations of these rates. The risk of exposure to interest rate for the Corporation and its subsidiaries as at June 30, 2018 and December 31, 2017 is as follows: 6/30/18 12/31/17 Exposure to CDI rate: NCE / Working capital 144, ,651 (-) CDB-DI (R$) (626,616) (210,686) Subtotal (482,166) 32,965 Exposure to LIBOR rate: NCE/ACC/Prepayment (US$) - 531,364 Revolving credit facility (US$) 1,264,651 1,331,078 Subtotal 1,264,651 1,862,442 Exposure to TJLP rate: FINAME / FINEP 9,911 12,881 Subtotal 9,911 12,881 Total 792,396 1,908,288 The Corporation entered into non-speculative swap contracts to minimize the effects of exchange rates fluctuations on the settlement of its loans and financing, as below: 55

57 6/30/18 12/31/17 Instrument Register Receivable Payable Notional US$ Notional BRL MTM MTM Interest Rate Swap CETIP BRL USD 174, ,967 (96,283) 4,172 Interest Rate Swap OTC USD BRL 174, ,967 96,284 (4,172) Interest Rate Swap CETIP CDI USD (35,218) 349,586 1,347,934 1 (35,218) 6/30/18 Instrument Register Maturity Receivable Payable Notional US$ Notional BRL MTM Interest Rate Swap CETIP 2019 BRL USD 174, ,967 (96,283) Interest Rate Swap OTC 2019 USD BRL 174, ,967 96, ,586 1,347, Interest rate risk sensitivity Analysis To provide information about the behavior of market risks that the Corporation and its subsidiaries are exposed to as at June 30, 2018, three scenarios are considered and the probable scenario is the fair value as at June 30, 2018 and two more scenarios with deterioration of 25% and 50% of the risk variable taken into account, denominated as Possible and Remote, respectively. Sensitivity scenarios for interest rate risk are below: Stress scenario - Swap Int Rate - Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result 9,957 9,957 12,447 12,447 14,936 14,936 Stress scenario - Swap Int Rate CDI vs. USD Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result 9,957 9,957 12,447 12,447 14,936 14, Exchange rate risk management Exchange rate risk consists of the risk of foreign exchange fluctuations leading the Corporation and its subsidiaries to incur losses and causing a reduction in the values of assets or an increase in the values of liabilities. The Corporation s main current exchange rate exposure relates to the US dollar fluctuation against the Brazilian real. Given that approximately 73% of the Corporation s revenues are denominated in currencies other than the Brazilian real, the Corporation has a natural hedge against the maturities of future obligations in foreign currency. 56

58 The Corporation also has a sound financial policy, maintaining a high level of cash balance and short-term financial investments with solid financial institutions. Outstanding foreign currency and derivatives position Assets and liabilities in foreign currency are presented as follows: Parent Exposure Effects of exchange Description 6/30/18 12/31/17 rate gains (losses) 2018 Operating Trade accounts receivable 251, ,394 50,727 ACE (advance on export contracts) - - (26,929) Imports payable (46,433) (42,656) (15,481) Subtotal 204, ,738 8,317 Financial Loans and financing (727,014) (531,364) (98,924) Notes payable and receivable 893,257 (3,162) 256 Balance of banks and marketable securities (*) 1,025, ,962 78,510 Subtotal 1,191, ,436 (20,158) Total 1,395, ,174 (11,841) Exchange rate gains 470,717 Exchange rate losses (482,558) Exchange rate gains (losses), net (11,841) (*) Refers only to banks and marketable securities that generated exchange rate gains (losses). 57

59 Exposure Effects of exchange rate gains (losses) Description 6/30/18 12/31/ Operating Trade accounts receivable 246, ,442 23,553 ACE (advance on export contracts) - - (26,929) Imports payable (122,286) (162,878) (10,331) Other (85,273) (75,546) 8,336 Subtotal 39,255 86,018 (5,371) Financial Loans and financing (18,629,906) (12,170,666) (103,681) Notes payable and receivable 892,915 32,594 (2,551) Balance of banks and marketable securities (*) 1,748, ,534 (14,815) Other 59 - (15) Subtotal (15,988,725) (11,282,538) (121,062) Total (15,949,470) (11,196,520) (126,433) Exchange rate gains 661,463 Exchange rate losses (787,896) Exchange rate gains (losses), net (126,433) (*) Refers only to banks and marketable securities that generated exchange rate gains (losses). Over the course of 2018, the Corporation contracted Non-Deliverable Forwards (NDFs) and futures contracts, all of them non-speculative in nature, to minimize the effects of the foreign exchange variation on its overseas subsidiaries, as per the breakdown shown in note , the results of which are accounted for under the items "Exchange Rate Gains and Exchange Rate Losses Exchange rate risk sensitivity Analysis To provide information about the behavior of market risks that the Corporation and its subsidiaries were exposed to as at June 30, 2018, three scenarios are considered and the probable scenario is the fair value as at June 30, 2018 and two more scenarios with deterioration of 25% and 50% of the risk variable taken into account, denominated as Possible and Remote, respectively. The market future curve of June 30, 2018 was applied for currencies, with notional value of R$/US$ As for exchange rate risk, following are the sensitivity scenarios: 58

60 Stress Scenario - balance sheet exposure to foreign exchange Probable Possible Remote 6/30/2018 scenario scenario scenario Parent (11,841) 348, ,963 Subsidiaries (114,592) (4,336,349) (8,672,698) (126,433) (3,987,367) (7,974,735) Liquidity risk Liquidity risk arises from the Corporation s and its subsidiaries working capital management and the amortization of the principal and finance charges of debt instruments. This is the risk that the Corporation and its subsidiaries will find to settle its falling due payables. The Corporation and its subsidiaries manage their capital based on parameters to optimize the shareholding structure focused on liquidity and leverage metrics that enable a return to shareholders over the medium term, consistent with the risks assumed in the transaction. The main indicator for monitoring is the modified immediate liquidity ratio, which is the ratio between cash and cash equivalents and current indebtedness (short term). 6/30/18 12/31/17 Short-term cash, cash equivalents and marketable securities 5,659,885 4,402,353 Short-term loans and financings 6,615,915 1,846,164 Modified liquidity ratio Credit risk The Corporation and its subsidiaries are subject to credit risk. Credit risk deals with group s financial losses if a client or counterpart in a financial instrument fails to comply with contractual obligations, which arise from most receivables. The Corporation and its subsidiaries limit their exposure by analyzing credit and managing client s portfolio, seeking to minimize the economic exposure to a certain client and/or market that may represent significant losses. The Global Credit Risk Policy determines the guideline for financial credit risk management based on the following: Limit of counterparty s credit risk concentration to 15% of total current assets; Investments in solid and prime financial institutions, based on their financial rating; Balance between assets and liabilities. 59

61 Conducted evaluations are based on information flows and follow-up of the volume of purchases in the market. The internal controls cover the assignment of credit limits. The maximum exposure to credit risk for the Corporation and its subsidiaries are the trade accounts receivable shown in note 6, where the value of the effective risk of possible losses is presented as provision for credit risk is also shown. Values subject to credit risk: Parent 6/30/18 12/31/17 6/30/18 12/31/17 Cash and cash equivalents 417, ,400 1,546,180 1,213,572 Marketable securities 1,546,467 1,127,685 4,113,705 3,188,781 Receivables from Brazilian clients 129, ,287 1,260, ,556 Receivables from foreign clients 251, , , ,442 Other receivables 102,944 58, , ,751 Total 2,446,987 1,885,134 7,526,030 5,473, Fair value of financial instruments The method used by the Corporation to determine market value consists in calculating the future value based on contracted conditions and determining the present value based on market curves obtain from Bloomberg s database, except for futures market derivatives whose fair values are calculated based on the on daily adjustments of variations in market prices of commodities and futures acting as consideration. According to IFRS 7, the Corporation and its subsidiaries classify the measurement of fair value according to hierarchical levels which reflect the importance of indices used in such measurement, as follows: Level 1: Prices quoted in (non-adjusted) active market for identical assets and liabilities; Level 2: Other available information, except those of Level 1, where quoted prices relate to similar assets and liabilities, whether directly, by obtaining prices in active markets, or indirectly, such as evaluation techniques using active market data. Level 3: Indices used for the calculation do not derive from an active market. The Corporation and its subsidiaries do not have instruments at this measurement level. Currently, the fair value of all the financial instruments of the Marfrig Group is reliably measured and hence these are classified as level 1 and 2, as shown below: Level 1 Level 2 Level 3 Current assets Marketable securities - held for trading - 4,138,147 - Notes receivable - derivatives 13,901 98,912 - Non-current liabilities Notes payable - derivatives (477) (96,282) - Total 13,424 4,140,777-60

62 Management understands that the results obtained with derivative transactions are in line with the risk management strategy adopted by the Corporation and its subsidiaries. 31. Income and social contribution taxes Income and Social Contribution Taxes were calculated according to prevailing legislation and Federal Law 12,973/2014. Income and Social Contribution Tax calculations and returns, when required, are open to review by tax authorities for varying statutory years in relation to the payment or filing date. Below are the reconciliation of income and social contribution taxes in the income statements for the year: Parent Temporary Additions 6/30/2018 6/30/2017 6/30/2018 6/30/2017 Social contribution tax loss carryforwards 218, , , ,298 Tax losses 593, , , ,119 Sundry provisions 18,268 13,025 15,604 13,272 Estimated losses with doubtful accounts 467 4, ,627 Translation gain (loss) on Loans 160, , , ,791 Temporary differences 31,014 29,651 33,590 31,476 PRT/ PRR 600,834 45, ,834 45,052 Other Additions 11,193-11, Temporary Exclusions Social contribution tax loss carryforwards (104,022) (5,301) (117,198) (10,242) Tax losses (211,280) (1,908) (212,485) (2,270) Sundry provisions (12,840) (2,813) (15,592) (3,666) Estimated losses with doubtful accounts (2,167) (1,492) (2,171) (1,726) Translation effect Loans (772,170) (239,891) (772,185) (239,891) Temporary differences (453) (6,866) (3,123) (1,920) Other exclusions - (465) - (465) Total 530, , , ,831 61

63 32. Segment reporting The Corporation established an integrated and geographically diversified business model, which consists of production units located in strategic places, combined with a broad distribution network with access to the world s main channels and consumer markets. Marfrig currently operates 55 processing units, distribution centers and offices in Brazil and in 13 other countries in South America, North America, Europe, Oceania and Asia. The Corporation believes that continuous improvement in its internal processes will enable it to further enhance efficiency and cut costs, which, coupled with a result-driven management that is committed to profitable growth, will drive profitability and cash generation. The ownership, equity and financial positions of the Corporation was restructured with the acquisition of a controlling interest in National Beef, which represented an important step in Marfrig s strategy, helping improve the Corporation s capital structure, which is line with the goal of sharply reducing its financial leverage. The transaction is consistent with the strategic planning, which also includes the decision to sell Keystone Foods. Furthermore, to better evaluate and analyze the operating performance of its two main operating segments, the Corporation presents a new structure formed by a corporate headquarter and non-operating entities, referred to as Corporate. This new structure is in conformity with NBC TG 22/R2 Reporting by segment. Keystone Beef Corporate Total 6/30/18 12/31/17 6/30/18 12/31/17 6/30/18 12/31/17 6/30/18 12/31/17 Non current assets 2,896,509 13,580,318 8,541, , ,547 14,442,297 11,563,151 Beef Corporate Total 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 Net revenue 8,178,483 4,334,076 8,178,483 4,334,076 Operating income (1) (93,834) 82,217 (97,577) (32,987) (191,411) 49,230 Depreciation and amortization 160, , , ,851 (1) Operating income is reconciled with consolidated net income, as follows: Net income (loss) 6/30/18 6/30/17 (829,634) (603,715) Current and deferred income and social (498,413) (339,237) contribution taxes Net financial result 988, ,123 Other income (loss) 148, Operating income (191,411) 49,230 62

64 33. Insurance coverage The Corporation s policy is to insure its property, plant and equipment and inventories subject to risk, at amounts deemed sufficient to cover possible losses, taking into consideration the nature of its activities and the insurance advisors opinion. Based on the maximum risk weighting, the Corporation does not have a policy of maintaining insurance policies to protect against lost profits, given the broad geographic distribution of its plants and the fact that its operations can be reorganized in the event that any need arises. The risk assumptions adopted, given their nature, are not part of the scope of an audit of financial statements and, accordingly, were not reviewed by the Corporation's independent auditors. Below is a summary of the amounts insured by the Corporation: Parent Desc ription 6/30/18 12/31/17 6/30/18 12/31/17 Buildings and meatpacking plants 2,729,566 2,729,566 5,771,468 4,628,888 Inventories 325, , , ,943 Third-party warehouse 25,953 25,953 79,229 56,956 Vehicles 26,285 29,644 41,694 42,976 Transportation of goods 67,698 58, , ,143 Officers' guarantees 192, , , ,408 Civil liability 25,500 20, , ,245 Aircraft 1,220,708 1,047,280 1,606,288 1,047,280 Other 598, , , ,654 5,212,370 5,002,497 9,927,241 7,540, Result from discontinued operations Divestment of Keystone Foods On March 29, 2018, the Board of Directors decided to dispose of the assets of the Keystone Foods business unit and authorized the Corporation s management to make all efforts to comply with the decision. Discontinued operation As described in transactions for divestment of the Keystone business, the result from discontinued operations and cash flow are summarized as follows: 63

65 Result from discontinued operations 6/30/2018 6/30/2017 Net Revenue 4,795,364 4,323,435 Cost of Goods Sold (4,435,169) (3,899,633) Gross Profit 360, ,802 Operating and financial income (expenses) (195,455) (92,190) Net operating income (loss) 164, ,612 Income and social contribution taxes (66,764) (104,063) Net income from discontinued operations 97, ,549 Non-controlling interest (8,696) (24,087) Net income (loss) from discontinued operations 89, ,462 Cash flow from discontinued operations 6/30/2018 6/30/2017 Net income (loss) for the year 89, ,462 Non-cash items 179, ,376 From changes in equity (203,373) (956,011) Used in investing activities (190,227) (131,193) Used in financing activities 404, ,045 Exchange variation on cash and equivalents 44,651 (6,411) Cash flow from discontinued operations 324,776 4,268 Cash from operations (523,322) (14,865) Cash flow from discontinued operations, net of cash (198,546) (10,597) 35. Related-party transactions Related-party transactions with the Parent Company The following tables, except for transactions with controlling shareholders, show the transactions between the Corporation and its wholly owned subsidiaries: 64

66 Parent Outstanding Balance Recognized as profit or loss Accounts receivable Accounts payable Income Expenses 6/30/18 12/31/17 6/30/18 12/31/17 6/30/18 6/30/17 6/30/18 6/30/17 Prestcott International S.A ,453 8, ,531 5,854 Establecimientos Colonia S.A. 2,941 19,375 2,712 4,581 34,781-3,556 6,040 Frigorífico Tacuarembó S.A. 1, ,968 25, ,516 8,151 Inaler S.A ,961 4, ,236 4,089 Marfrig Argentina S.A 284, ,182 4,796 5, ,795 4,050 Marfrig Chile S.A. 29,070 9, , , ,582 2, Marfrig Holdings (Europe) BV ,206,453 7,668, Marfrig Overseas Ltd , , MFG Comercializadora de Energia Ltda 9,038 7, ,264 14,864 Masplen Ltd 357, ,822 1, ,473 93, Keystone Foods UK Limited 215, ,909 4,133,034 2,494,520 1,424, , Keystone Foods International Limited 6,144 3,860 2,238 1,184 2, Controlling shareholders Key management personnel Other related parties 28,000 23,055 74, , ,278 59, ,464 1,041,101 14,175,271 10,923,771 1,716, , , ,552 The nature of related-party transactions between Marfrig Group companies is represented by commercial transactions (purchases and sales) and sending of cash for payment of such transactions, as well as for working capital. Intercompany loans (instruments receivable and payable) in Brazil (parent company and subsidiaries) are managed by checking accounts held between the companies based on the centralized cash system managed by the parent company. For transactions with subsidiaries abroad, the loan rate is 3% plus 6-month LIBOR (London Interbank Offered Rate). Purchases and sales of products are made at market values. No guarantees or estimated losses with doubtful accounts are required. These transactions involve purchase and sale of fresh meat and cattle, poultry and lamb processed products. Transactions between subsidiaries do not have an impact on consolidated financial statements, given that they are eliminated in consolidation related parties Outstanding balance Recognized as profit or loss Accounts receivable Accounts payable Income Expenses 6/30/18 12/31/17 6/30/18 12/31/17 6/30/18 6/30/17 6/30/18 6/30/17 Controlling shareholders Key management personnel Other related parties 28,000 23,056 74, , ,278 59,571 Joint venture - 78, , ,275 74, , ,956 59, Controlling shareholders A suretyship agreement was entered into with the controlling shareholder, MMS Participações Ltda., for fiscal year 2017, under which said shareholder guarantees certain obligations of the Corporation. These transactions were conducted on an arm s length basis and in accordance with internal guidelines formally established by the Corporation. 65

67 35.4. Other related parties The controlling shareholders own membership interests in other entities that have businesses with Marfrig Group. The aggregate amount of transactions is represented in the table above under other related parties. Most of transactions refer primarily to sale of animals for slaughter and to associated logistics services. These transactions are carried out on an arm s length basis, in accordance with internal guidelines formally established by the Corporation that are periodically verified by the Corporation management to attest their compliance with market conditions Joint Ventures The indirect subsidiary Mckey Luxembourg Holdings S.a.r.l, currently classified as held-forsale asset, is part of 2 Joint Ventures, which are recognized through the equity method of accounting. The main financial information on unconsolidated joint ventures in the financial statements, in accordance with NBC TG 18(R3) Investments in associates, subsidiaries and joint ventures are presented in the financial statements for the fiscal year ended December 31, Management compensation As permitted under NBC TG 21/R3 (CVM Resolution 673/11) and based on the recommendations in Official Letter CVM/SNC/SEP/Nº 003/2011, the Management chose not to present once again the details in its Notes of Management Compensation and sub-items (Board of Directors, Statutory Officers, Audit Board, Stock Option Plan) so as to prevent the repetition of information already reported in the financial statements for the fiscal year ended December 31, 2017, to provide a better understanding to users compensation Management and Board members compensation is made up of the compensation of eight members of the Board of Directors (the other two opted for not receiving compensation as board members, one of whom is also a member of the Statutory Board of Executive Officers and receives compensation from that body), six members of the Audit Board (there of whom are alternate members) and five officers appointed as per the Corporation s by-laws. The added value of the compensation received by the Corporation s Management and Board members for their services is defined through market practices, with the participation of the Compensation, Corporate Governance and Human Resources Committee, made up exclusively of members of the Board of Directors of the Corporation, one of whom acts as Coordinator of the Committee: 6/30/18 6/30/17 Management compensation 20,532 8,256 Total 20,532 8,256 66

68 36.2 Stock option plan During the period ended June 30, 2018, 483,400 shares were transferred to the Management of the Corporation under the stock option plans. The changes in options exercised throughout the year are shown in the tables below: Total options exerc ised by month Number of shares exercised Average Market Pric e¹ (R$ per share) January/18 3, February/18 29, March/18 35, April/18 147, May/18 192, June/18 74, Options exerc ised ,400 ¹ Average monthly quote disclosed by BM&FBOVESPA Bolsa de Valores, Mercadorias e Futuros S.A., related to Marfrig's common shares, traded under ticker MRFG3. (Options) Changes 6/30/ Opening balance 2,009,227 2,683,082 Options granted - 505,888 Options exercised (483,400) (977,542) Options canceled and expired - (202,201) Closing balance 1,525,827 2,009,227 The expected dilution of ownership interest of current shareholders, when stock options are exercised at the vesting date, up to the limit of shares held in the treasury for this purpose, is 0.25% of all shares at June 30, 2018, as detailed in the table below: Percentage of Dilution ESP VIII LP Plan ESP IX LP Plan ESP X LP Plan ESP XI LP Plan Total Granting date 4/30/2014 6/24/ /7/ /20/2017 Unexercised agreements 105, , , ,001 1,525,827 Treasury stock (382,339) Total shares except treasury stock 620,897,483 Percentage of dilution 0.02% 0.07% 0.10% 0.06% 0.25% 67

69 The Corporation recognized expenses relating to granting of plans in effect for the period ended June 30, 2018, as detailed in the table below: Effects from the exercise of options (R$ '000) Amount received from sale of shares - Exercised options 1, ,544.7 (-) Cost of treasury shares disposed of (2,970.0) (5,962.5) Effect on disposal of shares (1,673.9) (3,417.8) Due to the exercise of stock options, the Corporation incurred costs with the sale of treasury shares of R$2,970. At June 30, 2018, the book value of treasury shares was recorded under the Corporation s shareholders' equity in the amount of R$2,349 (R$1,772 at December 31, 2017). The fair value of the options was measured on an indirect basis, according to the Black-Scholes pricing method, based on the following assumptions: Standard deviation: 49.72%. Volatility is measured taking into consideration the daily prices of the Corporation s shares traded on the Brazilian stock exchange (BM&FBOVESPA) under the ticker MRFG3, from January 1, 2018 to June 30, 2018; Risk-free interest rate: 6.60% p.a. The Corporation uses as risk-free interest rate the Long-Term Interest Rate (TJLP) annualized on calculation date and available on the federal revenue service website: receitafederal-idg.receita.fazenda.gov.br/orientacao/tributaria/pagamentos-e-parcelamentos/taxa-dejuros-de-longo-prazo-tjlp. The fair value of options as of June 30, 2018 ranged between a minimum of R$4.78 and a maximum of R$6.19 per share for SPECIAL plans. Changes to the stock option programs are presented below: Plans Granting Date Performance (vesting) period Option expiration date Options granted Vested options Options exercised in the period Options Options cancelled exercised and/or and/or expired in the cancelled in period prior periods Unexercised agreements Option exercise price Options Exercised/Canceled in Previous Periods 8,933,012 6,270,197 6,923,785 2,009,227 ESP VIII LP /30/2014 3/3/2018 9/2/ , ,910 97, , ,891 R$ ESP IX LP /24/2015 3/3/2017 9/2/ , ,316 1, ,910 0 R$ ESP IX LP /24/2015 3/3/2018 9/2/ , , , , ,350 R$ ESP IX LP /24/2015 3/3/2019 9/2/ ,069 32, , ,178 R$ ESP X LP /7/2016 3/3/2017 9/2/ , ,410 2, ,208 0 R$ ESP X LP /7/2016 3/3/2018 9/2/ , , , , ,677 R$ ESP X LP /7/2016 3/3/2019 9/2/ ,410 29, , ,939 R$ ESP X LP /7/2016 3/3/2020 9/2/ ,219 29, , ,791 R$ ESP XI LP /20/2017 3/3/2018 9/2/ , ,517 75, ,075 46,942 R$ ESP XI LP /20/2017 3/3/2019 9/2/ ,517 7,368 7, , ,074 R$ ESP XI LP /20/2017 3/3/2020 9/2/ ,517 7,368 7, , ,074 R$ ESP XI LP /20/2017 3/3/2021 9/2/ ,337 7,368 7, , ,911 R$ Total on 6/30/2018 8,933,012 7,660, , ,923,785 1,525,827 68

70 Plans Granting Date Market value of unvested options at the end of the period (R$ '000) Market value of outstanding vested options at the end of the period (R$ '000) Effects in the result of the period in case of recognition (R$ '000) ESP VIII LP /30/ ESP IX LP /24/2015 n/a n/a 0.0 ESP IX LP /24/ ESP IX LP /24/2015 1, , , ,586.4 ESP X LP /7/2016 n/a n/a 0.0 ESP X LP /7/ ESP X LP /7/2016 1, ESP X LP /7/2016 1, , ,892.8 ESP XI LP /20/ ESP XI LP /20/ ESP XI LP /20/ ESP XI LP /20/ , ,091.8 Total on 6/30/2018 8, , , Additional information of the cash flow statements In compliance with NBC TG 03/R3 Statement of Cash Flows, the following table presents the changes in liabilities from financing activities arising from cash and non-cash flows: Description Balance on 12/31/2017 Cash flow Discontinued Operations Dividends Non-cash dividends Other Changes (1) Exchange rate fluctuation Changes in fair value Dividends received - 15,121 55,830 (136,193) 65, Loans, financing and debentures 1,385,284 (97,814) ,536 98,924 59,114 1,481,044 Lease payable 5,481 (473) ,579 Treasury shares (13,462) (578) (14,040) Parent Non-cash changes Balance on 6/30/2018 1,377,303 (83,744) 55,830 (136,193) 65,242 35,536 98,924 59,685 1,472,583 (1) Changes arising from the application of NBC TG 31/R4 Non-current assets held for sale and discontinued operations. (2) Settlement of derivatives pegged to financial and other changes. Description Balance on Non-cash changes Balance on 12/31/2017 Cash flow Liabilities held for sale (1) Business combinations Other changes(1) Exchange rate fluctuation Changes in fair value Dividends (Subsidiaries) paid to non-controlling shareholders - (77,696) , Loans, financing and debentures 12,427,198 4,885,294 (2,753,291) 1,465,837 35,536 2,167, ,211 18,784,267 Lease payable 31,782 (700) (26,109) 1, ,930 Treasury shares (13,462) (578) (14,040) 12,445,518 4,806,320 (2,779,400) 1,467, ,232 2,167, ,782 18,777,157 6/30/2018 (1) Changes arising from the application of NBC TG 31/R4 Non-current assets held for sale and discontinued operations. (2) Settlement of derivatives pegged to financial and other changes. 38. Events after the reporting period On July 24, 2018, Marfrig Global Foods reacquired, from its controlling shareholders, all of the cattle feedlot operations through the acquisition of MFG Agropecuária Ltda ( MFG ). The total amount of the transaction was R$95 million, to be adjusted by any variation in the assets and liabilities to be identified by means a technical valuation report. 69

71 The goal of the investment in the repurchase is aligned with the Corporation s strategic plan, since, with the expansion of its primary processing capacity in the last year, it was necessary, due to commercial reasons, to increase the inventory of raw material (cattle). * * * 70

72 Earnings Release 2Q18 Marfrig s Adj pro forma EBITDA grows 87% and reaches R$918 million São Paulo, August 14, 2018 Marfrig Global Foods S.A. Marfrig (B3 Novo Mercado: MRFG3 and Level 1 ADR: MRRTY) announces today its results for the second quarter of 2018 (2Q18). Except where stated otherwise, the following operating and financial information is presented in nominal Brazilian real, in accordance with International Financial Reporting Standards (IFRS), and should be read together with the income statement and notes to the financial statements for the period ended June 30, 2018 filed at the Securities and Exchange Commission of Brazil (CVM). The asset in Argentina (Villa Mercedes Unit), as determined by the accounting policy, was reclassified to Continuing operations and the financial statements for 2017 were restated to include the results of said operation. HIGHLIGHTS With the conclusion, in June, of the National Beef acquisition, Marfrig s results will be presented and identified as pro forma, except where otherwise stated. On June 6, the Company announced the conclusion of its acquisition of a controlling interest in National Beef. Primary processing reached 1,791 thousand head of cattle in the quarter. Pro forma Net Revenue was R$9.9 billion in the quarter, 21% higher than in 2Q17. In 2Q18, pro forma Adjusted EBITDA ( Adj EBITDA ) was R$918 million, with margin of 9.2%. On a pro forma basis the leverage measured by the net debt and EBITDA Aj ratio of the last 12 months was 4.20x. This ratio was affected by the difference of 6,9% between the closing exchange rate of R$ 3.86/US$, used to translate the net debt, and the average exchange rate of the quarter of R$ 3.61/US$, is highlighted. Excluding from the analysis this exchange variation the leverage would be 3.92x. Keystone's sales process continued to progress and, upon receipt of binding offers, is in the negotiation phase. 1

73 Earnings Release 2Q18 EXECUTIVE SUMMARY Following the strong start to the year, the second quarter was marked by the announcement of restrictive trade measures by the U.S. government and their potential impact on the recovery of the global economy. Despite the tension caused in foreign markets, the U.S. economy, boosted by robust consumption, continued to expand, with GDP growth of over 4% in 2Q18. China, despite its GDP growth of 6.7% in the quarter, still faces a challenging scenario. In addition to higher tariffs on its exports, the Chinese are facing higher credit constraints, which are affecting its construction sector and level of investments. In Brazil, the outlook for a recovery in household spending and in industrial production was adversely affected by the higher level of unemployment, by the truck drivers' strike and by growing uncertainty in the political scenario. The global scenario for the beef industry remained positive. An ample supply of cattle combined with strong domestic and international demand supported margins in the United States. According to data from the USDA, the cutout ratio (average beef price divided by average cattle cost) stood at 1.85, increasing 8.6% from 2Q17. In Brazil, the higher cattle supply supported growth in primary processing volume to 5.7 million head of cattle, or 4% more than in the prior-year period (source: Ministry of Agriculture and Livestock). The export spread (average sales price less average cattle cost) increased 20%, positively affected by the average Brazilian real depreciation in the period. In the domestic market, continued competition among proteins and weaker economic activity led to margin contraction in the industry. In Uruguay, the drier summer spurred producers to anticipate primary processing to the first quarter of the year, which reduced the supply of animals in the second quarter, helping to increase the average cattle cost, which stood at US$3,44/kg (source: Inac) in the quarter. The average sales price, however, accompanied the trend, keeping margins stable in relation to 2Q17. In this context, Marfrig reported Adj EBITDA of R$918 million, up 87% on 2Q17. It is important to note that the Company is still undergoing a period of integration and transition. Marfrig completed the National Beef acquisition in June and in the quarter advanced another step in Keystone's sales process. 2

74 Earnings Release 2Q18 Participation in FUNRURAL In May, Marfrig decided to participate in the Special Rural Tax Amnesty Program ( PRR ) for its withholding liabilities under FUNRURAL. Despite the Company s understanding that these liabilities are the responsibility of farmers, recent court decisions declared their constitutionality, and future uncertainty on this subject, besides the incentives offered under the PRR led the Company to take this decision. The Company registered in the program liabilities of R$1.1 billion, of which R$450 million already had been reported in the note on tax contingencies of its financial statements. And, under the rules established by the program (reduction of fines and interest), the final impact on the "other income and expenses was R$616 million. The liabilities were settled primarily using credits from tax losses, resulting in a cash impact of R$26 million. The decision ends any future dispute on the topic and the consequent adverse impact on the Company's cash position and results. NATIONAL BEEF GOVERNANCE On June 5, 2018, Marfrig completed the acquisition, through its wholly-owned subsidiary NBM US Holdings, Inc. ( NBM ), of 51% of the total and voting capital of National Beef. The remainder of the capital is held by Jefferies Financial Group, ( Jefferies, formerly Leucadia Investments), which holds 31% of the total and voting capital, and by minority shareholders, which hold 18% of the capital. On the same date, National Beef, NBM, Jefferies and the other minority members entered into a shareholders agreement ( LLC Agreement ). Some of the provisions of the agreement are: Board of Directors: composed of nine members, of which five are nominated by NBM, including the Chairman, 2 by Jefferies, 1 by U.S. Premium Beef and 1 is to be the CEO of National Beef. Approval of decisions: by majority vote of those present, except for certain specific matters that require joint approval by NBM and Jefferies (such as borrowings in amounts that exceed existing credit facilities on the agreement date). Dividend Distributions: quarterly dividend distributions of 54% of estimated taxable income, plus an annual distribution of any Excess Cash as defined in the LLC Agreement Lock-up Period: 5 years. 3

75 Earnings Release 2Q18 MARFRIG after strategic projects With the redirection of its strategic focus to beef, Marfrig is now the world s 2 nd largest beef producer in slaughtering capacity. With a diversified production platform on the Americas, the Company currently serves the world s most important and profitable consumer markets. COUNTRY Primary processing units (cattle) Effective slaughtering capacity (day) Further Processing Units United States 2 12,000 4 BRAZIL 15 16,000 2 URUGUAY 4 3,700 1 ARGENTINA In addition to the 22 primary processing units, Marfrig has 6 further processing units and 8 distribution centers, as well as sales offices in South America, North America and Asia. In Chile, the Company is the country's leading beef importer. Locally the Company has slaughter of lambs, whose annual capacity is 605,000 head. Marfrig also has two lines for slaughtering lamb in Uruguay. 2 primary processing units 4 processing units M arfrig Headquarter 15 primary processing units 2 processing units 5 distribution centers 1 slaughter of lambs 3 distribution centers 4 primary processing units 1 processing unit 1 primary processing unit 4

76 Earnings Release 2Q18 In this new context, and for this integration phase, Marfrig has decided to revisit its model for reporting its business activities. The Company will begin reporting its revenue divided into two regions: North America: responsible for primary processing and deboning (primal and portioned cuts) of beef cattle from the United States. The products are sold internally through retail, wholesale and food service channels as well as exported to various markets. The business also includes the sale of ancillary/complementary products and sub products from the process, the tannery and logistics operations and direct online sales to consumers. South America: responsible for the primary processing and deboning (primal and portioned cuts) of beef cattle from Brazil, Uruguay and Argentina; and for the production of further processed products, such as canned meat, beef jerky, sauces, sachets and more. The products are sold internally through retail, wholesale and food service channels as well as exported to various markets. The business also includes sales of ancillary/complementary products and sub products from the process and the distribution and sale of products in Chile. 5

77 Earnings Release 2Q18 NET REVENUE Pro forma Pro forma Net Revenue in 2Q18 was R$9.9 billion, up 21% from 2Q17. The increase is explained by (i) sales volume growth, which supported net revenue growth of R$1,292 million; and (ii) the depreciation in the Brazilian real against the U.S. dollar, which generated a gain of R$929 million, which partially offset (iii) the lower average sales price, which produced a negative effect of R$478 million. Revenue (R$ million) Slaughter ( 000 head) + 21% 8,200 9, % 1,791 1,506 2Q17 2Q18 2Q17 2Q18 Total cattle kill was 1,791 thousand head, up 19% from 2Q17, explained by the reopening of idled plants in Brazil and the higher cattle supply in both Brazil and the United States. Note that, despite the good result, the truck drivers strike that hit Brazil in May affected the Company s results. Even with the operation s rapid adjustment to this adverse scenario, primary processing volume was adversely affected by an estimated 80,000 head of cattle. Marfrig is a highly internationalized company, therefore, a large portion of its sales is pegged to currencies other than the Brazilian real. In 2Q18, net revenue denominated in foreign currency accounted for 88% of total revenue. Revenue by currency (%) R$ million 2Q17 2Q18 3% 11% 2% 12% 86% 86% BRL USD Others BRL USD Others 6

78 Earnings Release 2Q18 Revenue by region 2Q17 2Q18 Chg. North America (US$ 000) 1,874 1, % South America (R$ 000) 2,180 2,900 33% North America Net revenue from the North America business amounted to US$1.9 billion, increasing 3.6% from 2Q17, which is explained mainly by the growth in primary processing in the United States and Brazil. The higher primary processing volume, which contributed US$113 million to net revenue, was partially offset by the lower sales price and lower prices of sub products, which produced a negative impact of US$45 million. The growth in primary processing is explained by the higher cattle supply, reflecting the positive phase of the cattle cycle in the country, coupled with the strong demand for beef protein at the global level. The good performance of the U.S. economy and the higher competitiveness of beef helped to drive domestic consumption. Sales prices accompanied market dynamics, with the USDA price references for sales of primal cuts (cutout prices) and sub products (drop prices) decreasing on average by 4.5% and 21%, respectively. In Brazilian real, net revenue amounted to R$7,044 million, up 17%, reflecting the average depreciation in the Brazilian real against the U.S. dollar in the comparison period. South America In the operations in South America, net revenue advanced 33% compared to 2Q17, to R$2.9 billion. This performance is explained by (i) the 32% growth in sales volume, which had a positive impact of R$883 million; which offset (ii) the lower average price, which had a negative impact of R$315 million. The effect from Brazilian real depreciation on exports contributed R$151 million to the result. This volume growth in South America reflected Marfrig's strategy to expand the production of its Brazilian operation against the expectation of increased demand for beef at the global level; which offset the lower availability of cattle available for slaughtering in Uruguay, due to climatic issues, as already mentioned. The continued good performance in Chile and the recovery of the sector in Argentina also contributed positively to this growth. In relation to the Brazilian operation, volume expansion influenced the price level. In the domestic market, the selling price was pressured by (i) demand weakness - affected by the decline in consumer confidence and increase unemployment rate; (ii) the higher supply of beef; and (iii) a fierce competition between proteins, especially 7

79 Earnings Release 2Q18 chicken and pork. In the case of exports, there has been an increase in the sales mix for countries with lower value added, since certifications of the reopened plants for more noble markets are still in the approval process. Even in this environment, it is worth noting the increase of R$58 million in revenues from industrialized products (grow +40% vs 2Q17), explained (i) by the expansion of corned beef to premium markets such as the United States and England; (ii) as well as the greater volume of cooked meat to the North American market. Regarding new certifications from other South American countries, there has been progress in the negotiations between the Government of Japan and Uruguay have continued to advance and the certification model is under review by the competent authorities. In the case of Argentina, the country is in the process of qualifying for the export of meat with bone to China. 62% Consumer Markets (%) R$ million 12% 7% 5% 5% 2% 2% 1% 1% 2% USA Brazil China / Hong Kong Europe Japan Other Asia / Oceania Middle East Chile Uruguay Other The new sales profile of Marfrig stands out, with supply to the key consumer markets of the world. COST of GOODS SOLD ( COGS ) Pro forma In 2Q18, Marfrig s pro forma cost of goods sold was R$8,598 million, up 16% from the year-ago period. The growth in primary processing volume, the higher cattle cost in the South American operations and the impact from the truck drivers strike in Brazil were partially offset by lower cattle costs in the United States. The 12% average appreciation in the USD generated a negative impact of R$719 million. 4% 9% 2% 85% Raw Material Labor Production Costs Other Around 85% of COGS are related to cattle purchases. In Brazil, the ESALQ São Paulo reference price for fed cattle averaged R$139/arroba in 2Q18, up 5.7% from the same period of 2017, when prices were influenced by events external to the industry. Compared to the prior quarter, the average cattle price decreased 4.7%. 8

80 Earnings Release 2Q18 In the United States, the USDA KS Steer price reference averaged US$117/cwt 11, decreasing 13% from 2Q17 (US$132/cwt), reflecting the higher cattle supply in the U.S. market in the comparison period. In Uruguay, the Inac price reference increased 13% compared to 2Q17, averaging US$3.44/kg. The price increase was influenced by the lower cattle supply due to weather conditions, which led cattle processing activities to be brought forward to the first quarter of the year. In Argentina, the cattle price reference stood at US$2.66/kg, down around 21%, with a positive impact from the depreciation of the Argentina peso in relation to the U.S. dollar. SELLING, GENERAL & ADMINISTRATIVE EXPENSES Pro forma SG&A expenses amounted to R$593 million, which is explained by the effects from the translation into Brazilian real of amounts from the international operations, with an impact of R$59 million, and by the higher sales volume. As a ratio of net revenue (SG&A/NOR), SG&A expenses stood at 6.0%, increasing from 2Q17, due to the one-off expenses that affected the quarter. SG&A Expenses (R$ million) and SG&A/NOR (%) 5.1% 6.0% + 42% Q17 2Q18 Selling Expenses in the quarter were R$434 million, increasing 36% from 2Q17. The increase is explained by the higher sales volume and by the consequent increase in selling expenses, the higher market expenses and the Brazilian real depreciation. General and Administrative Expenses came to R$159 million in 2Q18, increasing R$60 million from 2Q17, explained by the depreciation of the Brazilian real and by the timely adjustment of provisions in the quarter. 1 A hundredweight, abbreviated Cwt, is a unit of measurement for weight used in certain commodities trading contracts. In North America, a hundredweight is equal to 100 pounds. 9

81 Earnings Release 2Q18 ADJUSTED EBITDA Pro forma Adj EBITDA amounted to R$918 million, growing 87% compared to 2Q17. Adj. EBITDA margin stood at 9.2%. The highlights of this performance were (i) the solid performance in North America and Conesul; (ii) the depreciation of the real against the U.S. dollar; and (iii) the continued good performance of industrialized products. Adj. EBITDA and Adj. EBITDA Margin (R$ million and %) + 87% Q17 2Q18 FINANCIAL RESULT Continuing Operation The net financial result in 2Q18 was an expense of R$517 million, representing an increase of 9.9% in relation to 1Q18. Excluding the effect from exchange variation, the financial result was an expense of R$442 million, or 5.5% higher than in 1Q18, which is explained by (i) the temporary increase in interest expenses, mainly due to the bridge loan for the acquisition of National Beef; and (ii) the effects from exchange variation on the translation of interest expenses from USD to BRL; with these factors partially offset by (iii) the lack of costs related to Liability Management actions, which were incurred in the first quarter of the year. 2Q18 1Q18 Chg. R$ R$ R$ % Net Interest Provisioned (234) (182) (52) - Market Transactions Net Result (4) (3) (1) - Other Financial Revenues and Expenses (204) (235) 30 - FINANCIAL RESULT EX-EXCHANGE VAR. (442) (420) (23) 5% Exchange Variation (75) (51) (24) - NET FINANCIAL RESULT (517) (471) (46) 10% Note: the effects from currency translation on liabilities contracted by subsidiaries abroad, whose functional currency differs from that of the parent company, are recorded under shareholders equity. 10

82 Earnings Release 2Q18 NET INCOME (LOSS) Continuing Operations In 2Q18, the result of the continuing operation before the non-recurring impact of Funrural, and with only one month of the North American operation, was negative in R$175 million. This result was affected by the impact of the appreciation of the U.S. dollar (16%) on interest and debt, by about R$100 million, and by the still high level of financial expenses, which will be reduced with the completion of Keystone's sale process. Considering the effect of Funrural, Marfrig recorded a net loss from the continuing operation of R$ 582 million. NET DEBT Pro forma + Keystone The analysis of debt and financial leverage contemplates: - the bridge loan of acquisition and pro forma EBITDA Aj of the last 12 months; - the data for the Keystone Division, which since 1Q18, has been classified as an asset available-for-sale; and - the resumption of the operation in Argentina. Because a large portion of Marfrig s debt is denominated in U.S. dollar (debt denominated in USD or currencies other than the BRL ended the quarter at roughly 1% of total debt), the variations discussed in this section are based on the amounts in U.S. dollar. At June 30, the Company s gross debt stood at US$5,841 million (R$22,520 million), up 2% from the end of the prior quarter. The balance of cash and marketable securities stood at US$1,621 million, down 16% from 1Q18, which is explained by the settlement of a bond due in 2018 and higher working capital needs. Accordingly, Marfrig s net debt ended the quarter at US$4,220 million (R$16,271 million). Debt in US$ million Debt in R$ million Short Term Long Term 5,717 5,841 19,002 22,520 5,264 4,070 ( 1,621 ) 4,220 17,498 15,693 ( 6,249 ) 16, ,771 1Q18 2Q18 Cash & Equiv. Net Debt 2Q18 1,504 6,827 1Q18 2Q18 Cash & Equiv. Net Debt 2Q18 11

83 Earnings Release 2Q18 At June 30, 2018, the average debt term was 3.9 years and 35% of total debt was maturing in the short term. The average annual cost was 6.57%. Debt Maturity Schedule Continuing Operation (R$ million) 5,660 5,713 3,782 2,869 3, ,470 Cash & Equi Indicators 2Q18 Average Cost (% p.a.) Average Term (year) Current Liquidity Net Debt / Adj EBITDA LTM 6.57% x The leverage ratio, calculated by the ratio between net debt after transaction and pro forma EBITDA Adj LTM (last 12 months) was 4.20x. This index was also impacted by the 6.9% gap between the 2Q18 closing exchange rate (R$ 3.86 /US$), used to translate the net debt, and the average exchange rate in the quarter (R$ 3.61/US$). Excluding from the analysis this exchange effect, the leverage would be 3.92x. The calculation of the leverage ratio for the covenants of bank financing operations and capital markets includes contractual provisions that allow for the exclusion of the effects of exchange variation. Therefore, the index calculated for this purpose reached 3.38x at the end of 2Q18 (for more information, see note 20.3 in the financial statements). CASH FLOW Continuing Operation In the quarter, Marfrig's operating cash flow was negative by R$156 million. The working capital consumption was R$422 million, mainly due to the increase in the inventory level, negatively affected (i) by the truck drivers strike, with an estimated a range impact of R$ 80 to R$ 100 million, and (ii) by the the North American operation. In the quarter, investments totaled R$3,812 million, of which 96% related to the acquisition of the National Beef control. The remaining balance of R$ 156 million is related to (i) the acceleration of some maintenance expenses, taking advantage of the plant shutdown due to the truck drivers' strike; and (ii) the beginning of 12

84 Earnings Release 2Q18 modernization projects (e.g. new tunnel freeze in Promissão unit) and improvement of productivity of slaughter plants. The interest line totaled R$255 million. The strong appreciation of the dollar between the periods and the one-off increase of the debt, as already explained, stand out. The sum of these factors led to a negative free cash flow of R$4,225 million from continuing operations in the quarter. Excluding from the analysis the acquisition value, cash flow was negative by R$568 million in the quarter. Cash Flow (R$ million) 848 (422) (156) (156) (582) (255) (568) Net Income/Loss Non Cash Items Working capital CFO Capex Interests FCF Continued INVESTMENTS (CAPEX) Continuing Operation Marfrig s capital expenditures amounted to R$3,813 million in 2Q18, 96% of which was allocated to the acquisition, as mentioned above. The other R$153 million was allocated primarily to the maintenance and improvement of existing assets. (R$ Millions) 2Q18 1S18 R$ R$ Investments 3,657 3,657 Investments in Fixed Assets Fixed Assets Investment in Intangigle Assets 3 6 TOTAL 3,813 3,926 13