Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everybody to Minerva's conference call to discuss the material facts disclosed yesterday. 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, and all participants will be in listen-only mode during the company's presentation. If you need any assistance during the call, please press star zero to reach the operator. The audio and a slideshow of this presentation are available through a live webcast at www.minervafoods.com/ir and MZiQ platform. The slideshow can also be downloaded from the webcast platform in the investor relations sections of this 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. They are based on beliefs and assumptions of company management of information currently available. They involve risk, uncertainties, and assumptions because they are related 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 cause results to differ materially from those expressed in such forward-looking statements. I will now turn the conference call over to Mr. Fernando Queiroz, CEO, who will begin the presentation. Mr. Queiroz, you may start the presentation.
Thank you very much. I would like to welcome everyone on this call about the strategy to improve the capital structure of Minerva. First, I would like to point that Minerva business plan on growing in South America, being the most diversified and being the biggest exporter out of this region, was fully accomplished. This plan followed discipline, it followed consistency, and this was the goal of having an opportunity of participating the most competitive area of the world that can produce beef protein. This came at a cost of a leverage for the company. Therefore, now in this next step, our main goal is to deleverage the company through the deleverage strategy that we will share with you.
We want to, with that, improve our financial structure with the objective of creating value for all the shareholders, by deleveraging the company and by distributing consistent dividends from now on as a company. What I will do today is share with you our plans that have two main goals. One is a capital increase, and the other is the IPO of Athena Foods. That is our subsidiary, fully controlled by Minerva, that have the assets that we acquired in South America, ex-Brazil. I will hand over to Edison that will go through in more details all the plans that I would like to share with you.
Thank you, Fernando. Just a quick introduction. The capital increase is part of a macro plan to improve the capital structure of Minerva. To improve the capital structure, we thought about two different transactions. The first one would be a private capital increase, and the second one would be the IPO of Athena Foods. Due to legal reasons, we were not able to release the strategy at one time. We had to release firstly that the board allowed us to constitute Athena Foods to pursue the IPO, and now it's time to release the terms of the private capital increase. That's why we could not share with you this macro plan that has the main goal to improve the capital structure of Minerva by accelerating the deleveraging process. As you know, the company became leveraged in the past quarters due to three main reasons.
The first one was the acquisition of JBS Mercosul assets last year. The second one was the working capital that we had to invest to increase those operations and to make those operations more profitable and more efficient. The third reason is the FX depreciation that is happening not only in Brazil but also in South America, which is, on one side, helping a lot our margins, especially the export margins, but on the other side, hampered our debt by generating a non-cash expense that made our leverage go up in the past quarters and reached 5 times net debt to EBITDA ratio at the end of the second quarter. The rationale behind these two transactions is to improve the capital structure in order to deleverage the company and allow Minerva to increase the future dividends payout in the short to medium term.
Our current situation, as you can see in the slide number two, is that Minerva has a negative equity value at the balance sheet of around 1 billion BRL at the end of the quarter. Our net leverage was around 5 times at the end of second quarter. Because of this situation of high leverage, roughly 60%-70% of our last 12 months EBITDA, which was around 1.3 billion BRL, is going to serve our debt. If you add maintenance CapEx and a little portion of working capital, remains almost nothing to pay to our shareholders as dividend. That's the main reason why we decided to speed up the improvement of our capital structure that would improve through cash flow generation and through growth of EBITDA in the coming years.
However, by speeding up this process, will allow us to increase the dividend payout, and it will put the company in a much more comfortable situation in terms of financial risk, and also, obviously, in terms of leverage. The two measures that we are pursuing to improve the capital structure is the IPO of Athena Foods, which we expect to raise between 1 billion and 1.5 billion BRL, and the private capital increase that we announced yesterday, that we expect to raise around 1 billion BRL. Let's talk now on slide four, about the IPO of Athena Foods. As we have already shared with the market, we are expecting to raise between 1 billion and 1.5 billion BRL for a minority stake at this company. Minerva will continue being the controlling shareholder of Athena Foods.
We expect to use two-thirds of this cash to pay down debt at Minerva Foods, and one-third as a primary transaction to finance the growth of Athena Foods that will be focused in the short to medium term. In Colombia, where we'd like to increase our operations through acquisitions. In Chile, where we want to improve and grow our distribution operations there, also, a chance to have acquisitions in order to grow and to start operating in the industry, in the deboning and slaughtering industry in Chile. Also in Argentina, where we're going to use the money for CapEx and working capital to reopen some plants. Also, and more important, to grow our brand products strategy towards exports to other countries in South America, using the distribution network that Minerva and Athena has built in countries like Colombia, Chile, and Paraguay.
Talking about Argentina, it's important to highlight that in spite of the macroeconomic situation, the sector is doing very well, especially in the export side. Even with the export tax announced by the government a week ago of 3 ARS per USD in the export, we are still making good margins on export, due to a simple reason. According to our budget, the exports would be really good profitable when we have an FX above 25 ARS per USD. Today, with the FX around 37, 36, even if you take out the export tax of 3 ARS, we are still exporting at an FX rate of 32, 33 ARS, which continues helping a lot to have good margins in this country.
It's also worth mentioning that our brand and value-added products operation in Argentina is being a really positive surprise, and it's performing very well, and that's why we are planning to grow this operation and start exporting from Argentina to other countries in South America. Let's go now to slide five, where we present again the Athena Foods structure. As Fernando mentioned, Athena Foods is a 100% controlled subsidiary of Minerva Foods. Under Athena Foods, we are consolidating all the operations of Minerva in South America, in Argentina, Uruguay, Paraguay, Colombia, and also in Chile. Moving to slide six, we present a combined, a pro forma income statement of Athena Foods for the first half of 2018. As you can see, net revenues in the period were above BRL 3 billion. EBITDA around BRL 209 million, with an EBITDA margin of 6.8%.
Athena Foods generated a positive net income of BRL 122 million in the period. Let's move to slide eight to talk about the private capital increase transaction. Describing the transaction, we are proposing a private capital increase of more than BRL 1 billion, that will be executed through the issuance of new 165 million shares at a price of BRL 6.42, which is exactly the average price of the last 30 trading days. We also have full commitment from SALIC and VDQ, the controlling block, to subscribe their shares on the private capital increase. SALIC has 21.4%, VDQ has 28.2%. The full commitment of both guarantees a minimum of BRL 527 million of capital increase.
Our proposal is to give as an additional advantage to all shareholders that decide to follow the controlling group and subscribe the capital increase, we are going to grant them a three-year bonification warrant that behaves like an American call option with the same strike price of the capital increase, which is BRL 6.42. It is worth mentioning that this warrant will be traded and listed at B3, the Brazilian exchange. All the shareholders that decide to follow the private capital increase will be granted with this three-year warrant as a bonification to incentivize their participation in the transaction. It is also worth mentioning that the use of proceeds of this capital increase will be 100% to pay down debt. To deleverage Minerva's balance sheet, reducing gross debt, gross leverage, and also net leverage.
Also, it is worth mentioning that the ex-subscription rights date will be defined after the extraordinary shareholders meeting approval. It is going to be on the day after the extraordinary shareholders meeting approval, that will probably take place on October, around 15 or 16th of October. Moving now to slide nine. Let us talk about the advantages of this private capital increase. The first one is the immediate improvement of the company's capital structure. We expect a deleverage of almost one turn of EBITDA. Second, the operation will give equal rights of subscription to all shareholders and aims to keep the participation of each shareholder unchanged. If all the shareholders base decide to subscribe, we are going to have no dilution.
There will be a positive impact on the liquidity of the shares because we are going to increase the number of shares in the free float and also the market cap of the company. We expect a positive impact on the liquidity. As I have already mentioned, that there is a three-year warrant bonification, which is an additional advantage for the shareholders who decide to follow the capital increase. This three-year warrant is worth around BRL 1.60, or approximately 30% of the price of the capital increase, according to the Black-Scholes model. Also there is a minimum commitment in the private capital increase given by the controlling group. Moving to slide 10. Well, to approve the capital increase, we are going to have in October an extraordinary shareholders meeting.
We are going to have some subjects to be voted, but the two most important subjects are obviously the private capital increase approval, and also we are proposing the change of Minerva's poison pill. According to Minerva's bylaw, the poison pill today is 20%. We will propose the change of the poison pill to 33.34%. In case the poison pill change is approved, the minimum capital increase would reach BRL 700 million because the change will allow SALIC to increase their shares and to take the opportunity of subscribing possible leftovers in the capital increase subscription process. Assuming that SALIC will subscribe those leftovers, the minimum capital increase would reach BRL 700 million. Another important information. In case the change of poison pill is approved, VDQ and SALIC, they have also agreed on an extension on their shareholders' agreement of five years. The original shareholders' agreement was 10 years.
In case we change the poison pill, this agreement will be extended for more 5 years. Also, if the poison pill change is approved, SALIC commits to a new lock-up of 5 years in their shares, beginning on the date of the change of poison pill. We present also in slide 10 a base case timeframe. We announced it to the market, the capital increase in September. We expect the extraordinary shareholders meeting to take place in October, around 15th or 16th of October. D plus one after approval will be the date of the ex-subscription rights. In November, we expect to have the due date to subscribe around 15th or 16th of November. Let's go now to our sensitivity analysis, where we try to present some scenarios that we used to base the decision of doing these two transactions.
What will be the expected effect on our capital structure? Going to page 12, we present a scenario where the net revenues for 2019 range between BRL 15.5 billion-BRL 16.5 billion, and margins that range from 9%-10%. If we take the center figure, using 9.5% of EBITDA margin and net revenues of BRL 15.75 billion, we get BRL 1.5 billion roughly of EBITDA for 2019. Using this average scenario, moving to page 13, we present what would be our net leverage in different scenarios. In the scenario number 1, just considering a capital increase of around BRL 1 billion. In the center scenario, our leverage would be around 3.3 times, assuming an EBITDA of BRL 1.5 billion for 2019.
In the second scenario, assuming BRL 1 billion of capital increase and BRL 1 billion in the raising in the IPO of Athena Foods, leverage would be around 2.5 times. In the third scenario, considering BRL 1 billion of capital increase and BRL 1.5 billion in the IPO of Athena Foods, leverage would be around 2.3 times. All those scenarios were built considering an FX rate of BRL 3.90 per dollar for the end of 2019. To finalize, we'd like to show an appendix about the Funrural. We released it during the earnings of the second quarter, that Minerva decided to adhere to the Funrural during that quarter. There was some confusion regarding what was done, especially regarding the deferred tax assets that we have in our benefit. I'd like to highlight that the cash payment was approximately BRL 25 million to the Funrural program.
This was the total cash disbursement in the quarter, and it was fully recognized in the financial statements. After applying 100% of exemption for fines, charges, and interest, the remaining overdue amount for the company was around BRL 470 million. This BRL 470 million was totally paid down using our deferred tax assets. If you go to the table in slide 15, you can see that our balance at the end of 2017 of deferred tax assets was around BRL 196 million. We activated, we recognized in the income statement during the first half of the year, around BRL 570 million. From this BRL 570 million, we used BRL 470 million to pay down all the pending debt related to Funrural, so there's no more pending debt with the Federal Revenue Service regarding Funrural. Everything was fully settled and fully paid.
The balance after this settlement and after the activation in the income statement of the new deferred tax asset was around BRL 300 million, BRL 297 million at the end of the quarter. Just to highlight, there is no more pending debt related to Funrural. Everything was already paid. We used only BRL 25 million to pay for Funrural, and the remaining overdue amount was 100% paid using our deferred tax assets. Thank you very much. Let's go to the Q&A section. Thank you.
Thank you. We will now start the question and answer section for investors and analysts. If you would like to ask a question, please press star one. If at any point your question has been answered, you may remove your question from the queue by pressing the pound key. Marcelo Inoue from Citi would like to make a question.
Hello. Thanks, everybody. Edison, I wanted to understand better how do you see the potential for reduction in interest payments with this capital increase? As I understand, a lower leverage would reduce your risk, would allow you to pay more expensive debt and also navigate with a lower cash position. I wanted to understand how your average cost of debt could be reduced with the repayment of more expensive debt. Secondly, could you comment a bit, at least qualitatively, how the business is doing in the third quarter with the FX at these levels, both in Brazil and Argentina? Also on the outlook for margins and cash flow generation. Thank you.
Marcelo, it's hard to make an estimation regarding what will be the reduction in our total cost of debt. However, according to our simulations, if we succeed in the IPO
Raising between BRL 1 billion and BRL 1.5 billion. If we succeed 100% in the private capital increase, raising BRL 1 billion, we believe that the total part of the EBITDA, that today is around 6%-70%, that goes to serve our debt, it would come down to something around 45%, in the short to medium term. This is the estimation that we have. This reduction from 70%- 40% would allow us to increase the dividend payout for the shareholders in the medium term. Marcelo, regarding the performance for the third quarter, what we can tell you is that we kept increasing our exports. The benefits of having a more devaluated currency in Brazil and a more devaluated currency in Argentina is very favorable for the company. The third quarter looks to be better than the second quarter.
Even though we had in Argentina some measures that are some export taxes, with the devaluation, this was more than offset by the devaluation of the currency. Argentina and Brazil and the rest of South America keep a very strong pattern of exports, mainly to Southeast of Asia and to the Middle East. The initial numbers shows a better result in the third quarter than in the second one.
Right. Perfect. Thanks.
Wallace from Safra would like to make a question.
Hi. Thank you very much for your presentation. I had a question regarding the leverage. I understand the transaction is effectively reducing the leverage by 1 turn. Just wanted to understand, given that in presentation you mentioned that the improved capital structure would allow you to increase the dividend payout, what are your ambitions in terms of leverage for the company? You are still one of the most leveraged companies in the protein sector at this time. From a creditor perspective, just wanted to understand, where do you see leverage for the company? Where do you see it comfortable?
Firstly, we are not the most leveraged company in the protein side. We have some brothers that are even more leveraged than us. Second, if you take a look at our sensitivity analysis, you will see that in the medium point, considering scenario one, two, and three, leverage would be in one scenario 3.3x , in the other two scenarios, at 2.5x or 2.3x. We believe that leverage below 3x would allow us to increase the dividend policy to increase the dividend payout.
The sensitivity analysis includes what you account for as an increase in dividend payout. Is that correct to assume that?
No, it doesn't assume that because to increase the dividend payout, first we have to reach on a leverage below 3x , below 2.8x . Until we get there, we are not going to increase the dividend payout, but once we get there, we're going to pay more dividends.
Okay, fully understood. Thank you very much.
Mr. Adams from Schroders would like to make a question.
Hello. Thank you for the presentation. Good morning. I wanted to know if the team is targeting any particular part of the capital structure with the expected proceeds of the capital raise. Also what might be the ideal cash position to hold.
Can you repeat the two questions, please? We couldn't understand. The first one is regarding-
Oh, yeah. Mm-hmm. The first question, just if you have an idea of what part of the debt stack that you might target to take out with the use of these capital proceeds. The second is what would be the ideal liquidity position?
Well, regarding the debt that we are going to pay down, it will be a function of maturity and cost. We don't have any specific debt yet, but we're going to follow strictly what makes sense in terms of maturity versus cost. About the liquidity of the IPO, you mean Well, the total offer would be between BRL 1 billion and BRL 1.5 billion. I don't know if this is your question.
Oh, sorry. I mean, after reducing debt, what do you think is the right cash position to hold on the balance sheet?
Okay. Well, we have a minimum cash policy that is, it will be equal to three months of purchase of cattle. Today, it would be around BRL 2.8 billion, BRL 3 billion, roughly. We are higher than that because of the financial risk that we see in the scenario and also, because of the high leverage of the company. By reducing leverage will allow us to reduce this carrying cost of cash, reduce gross debt, reduce net debt, and allow us to have a cash policy, a cash balance more close to the policy that we have been following as minimum cash policy.
Okay, perfect. Thank you.
This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Fernando Queiroz for any closing remarks.
I'd like to thank you all for participating in this conference call where we shared with you our plans on how to improve our capital structure. I would like to renew our commitment on creating value for the shareholders, and we remain at your disposal for any doubts or any questions that you eventually may have. Thank you very much.
Thank you. This does conclude today's presentation. You may disconnect your line at this time. Have a nice day.