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Edited Transcript of BEEF3.SA earnings conference call or presentation 10-Nov-17 2:00pm GMT

Q3 2017 Minerva SA Earnings Call

BARRETOS SAO PAULO Nov 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Minerva SA earnings conference call or presentation Friday, November 10, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edison Ticle de Andrade Melo e Souza Filho

Minerva S.A. - Financial Officer

* Fernando Galletti De Queiroz

Minerva S.A. - CEO

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Conference Call Participants

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* Botir Anvarovich Sharipov

HSBC, Research Division - Analyst, Precious Metals

* Isabella Simonato

BofA Merrill Lynch, Research Division - VP

* Lauren Elaine Torres

UBS Investment Bank, Research Division - Latin American Food and Beverage Senior Analyst

* Pedro Leduc

JP Morgan Chase & Co, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for waiting. At this time, we'd like to welcome everybody to the Minerva's Third Quarter of 2017 Results Conference Call.

Today with us, we have Fernando Queiroz, Chief Executive Officer; Edison Ticle, Chief Financial Officer; and Eduardo Puzziello, Investor Relations Officer.

We wish to inform you that this event is being recorded. (Operator Instructions)

The audio and the slides of this presentation are available through a live webcast at www.minervafoods.com/ir and MVIQ platform. The slide show can also be downloaded from the webcast platform in the Investor Relations section of this website.

Before proceeding, we wish to mention that forward-looking statements may be made during the presentation relating to Minerva's business prospects, operating and financial estimates and goals. They are based on the beliefs and assumptions of the company management and on information currently available. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Minerva and could use -- and could cause results to differ materially from those expressed in such forward-looking statements.

I will now turn the conference over to Mr. Fernando Queiroz, CEO, who will begin the presentation. Mr. Queiroz, you may start the presentation.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [2]

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Good morning, everyone, and thank you for joining Minerva on the conference call for the results of the third quarter of 2017.

We will begin by presenting the third quarter highlights detailed on the Slide 2. One of the main highlights was the free cash flow to equity that totaled BRL 344 million in the third Q of '17, excluding the Mercosur CapEx of BRL 1.1 billion.

In the last 12 months, the free cash flow amounted to BRL 52 million, also excluding the acquisition effect.

Gross revenues reached BRL 3.7 billion in the 3 -- third Q of '17, a quarterly record. Last 12 months gross revenues also recovered an amount of BRL 11.5 billion. Net revenues, in turn, totaled BRL 3.4 billion in the third Q '17 while last 12 months, net revenue, including pro forma revenues for the Mercosur operations, amounted BRL 13.3 billion.

Third quarter adjusted EBITDA came to BRL 312 million accompanied by an adjusted margin of 9.1%. It's important to mention that the third quarter margin was impacted by the operation that are still in ramp-up phase and whose margins are different from the traditional Minerva's company.

We took an advantage of the scenario with good animals availability and lower supply of beef and increased our units' capacity utilization rate to 77.1% in the third quarter.

In the third Q '17, the company focused its sales on internal markets, especially in South America. Followed by a healthy demand, sales volume grew by approximately 45% over second Q '17 and 43% over third Q of '16. This is also due to Argentina performance that was focusing on the local market.

On the company capital structure, we end up the quarter with leverage measured by net debt, EBITDA -- last 12 months EBITDA ratio of 4.2x, slightly higher than in second Q '17, despite the payment for the acquisition of the Mercosur unit was held on August 1.

At the end of September 2017, Minerva cash position amounted at BRL 3.2 billion, which is sufficient to amortize the debt through 2023. The company's debt duration at the end of the quarter was approximately 5.4 years.

About the other highlights, it's worth remembering that our operational results were consolidated with those of the units acquired in the Mercosur as of August 1. Therefore, this new operation were already recorded in our quarterly results for August and September.

Another fact worth mentioning is the reopening of Mirassol D'Oeste plant in the state of Mato Grosso, with daily slaughtering capacity of 1,100 heads, taking advantage of the good animal availability and improved beef consumption.

Lastly, it's important to highlight the movement of reopening and opening of some markets for the region. As an example, the reopening of Argentina market for Brazilian beef, the approval of Paraguay beef to the United States. This represents an important recognition for Paraguay. Also, we could mention the Japan that are in the eve of approving Uruguay. The reopening of U.S. for Brazil, corroborating that South America producers are even more prepared to supply the global beef market.

Let's now move to Slide 3, where we talk about the industry overview. Slide 3. Slaughter volume totaled 6.5 million heads in the third quarter, that's approximately 8% higher than in the second Q '17 and third Q '16. The higher-than-usual slaughtering volume in the third quarter, a period that usually shows lower availability, was caused by the events in the second quarter that affected the industry and has lowered down its capacity utilization. As a result, certain animals were held in the farms and additional volume was distributed through the third quarter, particularly in July and August.

In addition, we observed the reception in the local consumption, particularly in July and August, while exports begin to increase as of July, a fact that also contributed to the growth in the slaughter volume.

Consequently, the average arroba price recovered in the third Q '17 and came to BRL 134 for arroba at the end of the quarter, remaining stable over the second Q of '17, but reducing by approximately 12% over the previous years.

Regarding the excellent export performance in the third Q '17, Brazilian beef exporters grew approximately 31% over the second Q '17 and 32% over third Q '16, with exports revenue increasing in line with the volume growth. This performance reflects the recovery in countries which are important consumers of Brazilian beef, mainly China, Hong Kong, the Southeast of Asia, which you can see from the lower left chart posted a year-on-year combined growth of 11 percentage points as a percentage of Brazilian exports. This good performance also influenced the average price of beef that was up 2.4% over third Q of '16.

Local consumption had already strongly recovered in line with the picking up of the Brazilian economy. Price of hindquarter cuts increased, particularly in the wholesale market fueled by the seasonal consumption. However, the industry scenario was once again volatile at the end of the quarter, a fact that contributed to reduce the supply of slaughter and, consequently, increase prices, which remained high in the last month of the quarter.

It's important to emphasize that the local market is expected to remain strong in the coming months due to the seasonal effect, a fact that should boost beef consumption in the fourth quarter. This can be proved by the strong sales in the month of October.

In addition to the seasonal effect, the industry is also expecting to grow in 2018 in line with the Brazilian economic recovery. In other words, we are optimistic -- we are very optimistic regarding the Brazilian industry performance in the coming quarter.

Let's now have a look on the Slide 4 and talk about the sector overview in Paraguay. Paraguay after the acquisition became an important country for us. In the third quarter, Paraguay slaughter volume grew 3.5% over third Q '16 and 2.3% over second Q '17. Cattle price increased by 4% year-on-year and remained stable over the previous quarter. The slightly higher slaughter volume and the increase in the average price of cattle were caused by the strong export performance, as third Q '17 export volume grew 11% over second Q '17 and 3% over third Q '16.

Chile remain as Paraguay main export destination, accounting for 36% of the total export revenue.

Note that a few months ago, Paraguay was recognized by Chile as a country free of foot-and-mouth disease with vaccination. In addition to Chile, Brazil and Russia continue to be among the country's main export destinations.

It's important to note that a new country is appearing on the graphic, that is Iran. Iran is also becoming an important market for the Paraguayan industry.

As I said in the beginning of the presentation, it's also relevant to mention that once -- that the United States recently approved Paraguay for exports. The first step was the country's approval in the certification of the plants, and it's now expected to begin.

In other words, the USDA veterinarians will begin analyzing which places are, in fact, ready to export to United States. This process will take a few months, but we cannot deny that it is a huge step for Paraguay beef sector, and a great recognition for the industry which has been steadily advancing and improving.

The size of the domestic market in Paraguay has also been growing. IMF estimated that -- for 2018 a local per capita consumption of 35 kilos per person, an increase of 4% comparing to the estimates of 2017 following the growth of GDP trend and inflation and unemployment reduction.

Let's now move to Slide 5 and talk about Uruguay. Uruguay slaughter volume totaled 519,000 heads in the third quarter, reducing by 9% over the third Q of '16 and 15% over the second Q of '17. The reduction in slaughter volume reflects a series of strikes that took place in the country in recent months and the effect from this off-season.

Consequently, the average price of cattle rose 7% over the previous quarter but remained stable over third Q '16.

Export volume performed in line with the slowdown in the production, contracting by 6% over third Q '16 and 10% over second Q '17 accompanied by the export revenue of approximately $377 million.

China and United States were once again the main destinations for Uruguay exports, jointly corresponding to more than 50% of the export revenues.

Let's now take a look on the next slide that we will talk about, Argentina. This is the first quarter that we effectively operate in the Argentina market. For that reason, we decided to add a slide dedicated to Argentina main highlights in order to show the country's current development status.

Argentina's past government put contingencies on exports. As a consequence, the country's herd reached low levels of around 48 million heads in 2011. In this period, Argentina moved down from the third-biggest exporter to the 13th biggest exporter in the world ranking of beef exporters. This is -- in less than 10 years, they dropped tremendously their exports, and this had consequences on the production.

However, it's also notable how the country's herd has been recovering recently due to the current government incentives as of 2015.

Currently, a lighter share of production stays in the country, with only 10% of the beef being exported.

Even if the percentage of production allocated to exports is still low, prospects remain very positive for Argentina. According to the USDA estimates disclosed in October, Argentina exports are expected to reach 350,000 tons in 2018, 60% more than in 2016 and 30% higher than in 2017.

As shown in the lower left chart, China accounted for 28% of the country's revenue between January and September 2017, increasing by 6 percentage points over the same period in 2016.

European Union, which has started being a strong client of Argentina beef, correspond to 1/3 of the country's exports in the first 9 months of 2017. Note that Argentina had the highest share of the Hilton Quota, the quota that stipulates they limit exports volume of high-quality cuts with lower taxes. The country alone had a quota of 29 point 5,000 tons (sic) [29,500 tons] reflecting the European Union trust and preference.

Let's move on to Slide 7 to present the estimates of the United States Department of Agriculture. We also decided to add a slide with USDA estimates for 2018.

According to the USDA, global exports will increase by approximately 3% in 2018. The main export highlights are Mercosur countries, particularly Brazil and Argentina, in addition to the United States and Australia. Considering only the Mercosur countries, Brazil, Argentina, Paraguay and Uruguay, the block exports are expected to increase by approximately 4% in 2018, consolidating the region position as the world's main beef exporter and supporting our growth strategy.

On the beef demand side, imports from East Asian countries are also expected to increase, with China, Japan, South Korea among the 5 importing countries. The USDA expects that the combined share of China and Hong Kong to grow by more than 6% in 2018 over 2017.

It's important to mention that despite the increase in U.S. exports, these countries' imports are also expected to rise. One effect will virtually offset the other. And the United states will remain as a net importer of beef according to USDA.

Now we will go a bit deeper on Minerva's performance and results.

On Slide 8, you can see that we remain among the main exporters in the countries where we operate. Minerva's share of Brazil exports increased to 20% of the total country.

It's worth emphasizing the company share of Paraguayan exports, which was already high, but now after the recent acquisition of new units, Minerva's consolidated leadership in the country, we have a historical share of 32%. The company's share of Uruguay exports, in turn, accounted for 16% of the total.

This slide also shows Minerva exports in the last 12 months ended September 2017 by region.

Exports to the Middle East accounted for approximately 1/4 of the company total in the last 12 months and in September 2017, with the region becoming our main export destination. This is an important region, with constantly (sic) [consistently] growing demands and strong potential for beef imports.

Note that the sales to Saudi Arabia alone expanded by more than 70% in the period. Other highlights of the region are the United Arabic Emirates, Israel, Lebanon, among others.

Asia, another region in which more exports have been -- is another region where exports have been consistently growing, accounted for 22% of Minerva total sales. Part of the cuts allocated to this region were rerouted to the Middle Eastern countries, and therefore the region share of the company exports fell by 5% -- 5 points over the previous year.

The share of Americas is once again worthy of mention, corresponding to 14% of our exports in the last 12 months ended September, up by 400 basis points over the same period of 2016. The share of Chile in the region a main destination has been consistently growing through our units in Brazil, Paraguay and Argentina now, so that country expanded by more than 30% in the period.

Last, we would like to highlight the growth in the NAFTA region, represented mainly by United States as a percentage of our total exports. In the last 12 months ended September 2017, the region accounted for 6% of the total exports versus 4% in the same period last year.

As you can see, the Minerva chart of exports is much more diversified, that has been reducing the risks and had been showing the company policy on being present on the main markets. It's an investment that was worth doing.

I will now pass on the floor to Edison, who will comment on the financial and operating highlights.

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [3]

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Thank you, Fernando. Good morning to all.

Let's present Minerva's financial and operating highlights. I'll start with Slide 9.

In the third quarter of '17, Minerva posted net revenue of BRL 3.4 billion, a new quarterly record for the company, as Fernando has already highlighted at the beginning of his presentation. This result reflects the additional revenue from the new acquisition, the reopening of the Mirassol D'Oeste unit in July and the higher capacity utilization rate in all other units of Minerva, especially in Brazil.

Third quarter adjusted EBITDA reached BRL 312 million, 25% up when compared to the third quarter of '16 and 12% up when compared to the previous quarter. This total excludes the nonrecurring effect from the new acquisition amounting to BRL 15 million. The adjusted EBITDA margin came to 9.1% in the third quarter, impacted by the consolidation of the recently acquired plants.

We managed during this quarter to take advantage of the good animal availability and the strong export sales, so increased our capacity utilization through more than 77% in the third quarter, which is 240 bps higher than the capacity utilization rate of the previous quarter.

At the end of September, leverage stood flat at 4.2x when compared to the previous quarter. So despite the payment for the new -- for the acquisition of the new Mercosur units, we were able to keep our leverage virtually in line, virtually flat with previous quarter based on a strong free cash flow generation and also assuming the pro forma EBITDA and revenues from the units that we acquired.

Needless to say that from now on, we will focus on deleveraging the company's balance sheet, especially in the next 12 to 18 months.

Let's move now to Slide 10 to talk about the period's net results.

On Slide 10, we can see that the net income after taxes and contributions reached approximately BRL 86 million in the quarter, posting a net margin of 2.5%. In the last 12 months, net income reached approximately BRL 45 million.

Let's now move to the next slide to discuss operating cash flow. In the third quarter of '17, operating cash flow was positive by almost BRL 500 million, a very strong result. Adjustment to net income reached BRL 117 million while the variation in working capital was positive by almost BRL 300 million.

So commenting on the working capital line, to better explain these results. In the third quarter, we had a negative impact from receivables of approximately BRL 184 million due to the strong increase in sales volume and the consolidation of our new Mercosur plant.

On the other hand, our supplier payment period widened at the end of the third quarter, generating positive result -- positive cash of approximately BRL 178 million in the supplier's line.

Working capital were also -- was also positively impacted by the other accounts payable line due to the prepayment of some clients from certain countries.

In third quarter, we rerouted a large share of exports to Asia and the Middle East, thus generating a positive variation in this line of approximately BRL 331 million.

Let's move now to Slide 12 to talk about free cash flow. Third quarter EBITDA was BRL 312 million, while CapEx, with cash effect excluding the acquisition of Mercosur plant and including maintenance and expansion of our current plant, was BRL 72 million in the quarter. The net financial result with cash effect was negative by BRL 189 million, while the variation in working capital, as we have already mentioned, was positive by BRL 293 million. As a result, free cash flow was positive by BRL 344 million. If we include the amount paid for the acquisition of the Mercosur assets, which was around BRL 1.1 billion, the company's cash consumption in the quarter came to approximately BRL 770 million.

Analyzing the same numbers in the last 12 months, free cash flow was negative by almost BRL 900 million, including the acquisition of Mercosur. However, if we exclude this acquisition, the company generated free cash flow of approximately BRL 240 million in the period.

Let's move to Slide 13 to discuss capital structure and leverage. So at the end of the third quarter, leverage measured by the net debt-to-EBITDA ratio stood flat comparing to the previous quarter as around 4.1, 4.2x. Cash position at the end of the quarter was BRL 3.2 billion, which leaves the company in an extremely comfortable position, allowing us to amortize the company's debt until 2023.

It's important to highlight that according to our minimum cash policy, assuming the new plant, the new size of the company, the minimum cash policy equivalent to 3 months of purchase of cattle would be today around BRL 2.6 billion to BRL [2.93] billion, so we are very, very close to the minimum cash policy.

We talked in the previous quarters that we had a goal to reduce our cash policy, our carry-liquidity in order to reduce the carrying costs on our cash. But the way that we increased the size of our operation allowed us today to be very, very close to the policy. We have more caution, which is healthy considering the scenario, considering the size of the company and considering the carrying cost of the liquidity.

In the end of September, approximately 75% of Minerva's debt was exposed to the FX variation, and the debt duration was approximately 5.4 years.

I will now pass the floor back to the operator to begin the Q&A session. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Isabella Simonato with Bank of America Merrill Lynch.

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Isabella Simonato, BofA Merrill Lynch, Research Division - VP [2]

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My question is -- actually, I have 2 questions. First of all, looking at the results, if you could try to split and look at the organic margins for Minerva before the acquisitions of JBS assets, at what level that would be and what can we expect for 2018? And also, regarding the free cash flow generation, we saw the positive contribution for the other payables, right? And how can we think about this line going forward especially in Q4?

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [3]

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Isabella, regarding the first question, it's almost impossible to have the margins of Minerva on the quarter, on the number 3 quarter as a whole before integrating the JBS Mercosur plant. For a simple reason, when we started to integrate this plan, the that export team started to sell beef from any plant from Argentina or any plant from Uruguay or any plant from Paraguay, so it doesn't matter if it was produced by ex JBS or by Minerva. So in that sense, it's impossible to separate the margins that we are getting in the new assets and the assets that we were making in our own operation. What I can tell you is that before integrating the operation, the total margin of Minerva in July, which was the last month in the quarter that we were alone without the JBS Mercosur operations, margins were above 10%, 10.5%. Going now to your second question, again, it's a matter of the optimal breakdown of sales. It's a decision that we take on a weekly basis. And based on this decision, we have the credit rating for each country, for each client. And based on this model, we have a framework that requires a certain amount of prepayment or not. So to give you an example, if we decide to sell more in Europe, normally, the clients in Europe are less risky, so we require less prepayment or normally no prepayment. If we go to countries like Egypt, which we believe the risk -- the credit risk is much higher, we normally require prepayments that can be from 30% to some countries, some regions, it can be up 100% in advance. So it's hard to say because it will dependent on the markets that we are going to sell our products, and the choice of market is directly related to the best margin, overall margins that we can get in our operations.

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Operator [4]

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The next question comes from Lauren Torres with UBS.

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Lauren Elaine Torres, UBS Investment Bank, Research Division - Latin American Food and Beverage Senior Analyst [5]

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I guess, just first, just a quick follow-up on the question on margin. You noted that the synergies and the integration is going well, so the 5% to 6% margin that you noted for the acquired assets should improve. Just wondering if you have a time line on how that's progressing and how quickly the margins of those assets could reflect those of your existing assets? And then secondly, if I could also ask about the new market openings. There's a lot of good news flowing through here. So just curious if there's any way to kind of quantify what that benefit could be and how you're prepared for this increasing global demand. It seems like there could be more costs associated with it. But just curious on your exposure to these markets and your ability to serve it once it all comes into play.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [6]

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On the first question, what we estimate is that in the period of 3 quarters to 4 quarters, we'll be able to implement all the synergies. What I can tell you is that the integration process is going very well. It's going much faster than we planned, especially on the commercial side, both on exports, local market and on the capital sourcing. So the integration is moving well, but we expect we are also benchmarking all the operations and the proceeds that the former company was having and comparing to ours. So there are benefits on it. And of course, there are the logical integration of rationalizing the support areas. So we believe that the 3 to 4 quarters are enough for us to capture the majority of the synergies. On the new market, this is a very important and it's a very good news that we are having. We are seeing Japan opening to Uruguay. We are seeing Paraguay moving towards the American market. Argentina, following the same way. Brazil looking at the new markets in the Southeast of Asia. So there is the reapproval of United States for Brazil as well. Indonesia is on the radar, especially market that are short of supply because of the reduction of Australia. They are looking for new opportunities to supply. To quantify that, it's hard, but it will give us more choices where to place our products. Some of these markets are premium markets and some of them have international levels -- international price levels that are higher than the ones that we are doing. So -- but I cannot quantify in terms of percentage how much it will improve the EBITDA. One thing that I can tell you is that, definitely, the margins will be more stable, and also is the tendency to grow.

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Lauren Elaine Torres, UBS Investment Bank, Research Division - Latin American Food and Beverage Senior Analyst [7]

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And just as a follow-up then, your ability to supply these markets, the existing and new capacity that you have. I don't know if there's more plant openings on schedule, but your ability to service this demand is good now and you're comfortable with that?

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [8]

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Definitely, yes. Minerva has invested on being -- on having plants that are approved to all the demanding and all the markets that have requirements, special requirements. So if there is a company that's ready to take benefit of the new market openings, we are one of them.

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Operator [9]

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Next question comes from Botir Sharipov with HSBC.

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Botir Anvarovich Sharipov, HSBC, Research Division - Analyst, Precious Metals [10]

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A couple of questions for me, if I may. One is I don't know if you could maybe share with us what your utilization rates are across your several markets in LatAm and also whether you have any plans to reopen some of the Argentine plants given still -- what appears to be still a challenging environment in Argentina. That's the first question. And the second one, I'll ask, I guess after you answer.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [11]

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We don't have this data available now, by region, what is the capacity utilization. Regarding Argentina, our plan is how to see the environment will develop. There are big efforts from the Argentina government to open new markets and to have more stable rules internally. So we have this option, but we don't have a time line on when we're going to open them.

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Botir Anvarovich Sharipov, HSBC, Research Division - Analyst, Precious Metals [12]

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And second question is, I think you mentioned on the second quarter call that you guys plan to be, I want to say, about 250,000 tons per month, the capacity of 250,000 tons per month in the second quarter, by the end of Q3. I was wondering whether you guys were able to accomplish that, reach the milestone and what your expectations are for, I guess, through the end of the year.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [13]

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Sorry, could you repeat the question?

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Botir Anvarovich Sharipov, HSBC, Research Division - Analyst, Precious Metals [14]

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I thought in the second quarter call, you mentioned that you guys are planning to increase your slaughtering capacity to 250,000 tons, I believe, by the end of the third quarter and about 300,000 tons -- I'm sorry, not the 20 -- you plan to ramp up your production capacity by the end of second quarter and third quarter. And I just wanted to see how that's progressing.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [15]

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Yes, we had some organic movements. We were restarting the plant of Mirassol. We were increasing the production in Brazil, and the results you can see on the new volume that we're producing. So the volumes were up exactly 5...

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [16]

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42%.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [17]

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42% -- 42.5%, the volume of production are up.

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [18]

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Compared to the third quarter '16. And if you compare to the second quarter, volumes were almost 45% up.

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Botir Anvarovich Sharipov, HSBC, Research Division - Analyst, Precious Metals [19]

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Do you -- I guess the follow-up question, do you -- is this sort of a run rate that we can expect going forward? Or do you expect further increases maybe in the fourth quarter and early next year?

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [20]

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We can have further increase, but they will not be contributed. So what we got by the end of the third quarter, it's a good basis for...

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [21]

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For the next year.

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Operator [22]

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Next question comes from [Shoumo Mukherjee] with Mizuho.

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Unidentified Analyst, [23]

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I have 2 questions. I mean, first, just in terms of the Brazil export kind of market share gain trends, if you could comment, especially if you have taken advantage in terms of the JBS situation and what you're seeing in terms of the kind of potential of further gain in terms of the market share position on the export market. And the second is related to the guidance that you shared at the time you bought the Mercosur assets, where you highlighted that if you had a range in revenues of BRL 13 billion to BRL 14.4 billion by next year and EBITDA margin of 9.5, you could get to 2.5x net debt-to-EBITDA by next year, if that's still achievable at this stage.

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [24]

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Yes. Well, let's start with the second question. Yes, all the guidance, all the scenarios that we shared with the market in the second quarter are still in place. So if you take a look at the last 12 months revenues, considering the pro forma revenues of the acquired assets, we will be around BRL 13.3 billion. If you take the third quarter revenues and make it times 4, it will be in the range as well. And even if you add 1 month more to predict what will be the fourth quarter revenues and times 4 times, if you analyze it, you will also be inside the guidance in terms of revenues. In terms of leverage, we keep following the scenario that we shared with the market. If we are successful in extracting the synergies in the next 12 months considering that range of revenues, we will be able to deleverage the balance sheet of the company and be in a leverage very close to 3x at the end of -- in 12 years -- in 12-month period and below 3x in an 18-month period. Regarding your first question, yes, Minerva gained market share, but bear in mind that the total exports of Brazil increased by almost 30% in the quarter. So we are able to grow more than the growth of the Brazilian country. Unfortunately, we will not speak in details about any competitor. But if you want to talk about Minerva, yes, we did a great job because the market increased and Minerva was able to take market share from competitors.

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Unidentified Analyst, [25]

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Just a follow-up. Could you just comment then on what was your exports market share a year ago? And what -- did you see how much it increased?

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [26]

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In terms of share, it was 18%. But what's more relevant is that the increase of the size of the total exports. So we had grown almost...

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [27]

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40% on exports.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [28]

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40% on the exports in total.

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [29]

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In terms of volumes.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [30]

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Volume wise. And also, that happened with price increase, so the exports have grown and the price also increased more than what the exports have grown. The exact number is 44% in...

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [31]

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44% in on year, year-on-year.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [32]

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Year-on-year.

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Operator [33]

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(Operator Instructions) The next question comes from Pedro Leduc with JPMorgan.

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Pedro Leduc, JP Morgan Chase & Co, Research Division - Senior Analyst [34]

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Just to explore a little bit on the gross margin, we saw a small sequential drop as well as year-over-year. Just trying to reconcile if it's -- what is related to the new assets in Mercosur or is it perhaps that you're taking some of the lower cattle costs slacks and sharing with the consumer in order to gain share. And then last on this line, if you are able to lock in cattle prices at the recent dip, perhaps take advantage of it now in what is seasonally a stronger fourth quarter, and should we see that for you as well.

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [35]

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Pedro, the reduction on gross margin is a matter of, first, the integration of the new Mercosur plant that have EBITDA margins and also, obviously, gross margins lower than we were presenting. Second is when you take a look at the cattle prices in 1 year, they are practically flat. So the reduction on the gross margin comes from the revenue side, so it comes from the reduction on beef price in domestic markets, especially in Brazil, and also some reduction in reais in the export prices when you compare to 1 year ago. The reduction on exports, for instance, they were around 10% in reais comparing to 1 year ago. And in the domestic market, it was around 15% comparing to 1 year ago. So the reduction on the gross margin has to do with the revenue side, not with the cattle price side.

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Pedro Leduc, JP Morgan Chase & Co, Research Division - Senior Analyst [36]

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Okay, okay. And are you seeing any healthier pricing environment in the, say, oil prices going up, maybe a seasonally stronger fourth quarter? Should we see a sequential improvement at least?

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Edison Ticle de Andrade Melo e Souza Filho, Minerva S.A. - Financial Officer [37]

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Yes. Well, in the domestic market, talking about especially Brazil and Argentina that we have much more supportive macroeconomic scenario. We are -- in fact, in Brazil, we are already seeing a recovery on volumes in the domestic market and also in prices, especially in the last quarter of the year. That seasonally is the best quarter for pricing for beef.

In the domestic -- in the external market, the increasing volumes in the Brazil volumes of more than 30% without a reduction, a relevant reduction in dollar prices shows how strong is the demand for beef in the world. So the prospects for the next quarter are both in the domestic market, in the most important domestic markets that we have, which are Brazil and Argentina, and also in the export market are pretty supportive. So we believe beef prices have a strong probability to continue going up in the coming quarters.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [38]

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As we said, Pedro, October was a month of record sales in the domestic market. So this shows the demand, and this goes in line with the improvement of the macroeconomic ratios and indexes. So we are seeing the market improving domestically and externally.

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Operator [39]

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This concludes the question-and-answer section. At this time, I'd like to turn the floor back over to Mr. Fernando Queiroz for any closing remarks.

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Fernando Galletti De Queiroz, Minerva S.A. - CEO [40]

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I'd like to close this conference call, once again, thanking Minerva entire team for the great work, effort and dedication which contributed to our healthy results. Without the dedication of our team, we would have not got the results that we are presenting you.

Also, I would like to point the importance that this team had on the integration. It was a challenge objective. It was a challenge goal that we set, and the team performed. I also thank you all for your interest in the company, and we remain at your disposal for any question and clarification.

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Operator [41]

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Thank you. This does conclude today's presentation. You may disconnect your lines at this time. Have a nice day.