Good afternoon, and thank you for waiting. Welcome to the Marfrig Global Foods S.A. Conference Call regarding the Third Quarter of 2023 Results. Please be advised that the presentation is being recorded and translated simultaneously into both languages. For those who wish to listen to the video conference in Portuguese, please click on the interpretation button and select the Portuguese option. For a better experience, click on mute original audio. We have with us today Mr. Marcos Molina, Founder and President, our Chairman of the company's Board of Directors, Mr. Tim Klein, CEO of North America Operations, Mr. Rui Mendonça, CEO of South America Operations, Mr. Tang David, Vice President of Finance and Investor Relations, Paulo Pianez, Director of Sustainability and Communication, and finally, the Director of Investor Relations, Mr. Eduardo Puziello.
Please be advised that all participants will only be watching the video conference during the presentation, and then we will begin the question and answer session when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding Marfrig Global Foods S.A.'s business prospects, projections, operational and financial goals, constitute beliefs and assumptions of the company's management, as well as information currently available to Marfrig Global Foods S.A. Forward-looking considerations are not guarantees of performance and involve risks, uncertainties, and assumptions as they refer to future events, and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions, and other operating factors may affect Marfrig's future results and may lead to results that differ materially from those expressed in such future considerations.
I would now like to turn the floor over to Mr. Eduardo Puziello, who will begin the presentation. You have the floor, sir.
Thank you all for participating in Marfrig's conference call. We will begin now this teleconference going through the main highlights of the consolidated results for the third quarter of 2023. Consolidated net revenue reached BRL 35.6 billion in the quarter. Consolidated Adjusted EBITDA was BRL 2.6 billion, and consolidated Adjusted EBITDA margin, 7.2%. In the period, operating cash flow was positive BRL 5.2 billion, and free cash flow reached BRL 1.9 billion. Financial leveraging, measured by net debt by EBITDA in the past twelve months, was 3.91 x, compared to 4.05x in the previous quarter. When we adjust leveraging for BRL 6 billion that refer to the sale of assets in South America, leveraging reached 3.21 x in Q3 2023.
North American operation accounted for 46% of the consolidated revenue, whereas South America accounted for 15% and BRF 39%. When we analyze consolidated Adjusted EBITDA, the North American operation accounted for 28% of the total, South America, 23%, and BRF's EBITDA, 49%. The dollar remains the main currency of our results, representing 73% of consolidated revenue. The North American operation had net revenue of $3.4 billion in the quarter, an Adjusted EBITDA margin of 4.4%. The South American operation had managerial net revenue of approximately BRL 5.4 billion, an EBITDA margin of 11.6%, 210 base points above the margin in the same period of 2022. During this quarter, Marfrig increased its stake at BRF. It reached 40.1% at the end of Q3.
This movement is part of a project to allocate capital that will be more described during the call. Besides, on August 28th, we announced the sale of 16 slaughter units for bovines and lambs for BRL 7.5 billion, out of which BRL 1.5 billion were paid upon the signature of the contract. This topic will be explored later on by Rui. Finally, as part of our management liability strategy, we announced the buyback and canceling of $81 million in bonds that would mature in 2026, 2029, and 2031. I now turn it over to Tim Klein, the CEO of the North American operation. Tim, over to you.
Thank you, Eduardo. Let's begin on slide four, where I will comment on the results for the third quarter. Starting on the left, sales volume was 6.9% higher than the same quarter of last year. It is important to highlight that Q3 was a 14-week period, while Q3 of last year was a 13-week period. Net sales were BRL 3.4 billion, up 18.6% versus Q3 of 2022. EBITDA was BRL 150 million, 55.7% lower than last year. EBITDA margin was 4.4% versus 11.9% in Q3 of last year. As expected, the margins in our beef plants were much lower versus last year's exceptional results.
Significantly higher cattle prices, smaller increases in boxed beef prices, and lower drop credit values resulted in a decrease in per head gross margins versus Q3 of 2022. Now move to slide five, where I will talk about U.S. market data. Starting on the left, USDA reported Kansas live cattle prices averaged $180.09 per cwt, up 29.3%. The USDA comprehensive cutout averaged $305.67 per cwt, up 16.9%, while the drop credit declined 2.8% to an average of $13.53 per cwt. The cutout ratio was 1.70, versus 1.88 last year. As we look forward to the fourth quarter of 2023, cattle feeders continue to have leverage as supplies are tight, both cyclically and seasonally.
Beef demand has remained strong, particularly for holiday items, as buyers seek to secure supplies for Thanksgiving and Christmas. As cattle prices approach record levels, we are encouraged that beef demand has remained strong at much higher cutout prices. We expect this to continue as we move through this part of the cycle, which should allow the industry to operate at margin levels that are stronger than they were during this segment of the previous cycle. Now I'll pass to Rui.
Thank you, Tim. We'll move on now to slide number six, where I'll explain the South American operations for the third quarter of 2023. On the graph on the left, we see that the total volume for sales has reached 377,000 tons in this quarter, basically stable when compared to the same period in 2022. On the graph in the middle, the net revenue for the quarter reached BRL 5.4 billion, 27% below revenue for 2022. That was impacted mainly due to the decrease in the average prices of exports.
As part of our commercial planning, alongside with our pricing system and associated to our sales channels, we put focus of sales in the domestic market, which has reached 50% of the operations revenue in the third quarter of 2023, against 35% in the same quarter of 2022. Graph on the right, we see that the EBITDA margin reached 11.6% this quarter, against 9.5% on the third quarter of 2022. Which means an expansion, a growth of 210 basis points. That is explained mainly due to the reduction in the average price of cattle in that period, that more than offset the reduction of average prices in exports.
I want to still highlight that the greater share of added value products and boxed beef products in the consolidated net revenue for the operation associated to the greater diversification in international markets, and also to the continuous operating efficiency program, have contributed so that South American operations present healthy margins. In absolute figures, the EBITDA reached BRL 626 million, 12% lower to 2022 EBITDA, due to the decrease in sales, as I just mentioned. Moving over to slide number seven, I'll talk about performance of exports in the third quarter of 2023. The graphs that were presented regarding the evolution of exports, we see that China and Hong Kong are still the main destinations for exports, and they represent 50% of the international sales for the South American operations during the period.
It's important to highlight that even with the Asian region remaining as the largest importer of beef of the company, Marfrig has been utilizing its sales channels in the external market, working in a focused way in added-value products, and dedicating itself to increasing the capacities of its production units for other markets, with the goal of always capturing the best trade opportunities. Moving on to slide number eight, we will go deeper into the sales of assets in South America. As everyone knows, On August twenty-eighth, we announced to the market the sale of part of our South America assets in a movement of reorganization and optimization of our portfolio. That transaction is completely in line to the strategy or focus in production of branded beef and added-value products through operations in industrial complexes.
As you can see the map on the right side of the slide, we will remain with the following assets. In Brazil, besides the three distribution centers, Marfrig will continue with the Pampeano Industrialization Complex, the slaughter and processing centers with added value and branded products in Várzea Grande and Promissão, and the hamburger unit for Bataguassu. In Argentina, Marfrig moves forward with its industrial complex in San Jorge, as well as the Campo del Tesoro unit, supplier for the main chains of global fast foods, as well as the Baradero and Arroyo Seco units, highlighting branded brands Quickfood, Paty and Vieníssima. In Uruguay, the company will move forward with the industrial complex of Tacuarembó, a leader in organic beef production, with processed beef units of Fray Bentos and feeder in Rio Negro.
In Chile, Marfrig will continue with its storage complexes, distribution, and trading. For a better understanding of operations that I've just mentioned, we show here on this slide, in the lower left side, operational performance of remaining assets for the third quarter of 2023. Moving on now to slide number nine. I will conclude my participation, my share, presenting some strategic details of remaining assets. As seen in the upper part of the slide, after the conclusion of the transaction, our operation will continue being the largest worldwide producer of hamburgers, and in the South American operation, we'll continue producing In Natura beef and in our industrial complexes, through the brands that you can see in the lower part of the slide.
In conclusion, I'd like to highlight that, if we take into account sales of added-value products, on the sales of continued operations, that share has reached 38% in the third quarter of 2023. With that, I conclude the part of South America operations, and I move over to Paulo Pianez, who will comment, the highlights on sustainability.
Thank you, Rui. This is one more quarter where our journey in sustainable development shows to be consistent, and the results prove that. Through the Marfrig Verde+ program that began three years ago, that the company has been showing its real capacity to transform Brazilian livestock production associated to climate and nature-based solutions. Among the results achieved, Marfrig advances in the most challenging topic: traceability. 100% of direct suppliers have already been monitored and controlled by satellite. In Q3 2023, we reached 85% of indirect suppliers in the Amazon region, and 71% in the Cerrado, making sure that the cattle bought by the company doesn't come from deforested areas, indigenous lands, conservation units, areas with social and environmental embargoes, or they're associated with slave work. Over 30 million hectares monitored daily, greater than the U.K. or the state of São Paulo.
Still, on the traceability front, Marfrig, for the 12th consecutive year, achieved 100% conformity in the audit in terms of the public livestock commitment that we established with Greenpeace in 2009. The report reassures our practices, which reflects the effort made by the company in the best sustainability practices in controlling its supply chain. Continuing our strategy to set partnerships with highly capable companies that are recognized in their areas, Marfrig and IDH, Initiative for Sustainable Trade, signed a contract of EUR 1.75 million. Marfrig will invest in the expansion of the sustainable calves protocol in Mato Grosso, specifically in the Juruena Valley, in the heart of the Amazon region, to produce calves sustainably, supporting small producers, providing technical assistance and technology that are needed to transform the way they produce.
Still, in the Marfrig Verde + program, that includes inclusion and legalization of producers, 3,845 farms have been re-included since 2021 up until now. Suppliers that are now in line with our production commitments, that is 100% free from deforestation. FAIRR Initiative recently published its sixth Coller FAIRR Protein Producer Index, where they assessed the 60 largest global publicly traded protein company. Marfrig maintained its leadership position as the only company in the beef protein company classified as low risk. In the overall ranking, we ranked first among companies in the industry, and the fourth place among the 60 that are assessed. We were recognized as best practice is sustainability, governance, and food security.
We went up 7 percentage points in the overall index, showing the evolution in the performance of the company in eight out of the 10 pillars that are assessed. FAIRR Initiative is a collaborative network headquartered in London, made up of over 370 investors internationally, with over $70 trillion in assets under management. Our consistency is shown by the results we achieved and by international assessments. We are a reference in this topic, while contributing for the development of a low-carbon economy and the maintenance and recovery of biodiversity in the areas where we operate. I now turn it over to Tang, who will talk about our financial results.
Thank you, Paulo. In the next slides, we will present the consolidated managerial financial results for Marfrig for the quarter concluded in third quarter 2023. Slide number thirteen, the graph on the left, third quarter 2023, we generated consolidated net revenue of BRL 35.7 billion. 39% was generated by BRF, 46% in North America, and 15% in South America. On this quarter, 76% of net revenue was related to dollar, plus other strong currencies, and 24% was in BRL. On the graph on the right, we generated, in the third quarter of 2023, BRL 2.6 billion of consolidated Adjusted EBITDA, with a margin of 7.2%. One more solid quarterly result that confirms our targeted strategy in segments with greater resilience, higher added value, and lower volatility, considering a challenging scenario.
Slide number 14, we present a generation of free cash. In the third quarter of 2023, the operating cash flow consolidated, considering the $1.5 billion receivables of the sales of the assets was positive for BRL 5.225 million. Investments in the period were BRL 2.2 billion, out of which BRL 1.4 billion in increase of shares in BRF. The amount of expenses with financial expenses was BRL 1 billion, as such, resulting in a free cash flow for the quarter of BRL 1.9 billion, positive. Slide 15, net debt and leverage. Consolidated net debt was $6.7 billion, with a reduction of approximately 18% when compared to the second quarter of 2023, explained by the cash generated in the period and the capital injection, which took place in BRF, an increase in private capital in Marfrig.
The leveraging index, measured between the net debt and Adjusted EBITDA in the last 12 months, was 3.94 x one, and 3.91x in reais, 3.94x in dollars. Slide number 16 demonstrates the pro forma effect, considering the balance of the sales of assets at the end of August. As a comparison, adjusting the KP indicators of the amount to be received, which means BRL 6 billion, with the consolidated debt, has decreased to BRL 27.6 billion, $5.5 billion, which represent a leveraging index of 3.21 x in reais, 3.23x in USD. Next slide, number 17, we present the profile of our debt. Our cash position at the end of third quarter 2023 totaled $4.7 billion. We have there included the increase in capital accomplished in BRF and Marfrig. So we have availability to cover all of the accounts for the next four years.
Additionally, we have performed operations in the market to elongate the deadlines of our bonds and reducing the financial costs of Marfrig. Highlights: issuance of debentures that are non-convertible, BRL 500 million. Second, a bonus of BRL 535 million, PPP, public partnerships, total duration of five years. And third, also concluded the extension of the deadline for 2028 increased the amount that's available for the National Beef. Those operations highlight our commitment with financial solidity and the commitment of value generation to our shareholders.
Thank you. We will now begin the questions- and- answer session. If you wish to make any questions, please press the button to raise your hand. As a request to activate your microphone will come to your screen, you should activate it to ask questions.
Please bear in mind that to listen to the conference in Portuguese, please click on the interpretation button and select the Portuguese option. If your question was responded, you can come out of the queue and clicking again on the same button. We are now collecting questions. Our first question from Ricardo Alves, Morgan Stanley. Your mic is open, please.
So-
Good afternoon, folks. Thank you for the call. I'm gonna begin with the question over to Tim about North America. We have had this discussion a few times, especially this moment of the cycle that we started in 2023, with a backdrop of a lower offerings of animals, of the cattle. But I would like to know if the company, if you, Tim, think there's room for the packers as a whole, for the industry, to adjust their operations, going lower in this backdrop of limited cattle offer, starting 2024, with a outlook of a tight outlook for animals for slaughter. Internally, in Marfrig, do you see room to do more of that? Are you already operating at a level that you consider appropriate?
My second question for South America would be more specifically about the breakdown that you provide about the region, the EBITDA, almost BRL 480 million, for continued operations. I'd like to know if you can give more details about the operation itself, product, brand, channel, whatever the factor that you think that, the determining factor, average pricing, considering the comment of 38% of added value, if I'm not mistaken. So what, what could explain that difference in margins, such a high difference in margins compared to the assets that were sold? And the other side of the question: why are the sold assets operating with a margin much lower than 10%, with the cost of beef low?
So that would help us to understand the dynamics of the assets that were maintained and the assets that were sold. Of course, you can't talk about margin because of intercompany sales, but the discrepancy is big. It seems that there might be something structural, something significant in that difference. Thank you very much, folks.
Tim, over to you.
Yes, this is... Yes, I'll answer your question. The industry does adjust production levels based on supply of cattle, and we are seeing that as we speak. As cattle supplies tightened up, hours are being reduced. Just in terms of reference, typically our industry runs, if the cattle are there six days a week, 48 hours, and we can go all the way down to 36 hours without penalty, which is a 25% reduction. When I say penalty, I mean labor cost penalty. So we have the ability as an industry to adjust to cattle supplies going up or down and feel comfortable that there are enough cattle to support the industry running at, you know, 36 hours a week.
Let me add to that. In our case, going from 48 hours to 36 hours is a 25% reduction.
So, Ricardo, good afternoon. We talked a little bit about the results of the continued operations, but as a result, as a whole, that came, came in strong. I think we could list, six reasons. First, the decrease in the price of beef. Second, percentage of added value, hit strong, continued operations 38%. And when we talk about added value, I'm talking about brands. In Brazil, for example, we reached 40% of sales with, brands in the domestic, market, and, processed, industrialized, representing boxed, 20% in South America. And, they work with a, much better price stability in moments such as this one. We can also mention the diversification in markets.
You saw that the share of China decreased from more than 50% in the third quarter of 2022, down to 25% of total revenue in this quarter of 2023. So showing clearly that for China, we will send the cuts of beef that are more profitable. So diversifying sales between domestic and foreign market, China, U.S., Europe, it's a constant bit of work and very much responsible for this result. I don't want to be forgetful of our operating efficiency plan. Constant work we've been putting together, it's a cumulative work. Every gain that we obtain adds to the future gain, so it's an important part of this result.
And, there's an aspect of Marfrig with solid partnerships, both boxed beef as well as food, retail, wholesale, you know, besides brands and strong partnerships with our clients. That's one of the reasons for us avoiding seasonality, keeping a much more stable result. And a one-off point here, it's important to highlight maybe for this quarter specifically, greater advantage is the boxed beef process. You know, you have long-term contracts, and when there's a decrease in raw materials, such as what happened, you're still capturing higher margins. Obviously, that is offset in time. It's a smaller factor, but it was also important in this quarter.
Fantastic, team, and Rui, thank you very much for your answers.
Mr. Ricardo, if you can...
Yes, you can speak in the Portuguese channel again, because you're speaking in the English. Yeah, just thanking everyone. Thank you very much.
Our next question comes from Mr. Lucas Ferreira, JP Morgan. Mr. Lucas, your microphone is free. Go ahead.
Hello, folks. Good afternoon. A question over to Tim about demand of beef in the U.S., how you see the outlook on prices, considering that we have seen the prices of other commodities and other protein prices going down recently? Do you think that these high cutout levels are sustainable for the coming quarters? And if you have a scenario for next year in terms of business profitability, you mentioned that the expect for this cycle to be better than the previous ones.
But can we think that the margins will be close to the digits, one digit that we see in the third quarter for this year? And the other question is over to Rui. My question is about China. I know that it's less and less relevant now for the sales mix for the company, but still relevant, and the expectation then is we see some level of recovery in prices, but the market is still very uncertain, with a relatively low demand from China. Is that the scenario that you see for the remainder of the year? Do you have any telltales, more concrete telltales of a Chinese recovery in demand? Thank you.
Yes, I'll answer the first question. Beef demand here in the U.S. has been very strong, even at the higher cutout levels. Typically, what we see is, If we go into a timeframe where prices are extremely high on some of the barbecue items, consumers will trade away, and they'll buy some of the less expensive products. But overall, the cutout tends to hold together. We see that with high prices, we see that in recessionary periods. So, we're confident that the demand will continue to hold, even at these higher levels of cutout in cattle prices.
The second part of your question, as we look into 2024, USDA data would suggest that, placements of cattle going into the feedlot the last few months should provide more cattle in Q1 of 2024 than what we have right now. We can't really see beyond that, other than to know that overall cattle supplies will continue to decline. Fed cattle supplies will continue to decline, in our estimation, sometime in late 2025 or 2026. The margin structure, as I said earlier, we expect it to be, better than it was, during the last cycle.
Good afternoon, Lucas. This is Rui. I'm going to respond on prices for China. I mentioned that we had reduced our China share, but China is still important. Largest global market, the expectation of USDA is for it to reach 3.5 million tons in the coming year. 35% of world imports, and yes, we intend to continue working strongly with China. What I wanted to bring up is that when China decreases, we seek for another option. China, actually, even with the current prices, it is still interesting, considering the frontal part of cuts, frontal cuts.
That's important, you know, tri-tip, and our expectation is the first quarter of next year, there will be an increase in prices in China, for the next demand that's estimated in 3.5 million tons, and even in consumptions of our inventory. The more China improves their prices, we'll be doing more business in China. That's important to point out, that all industrial complexes that we have are important for China, Europe, and the U.S., but China should remain as an important market, and we believe in a price recovery in the coming year.
Thank you.
Our next question comes from Isabella Simonato, Bank of America. Isabella, if you please, you have the floor.
Good afternoon. Thank you for the call. If you could please use the channel in Portuguese.
Yes.
Can you hear me? Thank you. Thank you. My apologies on the confusion here. Yes, thank you for the call. I would like to ask a quick question. If you could confirm what the CapEx was for Marfrig without BRF this quarter? You stopped giving the cash generation figure, if you had that also. Very simply looking at Marfrig standalone, that helps. And the second question, I'm going to piggyback here, Marcos is here. When we look at the BRF performance versus Marfrig, there is a performance of BRF stocks. It's a, it's a... And Marfrig has been making acquisitions, which leads to believe that we've come to a point where buying Marfrig is a cheap way of you yourselves investing in BRF.
So my question is: does it make sense, instead of using the cash that Marfrig may generate, to continue buying BRF? Or does it make sense for you to start making an investment in Marfrig's shares itself, considering that the stake that Marfrig has in BRF is not reflected in the price of the bond, considering a buyback, maybe?
So those are the two questions.
Yes, thank you.
CapEx, ex- BRF, BRL 280 million in the quarter.
Isabella, this is Marcos. First of all, our investment in BRF, we are truly convinced the company is at an attractive price. That's why we made these acquisitions in the last quarter. The average price is BRL 9.30 , which also pushed down our average since the acquisition of BRF, which is around BRL 16 per share, which is an attractive price, cheap price. Of course, I'm biased. Marfrig at this price also, I think it's an attractive price, and they're good investments in for both. Now, Marfrig is focused in the receivables of Minerva, $1.5 billion invested in BRF shares, and there was also an increase in capital for Marfrig, which made the company's financial situation very comfortable.
If you look at levels of consolidated debt and the elongations of debt that the financial team has made the last quarter, this has been, you know, been before, based on financial conservative position. We're very comfortable. You know, the Minerva business will be in force next year, BRL 6 billion inflow. The idea is to decrease debt, many opportunities for us to decrease the debt. I'm not sure if I've responded properly to all the questions, all the points.
Yes.
I think so. Just clarifying then, so the focus of money is to decrease the debt in Marfrig, if you think BRF is still an attractive asset?
Yes, that is correct.
Okay.
Thank you.
Thank you very much.
Yeah, so we had the down payment amount, and that was, Yeah. Good.
Gustavo Troiano from Itaú BBA. Mr. Gustavo, go ahead. You have, you have the floor.
Good afternoon, everyone. Thank you for the questions. There are two points I'd like to exploit here. First, related to, South America, and along that discussion, we see an expansions of margins, interesting this, quarter. But looking forward, I'd like to explore if there are potentials for gainings- gains in margins. Thinking about this variable of capacity, usage, I'd like to explore, looking forward with an improvement in the cycle, do you see room for the improvement, in usage of capacity in South America? If we could break it down, continued assets and then continued assets, that would be interesting to understand the potential for, remaining assets, looking at 2024.
Second question, follow-up to Isa's question about cash generation. I'd like to focus a little bit on the working capital. Excluding BRF, doing the math, sees that, freeing up working capital in the quarter. There was some working capital freed up, how would you expect those lines varying going into the fourth quarter?
Hi, Gustavo. This is Rui. Good afternoon. Now, if you look at the occupation level, we have an average of continued operation of about 80%, and in discontinued operation of about 73%. We must remember that the discontinued operations include units in Rio Grande and Uruguay, where seasonality is bigger. This is one of the main reasons for that difference. Now, to your question, certainly we have an opportunity, 75%-80% of the current capacity use. In the new model, we expect to operate at 90%.
Mm-hmm.
So we do have an opportunity to grow in the maintained operations. Hi, Gustavo, this is Tang. About working capital. You have followed us, so in the past four quarters, we generated positive cash flow, releasing working capital, so that's our financial discipline, and in this quarter, we directed our efforts to the domestic market. That also contributes to the release of our working capital, and there was beef price cuts at National Beef. Traditionally, Q3 is strong, which favors cash generation. To your point, looking forward, this is a continuous effort of our financial team, really, to generate positive cash flow.
Thank you, Tang and Rui. Super clear.
Our next question from Ben, from Barclays.
Yeah. Hey, good afternoon, and thank you very much for taking my question. Actually, just one follow-up for Tim in North America. Can you help us understand a little bit better the current competitive dynamics in the U.S. and the beef industry? Just given that we've seen some of your peers not performing as well, remind us what's, what's the difference and how should we think about just that relative performance, particularly as we head into 2024, which seems to be of a more, even more challenging year than what 2023 has been so far. Thank you very much.
I don't have access to their information to know for sure, but we feel that our business model is different, partly because we are smaller, so we're able to do things that the larger players can't do, even though we've got disadvantage on economies of scale and costs. So, I think one of the other big differences is our partnership with U.S. Premium Beef that provides us with the type of cattle that we need to continue supplying customers with our value-added programs, our high-quality beef. So, you know, I would say that that's probably the biggest, you know, single difference between us and the competitors, is our relationship and partnership with U.S. Premium Beef.
Okay. As for the shape of recovery, Tim, how do you think this is going to shake out? I think you're, you said something around later 2025, 2026. But that would basically just the point of turn, or is that the point where you should be back to kind of more of an average margin by 2026 then?
I would characterize it as, that's when we would start seeing the turn, but it is not gonna be a sharp increase in cattle numbers. It's gonna be a slower recovery, I would guess-
Perfect.
- depending on when heifer retention takes place.
Okay. Thank you very much.
Our next question comes from Leonardo Alencar from XP. Leonardo, you have the floor.
Good afternoon, everyone. Thank you for taking my question. I'd like to understand the point with Rui. Actually, when we look at the third quarter compared to the second quarter, the volume of domestic market grew significantly, and probably an interesting bit of growth in a short amount of time. I'd like to understand a bit more, you know, the strategy, underlying strategy, if that greater volume will continue in the next quarters. Is there some kind of alignment for the holidays? Also boxed beef, if you could help me a bit to understand the seasonality for boxed products, and you know, compared to fresh products.
So Rui, we know it's a spread business, and the dynamics of the price of cattle was favorable for margins, but also pulled the price of fresh beef down. So could that become a natural competitor for boxed products, given the improvement in the domestic market, if beef is a bit more competitive, but that could affect the strategy for boxed products? And second, maybe more for Tang or Marcos maybe. Regarding the plants that were sold or put to sale, if you have any expectations of closing for the operation. We know that it's a longer process. It depends on the CADE, the Brazilian antitrust agency. So what kind of expectation do you have?
Are you talking about first quarter, second quarter 2024? What's a kind of a timeline for that? A bit of an analysis on your side. Thank you.
Good afternoon, Leonardo. This is Rui, speaking a bit about the domestic market. I use a magic word in this discussion: it's a spread. So when I mention that we separate the cuts of beef, well, that's exactly what we do. You look at a specific cut, top sirloin. If it's better price in the domestic market, it'll come here. If in the next quarter it's not, it will go to another destination. So in this quarter, we had opportunities in the internal market that we captured, so that was a decision that we make weekly in terms of targeting the production. That happened heavily.
The fact that we increased our share in branded products, surely makes it easier. The partnerships I mentioned also help. And in the case of boxed products, they're 73% for the domestic market for Brazil and Argentina. We're also strong there with Paty and Vieníssima brand. Those boxed products, they're not affected by, let's say, with a competition by the, the beef that are used in the production of hamburgers and canned beef. There's these processed products. It's a flat demand. There's no seasonality. Throughout the year, month-over-month, there's no big difference, so I think that's a major attractive aspect of a boxed product.
So there's this, price stability, volume stability, which allows you to target, and increase that volume, that, occupancy growth in terms of capturing that opportunity. However, in the fresh, beef market, that's one off. You analyze every moment where the cuts are gonna go, to which markets, where the best, trade, results come from. Leonardo, about the antitrust agency, CADE, in Brazil, it's difficult to have an estimate. What I can say are the examples that we had, in the past. Our acquisition of BRF took eight, nine months for approval in the agency. That's what we expect, you know, for the next year, 2024. I believe that should be, the window, second quarter, but it's just an opinion.
That depends significantly on who's going to be taking office in CADE, and who's gonna be nominated, and all of that....
Okay, that's clear. Thank you. Rui, just a follow-up question, if I may. So may I conclude that you were faster in capturing improvements in the domestic market in Brazil, faster than the competition, that's why there's increase in the domestic market and consolidated margins for South America, it's better than your peers? Does that conclusion make sense?
It's difficult to assess the speed of reaction of our competitors. I mentioned in the beginning a number of other reasons. It's not just the targeting of domestic markets. Obviously, we grew significantly in the U.S. The case of Uruguay, it went all to Canada and Japan. So there were a number of actions, market, brand actions, added value, operating efficiency, the way we work with solid partnerships with clients. So it's a pool of actions that are the daily foundation for decision-making, which led us to a better result. Now, surely in terms of reaction, pace, or speed, I couldn't comment about that.
Yeah, that's clear. Thank you very much for clarification.
Yeah, thank you.
Our next question comes from Thiago from Pactual. Thiago, you have the floor. Thiago Duarte.
Hello, good afternoon, everyone. Thank you very much for taking my question. I'd like to go back to the discussion of ongoing operations in South America in terms of the mix and contribution margins. I'd like to see if I understood the share of revenues, the ongoing assets. You talk about 38% of added value products, out of which close to half of that, you mentioned 20 percentage points of industrialized products, box products, and we're talking about 62% of lower added value products. And that's the point of my question. I'd like to ask if we're talking about fresh products.
I imagine that's the case. Non-branded or lower brands, I'd like to understand how the margin of that product range in, you know, fresh products with lower added value, how does that compare to the range of higher added value products? In other words, why is the margin of this 62%, that you're not calling added value, should have a much different margin when compared to assets that are being sold, operation assets that you have discontinued? That would be my first question. Second question, segueing to a previous question about, you know, capital allocation for the future, lower debt, not being so leveraged. Marcos has made it clear his vision for BRF.
A question that ever since this began in the first acquisitions of BRF and so forth, the question was always the level, the size of the share that you consider ideal. The answer that Marcos provided earlier, there was a willingness of deleveraging Marfrig in the perception that BRF has a lot of potential, still a very valuable asset in the current prices. I'd like to understand what we should think in terms of, you know, at the level that Marfrig, the stake that Marfrig aspires to have in BRF. Should it be targeting 50%, a bit more? Does it make sense to go beyond that? Does it make sense to stop where it is?
For us to think about it strategically, you know, about that movement that's come initially 20-something%, 33%, now almost 48%. Yeah. Thank you.
Good afternoon, Thiago. In those 60% of value-added products and box products, there are four factors that make them different, not just fresh products. Historically, we have mentioned the way we operate in interconnected platforms among the three South American countries. That allows us to capture different opportunities. That's a continued effort. We are all connected. Every country has different approvals to export, different opportunities. Our operational efficiency program that began before I became a CEO here, we are still strong, paying attention to details. We achieved significant gains. And the third factor I wanted to mention is our industry. Our choice to work with industrial complex is to reduce the fixed cost of the kilogram produced.
So the industrial complex with higher volume and a higher level of boxed beef, better using the deboning of the carcass, are fundamental aspects which will make those 60% not just fresh meat, fresh beef. Thiago... Adding to Isabella's question, and to your point, the investment we made at BRF, when we started making that investment, it was attractive. We only increased our stake because of the performance National Beef had. So it was through cash generation that we increased our stake at BRF in the past. Last quarter, we had 32% stake. We were comfortable with that position, but then we had the opportunity of the Minerva Group. We took BRL 1.5 billion, and we invested at BRF, achieving 42% at the end of the quarter, and now we moved on to 47%. Today, we are super comfortable with that stake.
So when I say that the price is attractive, it truly is. To reduce that is also attractive. But let's see how the company will perform in the next quarters, because first and foremost, we focus on financial discipline. So much so that this year we decided to increase our capital at Marfrig and BRF, and we didn't pay out dividends, focusing on financial discipline. So the investment at BRF also involved financial discipline. Because Marfrig performed better, generated cash, it was a joint decision. It was not a standalone decision. Our focus was to generate value.
Thank you very much, Marcos and Rui. Rui, if you could share with us a number that might help us. Those, the remaining 62%. You gave us the revenue and the Adjusted EBITDA of the continued operation. Can you talk about gross profit in Q3 of the continued operations?
We don't break that gross profit right now. We don't break it down, but I can confirm is that in continued operation, we have the business model that we adopt as a winning business model. Thank you.