Earnings Call: Q1 2021

May 5, 2021

Welcome to Minerva's First Quarter of 2021 Results Conference Call. Today with us, we have Mr. Fernando Galente Quayoz, Chief Executive Officer and Mr. Edes Manteca, CFO and Investor Relations Officer. Next, we're going to start the Q and A Session for analysts and investors when further instructions will be given. Please send a message in the appropriate field. The audio and slideshow of this presentation are available through a live webcast at www.minervafilafoods.com/ri. In this address, You can also find the presentation for download from the webcast platform in the Investor Relations section of the website. Before proceeding, we wish to mention that forward looking statements may be made during this presentation relating to Minerva's business prospects, operating and financial estimates and goals are based on beliefs and assumptions of the company management as well as 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 Other operating factors could also affect future results of Minerva and could cause to results that differ materially from those expressed in such forward looking statements. We would now like to hand over to Mr. Fernando Queroz, CEO, who will begin the presentation. Mr. Keyros, you may start the presentation. Good morning, everyone, and thank you for participating in Minerva's results call. For the Q1 2021, Minerva Foods started the year 2021 with a solid operational and financial performance, reflecting the resilience of our team, our quick ability to adapt to complex scenarios and especially the consistency of our strategy that combines operational and financial discipline with profitability. In this Q1 2021, we consolidated our position as one of the main players in the global market and either in the export of beef in our continent. The focus on operational execution combined with our financial discipline, our risk management model were fundamental for Minerva Foods to reach the good results of the Q1 with profitability, cash generation and a solid balance sheet. Coping with the pandemic continues to generate greater complexity and volatility to the market. However, it is at times like this that our geographic diversification plays a fundamental role in our strategy, reducing risks but also expanding opportunities and thus consolidating the importance of our export platform from South America. In this sense, I want to highlight our ability to arbitrate in the markets, accelerating and decelerating operations, maximizing results and neutralizing risks and volatility. Despite the traditional seasonality at the beginning of the year and the important challenges still imposed by the pandemic, the Q1 of 2021 was yet another quarter with good export Performance, the global beef market remains very heated and continues to be driven by both the consistent Asian demand and the beginning of the cycle of resumption of consumption worldwide as vaccination progresses. We also have an upsurge in African swine fever. With new outbreaks of contamination in China and other Southeast Asian countries in addition to Eastern Europe, further amplifying the supply shock and imbalance in the global animal protein market and providing more and more opportunities for exporting countries. Given this context, the global scenario remains very attractive for the coming periods, which, combined with the advance of vaccination against COVID-nineteen and the consequent resumption of the world economy should further encourage the strong international demand for beef directly benefiting South America and consolidating the region as a major supplier of bovine protein to the world. Now let's move on to Slide 2 to start the presentation of our results. Let's start with net income, which reached approximately BRL260,000,000 in the quarter, totaling BRL685,000,000 in the past 12 months. Minerva continues quarter after quarter delivering solid results and in line with our strategy of creating shareholder value. Free cash flow, one of our priorities, was positive for the 13th consecutive quarter, totaling BRL 309 1,000,000 in the Q1 of 2021 and accumulating BRL1.3 billion in the past 12 months reinforcing Minerva Foods' operational excellence and financial discipline. Since 2018, the company has accumulated almost BRL 4,000,000,000 in positive free cash generation. Gross revenue reached BRL 6,100,000,000 in the Q1 2021 and BRL 22,200,000,000 in the past 12 months. In this context, I want to highlight the performance of our exports, which accounted for approximately 68% of gross revenue, both in the quarter and in the accumulated of the last 12 months. A natural reflects of the strong demand the international market and the great vocation of Minerva Food in beef export. Still on profitability, Q1 'twenty one EBITDA, even in the face of market challenges, reached BRL 4.85 million, a Strong growth of 27% in relation to the previous year and the highest historical level for the period. In the accumulated result of the past 12 months, another record was broken by our team. With Minerva's EBITDA totaling BRL 2,200,000,000, an expansion of almost 25% on the annual basis and delivering a solid EBITDA margin of 10.7%. As in the previous periods and confirming Minerva Foods' discipline in its financial management, another major highlight of the quarter was the solidity of our balance sheet. We ended Q1 'twenty one with leverage measured by the net debt over EBITDA indicated a 2.4x reduction of 0.5x compared to the Q1 of the previous year. Our cash position remains very comfortable with BRL6.4 doubled with BRL 6,400,000,000 at the end of the period, which guarantees us a great deal of tranquility and flexibility in the face challenges and opportunities of the times. Still talking about our balance sheet. I want to highlight the efforts that we continue to make in managing our liabilities. Since the beginning of the year, Minerva has been working on initiatives to manage financial liabilities such as the buyback of Bond 2026 and the issuance of Bond 2,031, which significantly reduced the cost and also extended the term of our relevant portion of our indebtedness, thus reinstating our commitment to capital discipline. Other initiatives were implemented with the same goal, to improve our capital structure. Throughout our results presentation, Edison will bring a bit more detail on those efforts. In this quarter, we also advanced in our corporate venture capital strategy with investment in the online retail platform CHOPWA, and also with the development of joint venture with Amyris. These are initiatives aligned with the objectives of our innovation area: maximizing opportunities and advancing in the food industry's value chain. In addition, we continue to Strengthen our corporate management. The evolution program of our organizational culture continues to be solid every day as an important instrument in the integration and alignment of Minerva Foods' strategy. And finally, I would like to highlight our work on the topic of sustainability, where We recently disclosed Minerva Foods' commitments and goals in fighting climate change and protecting the environment. Sustainability has always been a central pillar in our strategy, so much so that more than 10 years ago, we created an area specialized in the topic. And year after year, we have moved forward with initiatives that allow us to guarantee a more sustainable production throughout our value chain from producer to our end customer. We have constantly reinstated our purpose feeding the world in a more sustainable way, providing safe food through a business that combines expansion and global competitiveness, Innovation, Ethics and Quality with the decisive social environmental criteria in our industry. And we understand that we can and must go further and further increase the efforts in tackling climate change and protecting our planet. For this reason And reinforcing Minerva Foods' commitment to sustainability, we assume public commitments that allow us to further advance The ESG agenda with effective actions involving our entire production chain with investments of approximately BRL 1 point BRL 5,000,000,000 by 2,035. Still in this conference call, our Sustainability Director will speak in more detail about our ESG project and also about the commitments made by Minerva Foods with the sustainability agenda. Now let's move on to the next slide to comment on Minerva's operating performance in the quarter, starting with the exports. Q1 'twenty one, we strengthened our leadership position as the largest beef exporter in South America with 20% market share on the continent. This is the result of our geographical diversification in the region and supported by our 16 international offices that provide Minerva a great competitive advantage in addition to a prominent position in the export of beef. When we look at the export performance by region, Asia continues to stand out, representing 50 7% of export revenue in the past 12 months in Brazil, a strong growth of 15% points compared to the same period in the previous year. The Asian market was also the main export destination for Ascena Foods, with 38% of the total exported by the division in the same period. The performance of exports makes the region's growing demand for beef increasingly evident, especially from China, but also from other important markets such as Indonesia, Malaysia, Thailand and the Philippines. Another highlight is our growing exposure to the North American market, both from the Brazil division and Athena Foods, a market of with high income capacity, which has already shown strong signs of recovery in the economy and consumption with the advance of vaccination. To conclude, I would like to emphasize once again that the fundamentals and market prospects remain very solid. We have a combination of very positive factors for the Forthcoming periods. The international demand for beef remains quite consistent in emerging markets, especially in Southeast Asia. Where did this the advance of vaccination and the resumption of the global economy that gained strength with the reopening of markets and prints a movement of strong recovery of consumption, especially in the food services segment that has been strongly impacted since the beginning of the pandemic. In addition, the problems in beef production in Australia continue to imbalance the world supply and encourage the opening of markets, which especially benefits South American exporters. And of course, as I said before, we cannot fail to emphasize the persistent impact of African swine fever on the global animal protein market, driving demand for beef and impacting Export volumes and prices. In this way, it is increasingly expanding the range of opportunities for exporting players from our continent. Given this promising horizon, Minerva Foods' Strategy is to continue maximizing our competitive advantages, investing in innovation, niche opportunities and in Risk Management and Market Intelligence to achieve increasingly efficient and The BUCA Commercial and Logistical Solutions always valuing our team and respecting our commitment to ethics and sustainability. Now I will hand over to Tasciano, who will talk a little more about Minerva Foods' sustainability agenda. Tasciano? Good morning, everyone, and thank you, Fernando, for the introduction. The recognition of sustainability of our business This stands on the maintenance of the ecosystem that support agricultural production is at the heart of Minerva Foods' commitment to sustainability. We recently announced Our strategy against the effects of climate change and monitoring supply chain, committing ourselves to bold and pioneering goals focused on actions and backed by public results from those who lead the sustainability agenda in beef production in South America. The Minerva Foods' commitment to sustainability is guided by the contribution to a healthy planet and prosperous community, supporting South American Producers and the implementation of practices that sequester and store carbon, protect biodiversity and increase resilience, expect to invest BRL 1,500,000,000 in diversified approaches to reach the goal of 0 net emissions by 2,035 in Scopes 1, 23. And we will work on 3 major fronts: the environmental efficiency of operations, fighting illegal deforestation through geospatial monitoring of the chain and finally, our low carbon program. In environmental efficiency of operations, we'll reduce The intensity of greenhouse gas emission in scopes 12 by 30% until 2,030 will maintain our carbon neutral energy matrix. This means 0 net emissions in scope 2, a goal that we reach in 2020. In geospatial monitoring of the supply chain, our goal is 0 illegal deforestation in all South American operating countries by 2,030, including indirect suppliers and thereby reducing Minerva Foods' Carbon Footprint in Scope 3. We will achieve 100% geographic monitoring of direct supply farms in Paraguay by December this year, in Colombia in 2023, in Uruguay 2025 and the expansion to other countries in South America by 2,030. We will also apply the monitoring program for indirect supply of farms in all countries of operation in South America by 2,030, including the integration of VisiPag tool in the geographic monitoring system in the Amazon by December of this year and the availability of the app for verification of indirect supply In Brazil, in partnership with Nice Planet Geotechnologia until December 2021, taking to the hand of It produces the same technology that ensures Minerva Foods the best monitoring result publicly certified by the Federal attorney's office. It's worth checking out. It's public. Our performance is based on results and commitment. And lastly, the 3rd axis is the low carbon program in the production chain, which we will explore now on Slide 5. The beef production value chain is one of the most President, 23 cities with industrial operations in Argentina, Brazil, Colombia, Paraguay and Uruguay having an annual relationship with over 12,000 rural producers. We recognize that technologically, profitably and environmental responsible agricultural activity has a unique opportunity to transpose its role In providing quality food to the world, it also represents combating climate change through carbon sequestration and storage practices, The protection of native vegetation carried out by suppliers that are part of the supply chain of Minerva Foods combined with soil conservation and pasture management practices, Intensification and Integration Systems can represent large carbon reservoirs that help to combat changes in the climate in the Amazon In Brazil, for example, Minerva Food Supplies preserved more than 1,000,000 hectares of tropical forest within their private properties according to the Forest coverage data from the National Institute For Space Research in the Low Carbon Emission There are references in South American livestock to measure carbon balance of our suppliers in all Countries of operation working with primary data in the MRV model measurement, reporting and verification defined by the United Nations Framework Convention on Climate Change. Our goal is to have 50% of the beef suppliers registered in the Minerva Foods program for low carbon emissions by 2,030, and we expect preliminary results this year. To conclude, on Slide 6, We bring the highlights of our 10 Sustainability Report 2020, the first published in the sector, sharing updated information about ESG Events in a Holistic and Respiratory Way. We've adopted the content in line with TCFD, Task Force on climate related financial disclosure addressing the governance and management of risks and opportunities in the financial, Operational, supply chain, markets, sanitary conditions and trade barriers, social and environmental issues and climate changes. In addition to the strong performance of Minerva Foods in the communities in which we operate with actions to deal with the pandemic of the new coronavirus, We report important advances in different areas of sustainability, some of which are the highlights: leadership in combining illegal deforestation show 100% of direct supply of farms with geo reference mounts in all regions of operation in Brazil. We are, therefore, the first company to monitor And we also have the best monitoring results in the Amazon. We are geographically monitoring all regions in Paraguay Besides Chaka, and we already have 35% of the production monitoring for illegal deforestation, overlapping with indigenous lands and areas of environment protection the country, Brazil will lead the indirect monitoring agenda with levels of above 99.5% of compliance for level 1 indirect supplies in the preliminary results of Visipec. And we became the 1st coming Panisse to Actually, the direct monitoring in the Amazon of monitoring. We present important advances in water management with more than 13 Sand in water consumption in Brazil and more than 7.5 percent reduction in other countries, zeroed in scope 2 emissions through the purchase of renewable energy certificates and became the 1st company in the carbon neutral sector in scope 2. 100% of our operations were analyzed for Corruption risks of 100% were also analyzed, covered by quality assurance programs. In Animal Welfare, we achieved 99% compliance in 3rd party audits. And lastly, we have a 30% reduction in the rate of occupational accidents in 2020. Check out these and more ESG results in the 2020 Sustainability Report available on our website. We also reinstate our constant evolution in a year of great learning and our commitment to present material results today, now contributing to the sustainability of our planet. I would like to hand over to Edson, who will detail the operational and financial Thank you. Thank you, Stacia. Now let's move on to Slide So let's start by talking about operating performance and the breakdown of the share of the divisions of Minerva gross revenue in Q1 'twenty one. Atinofus expanded its Patient and already accounts for 50% consolidated gross revenue. Our Brazil division took 44% and the Trading division with 6%, complementing the total revenues. Speaking of operations, 1st quarter, we operated at a capacity of approximately 70%, reflecting the negative impact of the expected seasonality at beginning of the year, particularly in Brazil and also operational difficulties imposed by the pandemic. In Argentina Food's level of use remained stable at approximately 73%. It is worth noting that this is the 1st quarter with full operation of our second unit in Colombia, the Viragual Plant in Brazil, division utilization level was 63%. As we have already indicated, the consolidated use remains at a level below our historical level of 80% and which should be resumed over the next years with the progress of vaccination process and the end of the pandemic. On the right hand side of the slide, we highlight our consolidated exports by region both for Q1 'twenty one for the accumulated results of the 12 months. As Fernando mentioned, Asia Continuous Play measures were representing 44% of exports in the quarter. In the past 12 months, the share of the Asian continent totals 46 percent of Minerva's exports, with China currently the major global importer of beef, representing 36% of supports and increasingly consolidating itself as the main destination for our products. Moving on to Slide 8. We'll start with net revenue, which reached BRL 5,800,000,000 in Q1 'twenty one, strong expansion more than 39% in the annual comparison and a record amount for the company even considering the seasonal impact of the beginning of the year. The composition of the revenue, as I mentioned earlier, we highlight the positive moment For exports, we reached a share of 68 percent of total revenue. Speaking of profitability, Minerva's EBITDA. Q1 reached BRL485 million with EBITDA margin of 8.4%. It's worth noting that strong 27% year over year mentioned on our nominal EBITDA, even in the face of very challenging scenario, sharp increase in the price of cat on Brazil in past 12 months, EBITDA totaled About BRL 2,200,000,000 record level for Minerva with EBITDA margin of 10.7%, almost 50 basis points higher than when compared to the annual basis. It is quite clear on this slide the operational dynamics of our company, which is the spread business, that is. Our profitability enables us to transfer prices, especially when we have a scenario of cost pressure. Despite the recent upward movements in the price of cattle, which correspond to 85% of our total cost, The company has been very efficient in transferring these increases to customers, especially in the export market, which is the main focus of Minerva Foods. As a result, we have been able to deliver consistent level of profitability over the past quarters even with the upward movement in the price of the animal. And I also want to highlight our geographical diversification, especially when we talk about Athena Foods, which despite a more complicated situation in Brazil in terms of Livestock Supply. Athena Foods has a much common situation in countries like Paraguay and Colombia, where profitability has improved in the Q1. There was a very significant export growth in these countries as well as the Revenue that increased and also helped to increase the revenue of Ethinofood that was spectacular in Q1. Obviously, the exchange rate evaluation helps to consolidate Athena Foods revenue, but we really had an extremely positive performance in other geographies other than Brazil, and that is why Athena Foods accounted for 50% of our revenue in this quarter. Moving on to Slide 9, talking about financial leverage. Our leverage ratio measured by the net debt EBITDA indicator for the last 12 months may remain stable and 2.4x in line with Q4 2020, but 0.5% lower than when compared to Q1 'twenty. Venergo's current level of leverage resides our commitment to seeking and maintaining a more sufficient, less costly capital structure with a lower risk profile fully aligned with our financial strategy. On this slide, I also want to that we still have EUR 314,000,000 in outstanding warrants that must be exercised by the end of this year and we'll reinforce the company's cash. In other words, as soon as the exercise occurs, these resources go into cash. And if we adjust this cash With the effect of these funds, our net leverage ends up being even smaller, dropping to 2 point It's worth mentioning that if we measure the net leverage dollars, it would be 2.3x today. Let's move on to the next slide where we'll talk about net income and operating cash flow. Q1 was another quarter of positive result. Net income reached approximately BRL260,000,000. In the past 12 months, it reached BRL 685,000,000. The result reflects The commercial and financial strategy over the past years, total focus on generating free cash, risk management and mainly Debt reduction, pillars that have been a priority for the company and have contributed in us significantly to the results we have achieved quarter by quarter. Moving now to operating cash generation. Operating cash flow in the quarter was positive by almost BRL 1,100,000,000 With net income adjustments returning €914,000,000 in cash and the change in working capital, we're consuming €124,000,000 in cash, impacted basically by the expressive top line growth in the quarter. In the past 12 months, the cash flow from operating activities totaled BRL 2,600,000,000. Now let's move to Slide 11 to talk about free cash flow. Q1 free cash flow remained positive for the 13th executive quarter reaching BRL 309 1,000,000. It's been almost 4 years in a row with positive Cash generation. Excluding the effect of foreign exchange hedge, free cash flow remains positive at approximately EUR80,000,000 in the quarter, Making free cash flow bid up in the quarter, we start with an EBITDA before nonrecurring items of BRL 475,000,000 CapEx was approximately BRL 73,000,000. It is worth remembering that within the BRL 73,000,000, we had an investment of BRL 29,000,000 on the retail platform shopper through our venture capital fund. Then we look at the working Capital account in the flow, which was negative by EUR 124,000,000 and the cash based financial results, which was negative EUR 208,000,000 excluding Nonrecurring effects, approximately EUR 10,000,000 due to the social expense we had in actions against the pandemic. We had reached a positive recurring free cash flow Of BRL 80,000,000 in the Q1, which added to the positive cash result of the hedge policy exchange rate of 299,000,000. We reached a free cash flow in the quarter of BRL 309,000,000. Speaking now, the past 12 months, free cash flow totaled BRL 1,300,000,000. We start from an EBITDA of BRL 2,200,000,000 CapEx in the past 12 months, EUR 332,000,000, which was impacted also by the acquisition of the Viterguao plant in Colombia And by the corporate venture capital initiative, the change in working capital was negative by BRL61 1,000,000 in the past 12 months, and the Cash based financial result was negative by EUR 540,000,000. We have EUR 43,000,000 in non recurrent items related to the pandemic. So we reached a free cash flow of €1,300,000,000 accumulated in past 12 months, reflecting the excellent operating and financial performance of Minerva Foods in the period. Now on to Slide 12 to understand the bridge of our net debt. At the end of the previous quarter, our net debt totaled approximately BRL 5,100,000,000. Q1 'twenty one, We distributed BRL 22,000,000 in JZP to our shareholders or interest in our own capital. We had a free cash flow for the quarter adjusted by positive impact of nonrecurrent items, EUR 70,000,000 positive. In addition, we had a positive impact of Hedge instruments in a cash concept of EUR 229,000,000 We also had a positive impact of EUR 225,000,000 with a noncash effect also of hedge instruments. And then we have the noncash effect of BRL705,000,000 related to the impact of exchange rate variations on the portion of our debt that is pegged to foreign currency. So adding all these accounts and setting up the bridge, Minerva ended the quarter with a net debt just over EUR 5,400,000,000 They were practically stable in the annual comparison, even considering an exchange rate depreciation of approximately EUR 0.43 or more than 8% over the past 12 months. This position confirms the commitment of the to continue reducing the level indebtedness and mainly to gradually improve Minerva's capital structure. I want to emphasize that our current hedge policy continues to require that we have at least 50% protection for long term passive currency exposure, and this can be seen in the note to our financial statements. Just like our balance sheet, our foreign exchange exposure is also very protected, making us even more comfortable to continue focusing on the execution of operation and financial performance and to continue looking for a way of generating value for our shareholders. On the next slide, we will comment a bit more on the capital structure and the recent liability management initiatives. So on Slide 13, as mentioned earlier, we present our leverage ratio measured by net debt over EBITDA ratio over the past 12 months, which ended the quarter, stable at 2.4x. Our cash position at the end of the quarter was quite comfortable in the order of BRL 6,400,000,000. Speaking of indebtedness, about 80% of our debt is exposed to exchange rate variation. But as I've just mentioned, there is a commitment to protecting the balance sheet. So we have a hedge policy that determines that we have to have at least 50% of the hedged long term foreign exchange exposure, And we have been very disciplined, and this has been proving quite efficient given the recent exchange rate volatility in Brazil. Currently, our duration is around 6 years, with 77% of our amortization concentrated from 2024. In the picture of the balance sheet of the Q1, main maturities are allocated in 'twenty six, 'twenty eight and 'thirty one. This scenario will remain even more We can also notice on the slide that in addition to the traditional amortization schedule based on the closing balance sheet of Q1 'twenty one. You also published a pro form a scenario with base date of May, which considers all the efforts and initiatives liability management, that company has been implementing since mid-twenty 20. So in the Q1, we can highlight some initiatives such as the offer of $1,000,000,000 Issuance of new bond due to in 2,031 with interest rate of approximately 4.3% a year. Proceeds from this issue were used in full for early repurchase of approximately 76% of the bond 2026 issue, more expensive debt that has an interest coupon of 6.5 percent per annum. With this operation, we achieved a reduction of more than 200 basis points in dollars in the annual cost of portion of the debt. It is worth mentioning that the 24 remaining that were opened in the market at the end of the quarter were redeemed on April 30 through the Exercise of the make whole option. We are talking about an option exercise in the order of $290,000,000 or approximately BRL 1.6 BRL 1,000,000,000. In other words, we reduced not only the cost but also the gross leverage of Minerva Foods. In the Q2 'twenty one, To continue with this liability management process, we made a recent issue of CRA in the local market in the amount of €1,600,000,000 The first year is €1,200,000,000 with maturity in 7 years, the 2nd series of €400,000,000 maturing 10 years. Both series were swapped. They were issued In IPCA plus coupon, but it was swapped for CDI. So the final cost of the instrument will be equivalent to 128% of CDI for both series. The proceeds from this operation will also be used to strengthen our capital structure with focus on reducing foreign currency debt that have a higher cost. And so we expect an additional reduction in the cost of indebtedness of this portion of approximately 2.50 basis points per year. And to close the matter, we also made some repurchases in the open market. We bought back 41,000,000 dollars from bond 2028, something like BRL 235,000,000, which were canceled now in May. The result of all those initiatives is very clear on the pro form a amortization schedule, which is at the start on the right, where we can see the stretching of our net debt profile with the most relevant maturity being moved forward with the main Amortization 'twenty eight and 'thirty one, but most importantly, this new debt amortization structure is considerably less costly than the old structure. And this is all the result of all these liability management initiatives that we've had in recent months, starting mid-twenty 20 and ending now in the month of May. Obviously, this whole effort Liability Management reinforces our commitment to financial discipline in search for an increasingly healthy capital structure less costly with a lower risk profile, mainly very aligned with our value generation strategy. I now hand over to the operator to start the Q and A session. Thank you very much. Ladies and gentlemen, we will now start the question and answer session for investors and analysts. Before starting, we will mention that Our first question comes from Ricardo Alves from Morgan Stanley. I have problem on my line, but I hope you can hear me. I have two questions, if you allow me. Athena surprised us in consolidated margin. It comes from Athena. I'd like you to comment specifically on Paraguay, 30% of top line and Uruguay, If I'm not mistaken, there's growth of 70%. So if you could talk a bit about the evolution of those two countries in the quarter, What drove this performance? If you have something specific that you can mention in addition to What is the performance of April May? And if my second question coming to Brazil, This evolution of the dollar price increase 10% year over year in the foreign market, certainly above what we expected. Have you do you have any market in To highlight, apart from China, looking at the Q2, 2nd semester in a few months because From what I see, the supply is quite restricted globally. I don't know if there are expectations of more opening for markets here in Brazil, if there is a market outside China that has been driving this number. These are my questions. Ricardo, actually, operations outside Brazil have surprised us based on their volume. But what is important, as we mentioned on our call, is our arbitration capability. Different plants in different countries have different sanitary Licenses as the great investments of Minerva Foods is in the part of analytics that allows us to analyze which plant to speed up and which plant we can consider to decelerate. We certainly have consolidated by country. And this work is very fragmented, identifying each one of the plants. In this quarter, undoubtedly, countries like Uruguay have increased The volume, if you look at Paraguay, Uruguay actually had an export Volume record in the past 2 years, it grew the volume of exports By 51%, we, with the plans and units that we have, we have surfed the wave and captured those values. What's important to highlight is our arbitration capability. This may happen in a country today and tomorrow at another plant in another country tomorrow, and this is what differentiates Minerva Foods. Regarding your second question of market opening, South America is increasingly consolidating itself. We've mentioned the destinations, the main destinations we have Because of the pandemic and COVID cases, especially in India, other markets in addition to China, Like the Middle East, started having a highlight in the past Few months and there is a market opening. There's a gain in South America of greater share in the international market. And obviously, Minerva with this diversification that is unique, with the plants that is unique, we can capture this value and provide more predictability and less volatility in the margins that we generate. Our next question comes from Thiago Duarte from BTG Pactual. You may proceed. Hello. Good morning, everyone. Good morning, Fernando. Good morning, Edith. So I'd like to go back to this Top line topic of Athena. Actually, the intent here is to try to Stan, the recurrence of those volumes, especially in Athena? Or if we should think, as you suggest, when you talk about arbitration, We should look at the volume in a more consolidated volume of the company. Partly, I'd like to consider the capacity use of Athena. When we look at this Volume growth of slaughter of almost 40%. It doesn't seem to Dialogue with this capacity use of Athena, based on the number you comment on, it seems to drop Year after year, that's been the new corporation of the new plant in Colombia. There was the impact of the second plant, if I'm not mistaken, in Argentina. But I still cannot reconcile it. If you could address these two points, both of sustainability of those volumes As to what would be capacity effective capacity use, I would be grateful. Thiago, this is Edinho. I'm going to answer your second question. Regarding capacity, we always Do the math based on net capacity. We exclude the plants that are shut down or stopped. If we make an adjustment, The size and put comparable things, the problem is that Q1 of 2021 is not comparable to Q1 of 2020 because there are different plants that are openstopped in 3 countries: Colombia, Uruguay and Argentina. And Colombia has an expansion indeed with the acquisition of a new plant that leads the installed capacity to be Greater, if we adjust that, we did the math because we actually thought this could be a question in the call, 73,000,000 that you see in the Q1 2020 would be comparable to 72.5% and a number of 77%. Actually, there was an increase of 77% to 72.5% Q1 'twenty one against Q1 'twenty. This adjustment occurs because the calculation is made based on Net capacity use, if we take Q1 2020 against 2021, we have a difference in Uruguay. We had 2 months Q1 2020 with the cold storage of Cajasco stopped. And this makes a difference when we consider capacity. First part of the question, I'm going to hand over to Fernando Chago. One of the technologies that we have developed within arbitration has been within Brazil so many times. If we analyze individual plans, you will see Tocan Tins being accelerated visavis Goyas, Brondonia, decelerated Mato Grosso, and this is a constant practice of ours. Increasingly, what Minerva Foods Thus is to analyze this in all its Latin America or South America operations. So we've had records in some plants like the one in Belay In Paraguay, that was all time high. On the other hand, some plants, if the profitability The smaller they've been decelerated, replaced to where profitability is more favorable. So what we reinstate for Athena and Minerva separately because they are legal separate legal entities, but the analysis should certainly be seen as the top line as a whole. The greater the market volatility, the greater the currency volatility, capital price, etcetera, more the instrument is used It's a protection instrument and an instrument of value generation. So there are 25 plants that are analyzed In-depth and of which portfolios, which countries, to which destination should we sell visavis from where we should source the cattle within that. So we have developed Projects of acceleration, deceleration that are very efficient that allow us to respond increasingly faster to the market demand and the market That is increasingly more volatile. When I told Ricardo, it ensures more stability, as Ricardo said actually, more stability within the margins, right? This is very clear. Thank you very much for your answers. If I could bring up a second topic regarding the use of capital and capital allocation. Looking at the next Here, I'd like you to comment a bit, taking the minutes of the Board meetings, we see actions towards China. You are Shading format, I understand the domicile of Athena from China to Spain Last year, somehow, you hinted the interest of actually, there is an agreement with Saliki of moving into Australia. And on the other hand, the company with smaller leverage has allowed itself based on last year's results to pay much more robust dividends. I'd like you to comment a bit, Fernando Edison, as to how we should think This trade off between the growth platforms, which should we expect to materialize in the short term vis a vis the intent of continuing maintaining leverage below 2.5% so that you can pay a higher payout. If you could discuss this, it would be interesting too. Okay. Let's go on point by point of what you brought up. So the Tax domicile of Athena, it's an attitude simply having tax efficiency. We carried out a study, see that keeping Headquarters of Vaholde in Chile, compared to maintain it in Spain, Spain brings us many more benefits, especially in the part Taxes, the dividend distribution, etcetera, then maintaining its headquarters in Chile. Because of that, we Regarding Australia, we've already talked about this openly. There is the intent of having a JV with Selleck Australia, the CapEx of this JV has been disclosed. It's about $20,000,000 If you take CapEx of the past 12 months, about BRL330,000,000 BRL240,000,000. And we believe that this year, We will have CapEx very close to what it has been in past 12 months of what it was in 2020, even including those $20,000,000 of JV in Australia. If you remember, the CapEx in the past 12 months has $17,000,000 of acquisition in Colombia. It's just as if we Traded the acquisition in Colombia for the investment in the JV in Australia to keep the same order of CapEx in 20 20 is the same number in the past 12 months. 3rd point regarding dividends. Our policy of dividends continues applicable. The Board has approved January, February last year, and we continue with this Policy and practice. At the end of the fiscal year, our leverage if our net leverage is equal or Greater than 2.5 percent, the dividend distribution is 30% of net profit. Considering all of that Prospects, the results that have been presented, that have been disclosed now. Considering what we see in the market in the second Similar to what we've seen in March, it was by far the best month in that quarter. We strongly believe that we will be able to maintain controlled leverage levels. Therefore, we're going to distribute dividends in line with the policy minimum 50% of net profit at the end of this fiscal year. Adding to what was said, you talked about the JV. There is a part of the We see that there we have put. And also the other thing on the distribution In China, it is part of our strategy of downstream. We where with more popularity, more knowledge, having more market information, we undoubtedly increase the profitability. So this JV does not entices or implies any Fixed asset only working capital, which is normal for a redistribution. Our next question comes from Isabela Simonato, Bank of America. Thank you. Good morning. Thank you for the call. I have two questions. The first one in terms of Brazil, if you could give Further detail sequentially within the quarter, the margins, what they were like, Give me a bit more taste between exports and domestic market and beginning of Q2. And if you can give me an update on Argentina as well, price dynamics there, internal and external. After government announcements, we've seen dynamics of processed meats there that was quite strong. If you can talk a A bit more about Argentina, that would be really nice. Well, Isabela, speaking of Brazil, as we've been commenting and We mentioned on our release, January February were a much weaker month than March, especially because exports started gaining more momentum as of March. The SOVEC data showed that. We had Weaker volumes in January February, recovery in March April, major growth. Obviously, this impacts The margins of a company that is mostly an exporting company in Brazil, twothree of our production was for exports. Curiously enough, January, you had a quite different phenomenon than previous years. The domestic market prices were still quite high, Very close to the levels of the end of year. That usually doesn't happen. Seasonally, January is a sort of hangover month after the end of your blanket holiday. So in January, we managed We have very good margins, much better than we expected. February was a disaster both in terms of exports and domestic market. March domestic market continues pretty poor, but exports improved a lot. April, we've had Some internal market recovery, but obviously, the great highlight is exports both in terms of volume and dollar prices. You The data in terms of the increase in dollar plus foreign exchange depreciation brings a greater value in terms of appreciation in the beginning of the quarter. And this is a bit of the scenario of what happened in the Q1. So April is better than March, and we don't see any changes in the short term horizon for this good scenario especially for exports? 2nd question on Argentina. It's interesting to comment on the following. First, there was a lot of noise regarding Argentina, but in practice, the measures taken there were good for professional companies, Well established that follow all the rules that don't try to bypass government regulations. In our case, we fit all these requirements I've just mentioned. Therefore, the measures that turned export activities more controlled, the government with greater supervision, especially regarding bringing in resources that brought us a gain that turned the Exports Club even more restrained. So there are fewer companies that check all the boxes to continue exporting. This has brought price gains, volume gains to us in exports. And as I've mentioned a long time ago, mostly The volumes produced in Argentina are for exports. Regarding domestic market, the price increases What happened there are due to high inflation rates. We made some decisions that I consider Technically quite clever, which was to change the mix of products so that we can have products that can actually penetrate in lower income Brackets and so smaller retail prices and expanding the margin we have in those Cheaper products, processed foods, hamburgers, sausages, etcetera that are Cheaper parties and cheaper in the unit prices, the production cost that is lower, that does not worsen our margins. So we are actually serving quite well in this difficult and volatile scenario in Argentina. So we have quite diversified plant complex that allows us to actually move about all areas of the consumer market. And perhaps we are the most professional, best established that complies to all the rules established by the government in the country. So adding to what he said, in Argentina, we have Formalization that the government is sponsoring all industries. So this ends up being positive for companies that are well established that follow all the procedures. Within the internal markets, Both in Brazil and Argentina, we see 2 interesting phenomena: migration to much cheaper products on one hand and Thus, for much more expensive prices, the intermediary prices are those that are suffering, but those are the ones that we export most. Brazil, we had a drop of beef as a whole because of the crisis, 29 kilos per inhabitant a year approximately, which is the smallest in the past 25 years. And this leads the companies to that have an exporting platform to have a mix that is more geared to export, as Edgino mentioned previously. Just to close, Isabella, if you want to Further details of all the measures of the Argentinian government and how they impact to the market and the industry And why they are beneficial to a company like ours? They are we are available. Well, there are dozens of measures, but all of them are actually intended to professionalizing and improving competitiveness of companies that are serious and professional in that market. Our next question It's from Barbara JPMorgan. Barbara, you may proceed. My questions have been answered. Our next question is from Thiago from Goldman Sachs. Hi, everyone, for I'd like to talk about Brazil. First, you've been talking that you expect consolidated capacity use over the year. So I'd like to understand a bit how you expect to have the curve in Brazil. And if you can actually comment and open up how the gap between capacity Growth and net with the 2020 first question, still in Brazil, what are the outlook for short Term to measure these things from now on, especially if you could comment on the retail dynamics and service how one channel can offset or not the an increase in the others? Those are the two questions, please. Thank you. Thiago Brazil, we don't have many secrets. Just read the newspapers. You have a negative livestock cycle That has been worsened in the first Months of the year was because of the rainfall. And then we had rainfall that should come in March, So it should come May, June, July depending on how drain on the rainfall, etcetera. So this is one of the points that made the supply. It should be more restricted because of the turn in the livestock cycle. It should be turned specifically more restricted in some states like Mato Grosso. So naturally, because of the arbitration dynamics we have internally, as Fernando mentioned. We ended up reducing slaughter in some plants and increasing annuities With the healthy capacity used in Brazil in the Q1 ended up dropping to that level 63%. How this is Form of animals for slaughter, we accelerate the capacity over the year. Remember that this use is lower Based on the measures that have been taken because of the pandemic, we changed the layout of the lines. They are a bit slower because of distancing. And this led the use of capacity to actually drop regarding the pre pandemic levels, but we are optimistic that over here, we'll be able to increase capacity used in Brazil. As we said, the target For the company as a whole to go back to a level close to 80%, and this may happen probably in the forthcoming 4 quarters. Thiago, just To add to what Gio said about Saipol, in addition to weather apart, The other factor that reduced the supply in Brazil was the great profitability that breeders started having. So cattle breeding in the past month was quite favorable, quite profitable and led Breeders to hold the slaughter of cows that was greatly reduced. So what Actually, what happens is that these females are producing more calves, and we have record of birth. And that's the cattle that is going to come to the market in dates '21, 'twenty two, 'twenty three. So you have a situation that is quite interesting in the part of Brazil That only shows that Brazil is consolidating increasingly more as a producer, main world beef producer. Regarding domestic market, we should see a reopening with the advance of vaccination and reopening, Gradual reopening of markets and increase in demand, but it is happening, as I told Isabela, in 2 Extremes, very special products and special niches, expensive products and very competitive products, Lower prices. So it's the Angles that is growing and the Hamburger that is growing. So those are the 2 fronts illustrating in a simple way that we see it in the Domestic market issues reinforces the importance of exports and how the strategy the exporting strategy that we have in Brazil and around South America of conquering markets that is increasingly sound. We have some questions from the webcast. Sorry. We had some questions on the webcast. I'm going to read them, and we'll answer them. First, from Jean Guggenheim. Why has there been Reduction of margin EBITDA for Q1 to 8.3 percent. If we have some outlook of improvement, I think it's practically answered. Reduction of the EBITDA margin, obviously, is related to the increase in cattle price, especially in Brazil. There was a reduction of slaughter in Brazil, considering the scenario of greater scarcity of animals that I've Just described in some states specifically, but as a whole, Brazil moved into a part that is more of FEMA retention, fewer animals available for slaughter, and we had rainfall season delay and being And this actually reduced the number of slaughtered animals. The outlook for improvement, yes, animals that were not slaughtered 1st quarter should come to the market in Q2 probably. So you do have an outlook of improving the supply of animals and short term. So is that better to ask for IPO if there is an outlook of IPO of Athena? As I said, no. The IPO Athena had another context of locking value, but actually, you're helping in the deleveraging with the free cash flow that we've had over EUR 3,000,000,000 since 2018. We managed to get The deleveraging level is much faster than we expected. So there are no more plans for IPO of Athena Foods. 3rd question, Raul de la Pedro. And what about Argentina with exports? As I said, there is no restriction of exports. There is a The strictening the rules are more strict or stricter. So if you are to export beef in Argentina, you have to follow stricter rules that before, and you have to comply with The resource generation rules, so you have to have your own plant in there too for slaughter and the export. There are several rules that are Stricter that have been enforced and they benefit companies like ours that are totally in compliance With the rules that have been established, so the Exporter Club has become even more restricted, opens up greater opportunities for us not only in terms of volume and also price. Last question from webcast. Ricardo Carneiro, I'd like to know if you have any views or expectations of reducing cattle price in Brazil and Latin America as a whole. We have to look at country by country, the cycles in each one of the countries. In general, We have some countries that are in a very positive cycle. And then you have perhaps 2 countries that are in a cycle that is a bit more negative. Speaking of Brazil specifically, whilst we see a cycle that is more negative, perhaps we don't actually see a drop in the Prices, which is not a program for a company that is interested in gaining that. So we have the acquisition of the cattle and then we slaughter and sell. So when we see the scenario of imbalance of supply And demand of beef in the world market, we see great spaces for us to continue to transfer prices, increase prices in exports. And with this, we can not only to ensure our margin, but also to have an important outlook of improving our margins over this year. Those were the questions. So we now conclude the question and answer session. Now I would like to turn the floor back To Mr. Fernando Queiroz for his closing remarks. I would like to end this conference call by thanking Very much the entire Minerva team. This past year of 2020 has been Very challenging, and the challenge has continued in 2021. The dedication, the drive, focus and We managed to have allowed the company to reach the results that are so significant and Actually, sale and very rough seas allowed us to be profitable. The year 2021 brings us A lot of hope. We see in many places in the world the evolution of vaccination, and it will happen in South America. It is moving forward. Economic activities are resuming and recovering. We see a great global outlook for this year with the start of the recovery this year. And this allows us in our industry to have a comparative The advantage regarding production than in any other part of the world makes us feel very confident regarding our strategy and how Minerva has positioned within this market. We are still firm and looking at the opportunities, The comparative advantages so that we can, in a sustainable way, we maintain our production, that we maintain our space within the international market increasingly more relevant. I thank everyone for your interest in Minerva Foods' call, and we remain at your disposal for any questions and any clarifications. Thank you very much. Minerva's conference call is closed. We thank you all very much for your participation and wish you a good day.