COMPANY | Strategy and Competitive Advantages
- Strong growth aligned with a Consistent Strategy and Efficient Risk Management
Over the past few years, the Company significantly invested in expanding its production capacity by increasing daily slaughtering capacity from 6,600 head in 2008 to 26,380 head in 2018 (an annual compound growth of 15%). Minerva also invested in expanding its distribution network and diversifying its product portfolio. As a result, the Company‘s net revenue grew from R$2.1 billion in 2008 to R$16.2 billion in 2018, equivalent to an annual average compound growth of 23%. On December 31, 2019, the Company recorded net operating revenue of R$17,122.8 million.
The Company‘s investments followed a defined strategic plan, which privileges South American production platforms free of health risks. Minerva’s plants are strategically located in seven Brazilian states, as well as in Paraguay, Uruguay, Colombia and Argentina. Geographic diversification is an important instrument to mitigate health risks and concentrate the supplier base.
During its strong expansion, the Company always sought to maintain a balanced capital structure, using own capital sources (the IPO in 2007, a capital increase in 2009, the mandatorily convertible debentures in 2011, and the public offering of shares in October 2012) as well as long-term third-party financing (for example, the issue of bonds maturing in 2017, 2019, 2022, 2023, 2026, 2028 and a perpetual bond issue). This financial discipline allowed the Company to cope with a time of global crisis with solidity.
In addition, the Company structured its operations over the years focusing on strict risk management, guided by a daily meeting called "Beef Desk", where all the operational, commercial and financial (cash flow hedge) decisions were taken. The meeting discusses all short-term opportunities and risks in order to establish the best margins and benefit from the best moment of the market.
The Company believes that the implementation of its strategy, which has been consistently adopted by Management, improved its operating results, essentially by: (i) stabilizing operating margins (EBITDA margin, 10.3% in 2016, 9.4% in 2017 and 9.6% in 2018), (ii) consistently increasing net revenue, whose annual growth rate (CAGR) came to 23% between 2008 and 2018.
- Efficiency and Return on Capital
The Company’s production platform, combined with its financial discipline and careful planning of investments in expansion, allowed it to maintain high utilization capacity rates, even during this period of strong expansion. The Company believes to be among the sector‘s most efficient companies based on its (i) high operating margins, (ii) higher production capacity utilization, which came to approximately 77,5% on December 31, 2018, and (iii) working capital management, which Minerva believes to be more efficient than that of its competitors. The Company’s operating efficiency, combined with its superior risk management, translates into higher operating cash generation and net cash for its shareholders. In 2018, the Company’s operating cash generation totaled approximately R$ 1,329.9 million.
- Strategically located operations
The Company has a diversified operating base, since its 28 industrial units (three protein processing facilities, one in Brazil and two in Argentina, and 25 bovine slaughtering and deboning facilities) are strategically located in the states of Goiás, Mato Grosso, Rondônia, São Paulo, Minas Gerais and Tocantins, in Brazil, in the cities of Asunción, San Antonio, Tablada and Belén in Paraguay, in the cities of Melo, Canelones and Montevideo in Uruguay, in the cities of Rosario, Berazategui, Colonia Caroya, Venado Tuerto and Pontevedra in Argentina, and in the cities of Bucaramanga and Ciénaga de Oro in Colombia, close to both the ports where their products are exported and the main centers of their respective domestic markets. The geographical distribution of its facilities also contributes to the management of the sanitary risks of its activity, besides increasing its supply network ( currently it has a base of more than 25 thousand cattle breeders focused on the small and medium producer). Its industrial units are also close to its cattle suppliers (up to 300 kilometers from its industrial units).
- Efficient and Integrated Logistics Distribution
The Company believes to have integrated and efficient distribution logistics, allowing it to reroute sales to more attractive markets and take advantage of favorable demand and price variations and, consequently, allowing it to encourage sales of products with higher margins.
The Company directly contracts the storage, transport and insurance services related to its exports and maintains partnerships with ship-owners and port terminals in the country. This strategy offers the operational efficiency necessary to ensure product quality and on-time delivery. The company exports the majority of its products under the CIF (Cost. Insurance and Freight), through break bulk and container, which provide economy of scale in the negotiation of freight costs, storage and insurance. The Company also sells its products directly to end consumers in export destinations, thus avoiding paying intermediation fees to trading companies and other intermediaries. In addition, the Company believes that its efficient and agile logistics chain allows it to sell chilled beef products to various international markets, in all continents.
Minerva believes to have an efficient logistics system in the domestic market, reaching retailers through its nine distribution centers located in Brazil. The Company adopts the one-stop-shop concept, serving more than 50,000 points of sale in Brazil, mostly small and medium retailers and food service customers, supplying them with perishable frozen or chilled products produced by the Company or supplied by third parties (such as poultry, pork and fish products, french fries, and frozen vegetables, among others). The Company’s strategy to encourage customer loyalty is marked by regular and effective delivery, allowing it to operate with greater margins.
- Experienced Management and Advantageous Strategy
The Company has been present in the Brazilian livestock industry since 1957, when the Vilela de Queiroz family (Minerva’s controlling company through VDQ Holding S.A.) began its cattle breeding and transport activities developing a long-lasting relationship with relevant members of the Brazilian cattle industry. The acquisition of the first slaughter and deboning plant occurred with the purchase of the bankruptcy estate of the meatpacking company, Minerva, in 1992, in the city of Barretos, São Paulo state.
Over its 57 years of experience in cattle breeding and 24 years of experience in the industry, the Company became Brazil’s third largest meatpacking company in slaughtering capacity and the second largest exporter of fresh beef in Brazil and leader in exports of fresh beef and cattle byproducts in Paraguay, according to Scot Consultoria, SECEX and SENACSA. The Company is currently a group with more than 17,500 employees.
Minerva also believes that it became an industry reference in operational efficiency, risk management and financial discipline, fostering the attraction and retention of excellent quality and recognized professionals.
- Expansion of its Production Capacity with Financial Discipline
Since 2007, the Company invested more than R$ 4.0 billion to expand its production capacity and diversify its product mix, a process fueled by selective acquisitions and the construction of new industrial units, increased and modernized production capacity in all units and the construction of the food processing unit - Minerva Dawn Farms. Its growth was focused on raw material sourcing in South America. The Company made strategic investments, mitigating risks and diversifying its portfolio, always maintaining high-standard production, quality and food safety.
These investments contributed to increase the Company‘s financial leverage and it is important to mention that some of them are still in maturation phase. On December 31, 2018 its consolidated net debt adjusted net for treasury shares and receivables-backed investment fund (FIDC) subordinated shares totaled R$6,360.0 million, equivalent to 3.9x LTM EBITDA, 65.2% of which corresponded to long-term debt.
In addition, the Company continues to focus on the financial strategy of efficiently managing working capital, managing risks and generating free cash flow. Finally, it also intends to use its experience in acquisitions to continue participating in the consolidation of the Brazilian beef market, without compromising its financial stability and profitability.
- Expansion of its National and International Client Base
The Company intends to continue strengthening its national and international client base by providing superior-quality services as well as adding value to domestic distribution by expanding its own and third-party product supply.
Minerva believes that there are opportunities to increase its market share in emerging markets whose beef consumption has been increasing, as well as increase its exposure in the domestic market by implementing new distribution centers which allow it to increase sales of fresh and processed products, in addition to channels such as the foodservice.
- Improvement of Operational Efficiencies and Reduction of Operating Costs
The Company is committed to maintaining its position as a low-cost producer of beef products and cattle byproducts. It implemented internal controls and high-tech software systems in all its industrial units in order to increase operational efficiency. It actively works to ensure that its employees are aware of its cost optimization strategy and offers additional remuneration based on productivity increase and higher capacity utilization rates. Minerva believes that its average slaughter utilization capacity is among the highest in the sector; it reached 77.5% in the fiscal year ended December 31, 2018. Maintaining its operational efficiencies is a priority in the Company’s business strategy.