Minerva SA

BOVESPA:BEEF3

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to Minerva's Fourth Quarter Earnings Release Conference Call. Joining us today are Mr. Fernando Galletti de Queiroz, CEO; and Mr. Edison Ticle, CFO and IRO.

This presentation is being recorded and simultaneous translation is available by clicking on the interpretation button. [Operator Instructions] The presentation is available for download at ri.minervvafoods.com in the Presentations tab. [Operator Instructions]

Please note that statements that may be made during this video conference call regarding Minerva's business prospects, operating and financial goals are based on projections made by the company's management, which may or may not materialize. Investors should appreciate that political, macroeconomic and operating factors may affect the company's future and lead to results that differ materially from those expressed in such forward-looking statements.

To begin the earnings release video conference for the fourth quarter '24, I turn it over to Mr. Fernando de Queiroz, CEO, for his presentation. Please go ahead, Mr. de Queiroz.

[Fernando De Queiroz, executive]

Good morning, everyone, and thank you for joining us on Minerva Foods' earnings conference call for the fourth quarter 2024 and for the year. Minerva has concluded 2024 delivering robust operating and financial results, thereby ratifying the consistency and discipline of our business strategy. Once again, the company has demonstrated the importance of geographic diversification as a key pillar of the operational and commercial execution of our business model, reducing risks and maximizing our arbitrage capacity, especially in a world where geopolitics has been playing a more and more important role.

In Q4 '24, our gross revenue totaled around BRL 11.4 billion with a record EBITDA of BRL 944 million and an EBITDA margin of 8.8%. On a consolidated basis for the year, gross revenue reached approximately BRL 36.3 billion with an EBITDA of BRL 3.1 billion, a record high for a period of 12 months. Free cash generation continues to be a priority for the company and was again a highlight, having reached BRL 990 million in the quarter and adding up to BRL 2.4 billion in the year.

Before we discuss the results, I'd like to talk about the integration of the new plants in Brazil, Argentina and Chile in the next couple of slides. Let's recap the time line of events. We first announced the acquisition on August 28, 2023. The approval by the Brazilian antitrust authority came through on September 25, '24, and we closed the deal on October 28th of the same year when we paid BRL 5.7 billion. And soon after the assets went into operation under our management at the beginning of November.

Therefore, the company now has 46 industrial facilities across 7 countries in South America, which add up to a daily slaughter capacity of approximately 42,000 head of cattle and 26,000 head of sheep. Our executive integration committee, which includes Minerva Foods' senior management, has led the start of operations at the new plants, and we are closely monitoring the governance of the integration to ensure that there is full alignment with Minerva Foods' culture, strategy and business plan.

Today marks the 144th day of the process, and we already have some achievements to show for it, such as we have standardized the headcount and system across all new facilities in line with the Minerva Foods' model. We have implemented some of our operating efficiency programs such as Atitude Campea, which seeks to maximize performance within the plants by quickly unlocking synergies. We have also made progress in the integration of the new plants, having added them to our operational and commercial routine management model, which contributed to accelerating the arbitrage capacity of our asset base.

Over the next 2 quarters, we will continue to drive the integration process, seeking to increase the number of synergy sources, bringing the operational and commercial model of the new assets increasingly closer to our standard and crucially aligning the company's strategy culture and management model in the new facilities. The initiative is essential to building a highly focused and committed team and to consolidating our corporate values.

Lastly, it's worth noting that the acquisition of the 3 sites in Uruguay is still undergoing the approval process by the regulatory agency. We have made a new request for the authorization to acquire the San Jose and Salto plants under condition that the Colonia plant is immediately sold. Over the next few quarters, we'll continue to update the market on how the integration is progressing as well as how the new assets are performing.

Let's now circle back to our performance in the fourth quarter '24 on Slide 4. Let's start with gross revenue, which added up to BRL 11.4 billion in Q4 '24 and BRL 36.3 billion in 2024, an all-time record high for both periods. Exports accounted for 53% of the consolidated gross revenue in the quarter and 58% in the year. They remain one of the company's main operational drivers and confirm our arbitrage capacity and vast access to the international market.

Now moving on to our operating earnings, EBITDA in the fourth quarter reached BRL 944 million with an EBITDA margin of 8.8%. In 2024, Minerva Foods' EBITDA was BRL 3.1 billion, a record high for a period of 12 months with a 9.2% margin. I'd like to highlight our free cash generation, which continues to be one of our management's main guidelines and reached a remarkable BRL 990 million in Q4 '24, adding up to approximately BRL 2.4 billion in the year, a result that reflects Minerva Foods' operational and financial excellence.

Finally, speaking of our capital structure, considering a pro forma performance of 10 months of the new assets, we concluded the quarter with a net leverage of 3.7x net debt over adjusted EBITDA. And our cash position continues to be robust at BRL 14.5 billion, which puts us in a comfortable position to face challenges over the next 2 years.

Now let's move on to Slide 5 and take a more detailed look at the operational highlights. In order to provide greater transparency into the operations of the new assets, we have disclosed the revenue and volume figures for Minerva's base assets and the acquired assets. Brazil continues to be the company's main operation with a consolidated revenue of BRL 5.4 billion with the new assets accounting for BRL 647 million.

In Argentina, consolidated gross revenue was BRL 1.7 billion with BRL 112 million coming in from the new plants. The other countries follow the normal course of operations as there have been no changes to the asset base. Consolidating all of our sources, we totaled BRL 11.4 billion in gross revenue, of which BRL 10.7 billion referred to Minerva Foods' historical assets. In other words, a record revenue even excluding the share of the new plants.

It's worth mentioning that the lamb operation in Chile is undergoing the integration program and therefore, had a restricted operation at the end of '24. Finally, it's worth remembering that although the new assets were effectively in operation for approximately 40 days in Q4 '24, we believe the results obtained are in line with our plans. It should be pointed out that the utilization rate of the assets was below our historical average of 70, 75, which is to be expected considering the operational ramp-up process.

Now I move on to the Slide 6 and look at other highlights from the fourth quarter. In the fourth quarter, we concluded our 15th debenture issue, totaling BRL 2 billion in 5 Series, thereby strengthening our cash position and improving our capital structure. Moreover, on the operational side, our Rolim de Moura facility recently opened for the U.S., totaling an approved slaughter capacity of 32,000 head a day for the North American market.

Here, I'd like to highlight how much our geographic diversification strategy, which places us in a unique position for market arbitrage allows us to capture opportunities that arise in a scenario where there is a mismatch between supply and demand in the global beef protein market more efficiently.

In terms of sustainability, we have obtained the ISO 14001 standard certificate and received the Gold Seal for the corporate inventory of greenhouse gas emissions. We've also made progress in the traceability of direct suppliers in Argentina and Uruguay, reaching the milestone of 100% direct supplier farms being monitored. It's worth remembering that 100% of direct supplier farms to our operations in Brazil, Paraguay and Colombia are already monitored and in compliance.

The Renove program has also moved forward through the carbon-neutral certification project. Our product access has been expanded to around 14 countries, and we continue to develop new projects that focus on generating carbon credits by encouraging the recovery of degraded pastures. MyCarbon, our subsidiary, has established strategic partnerships to boost sustainability in agribusiness by combining productivity and the generation of carbon credits in addition to submitting the BRA-3C project to Verra.

Furthermore, a partnership has been established with UNICEF to promote basic citizenship initiatives such as drinking water, sanitation, basic hygiene and encouraging early childhood education at local communities where Minerva operates. As part of prosperity for our people, Minerva's global operations have obtained a Great Place to Work certification and recognition.

Now let's turn to Slide 7, where we'll cover Minerva Foods' export performance in Q4. In the fourth quarter, we continue to lead beef exports from South America with approximately 20% market share in the continent, once again, reaffirming the efficiency of our geographic diversification strategy and reaffirming our expertise in the international market.

In the quadrant at the top of the slide, we see the gross revenue breakdown by destination for Q4 '24. The Americas region was the main gross revenue driver with a total of 41% share, Brazil being the highlight with 24% and Chile with 7%. Next, we have NAFTA with 19% of total gross revenue and the U.S. accounting for 17%. The third top region was Asia, which accounted for 19% of the gross revenue, China being the main destination with 12% share.

It's worth mentioning that a large part of our sales go through our distribution channel in the U.S., which helps us penetrate the local market and increases our commercial reach, thereby assuring great competitive advantage in our North American operation. The U.S., while facing one of its worst ever cattle cycles, continues to have resilient demand, which has an impact on the whole global beef chain.

China is also beginning to experience restrictions on its domestic production, which, as a consequence, rekindles global demand for beef imports and should put even more pressure on the global supply and demand scenario. I would also add that Europe is also restricting its supply and has become a destination even with the protection systems in place in that market.

In the charts below on the left, we can see our beef operation exports in the Q4 '24, NAFTA being the most relevant region for export revenue with 36% share, of which the U.S. accounts for 33%, overtaking Asia, which accounted for 28% of the export share and China, 20%. Then we have the Americas with 14%, Middle East with 7%, Europe accounting for 7% and the commonwealth of independent states with 5%. Last, we have Africa with 3% of the exports.

As I mentioned previously, the NAFTA and Asian regions continue to have a relevant performance, adding up to 64% of Minerva Foods' beef export revenue. In 2024, Asia has remained the main export destination with 28%, China being the main country with 21%, followed by the NAFTA region with 25%, where the USA is the main destination country with 23% share, the Americas with 14%, Middle East with 12%, Eastern European countries with 10%, Europe with 8% and Africa with 3% share.

In the 2 charts on the right, we have our lamb operation export in Australia. This quarter, NAFTA has remained the main destination with 38% share, the U.S. being the largest market with 34%, followed by Asia with 21%, the Middle East with 17% and Europe with 14%. This year, NAFTA continues to be the main region with 40%, followed by Asia with 22%, the Middle East with 18% and Europe with 11%.

Before turning the floor over to Edison, I would like to once again reiterate our optimism for 2025 and the opportunities in the global animal protein market. The mismatch between supply and demand continues to create a favorable scenario for South American beef exporters. As I mentioned earlier, this mismatch is mainly influenced by the cattle cycle in the U.S., which continues to show reduced supply, while domestic demand in the country remains strong, contributing to higher prices and encouraging imports.

China, one of the largest global consumers of beef, continues to show very resilient demand and is also going through a period of uncertainty and restrictions on its domestic supply of beef due to the turnaround in the cattle cycle in the country, which is one more factor putting pressure on the international market. As I mentioned earlier, Europe is doing the same thing. So beef is being produced less and less in the Northern Hemisphere.

In this context, Minerva has a distinctive footprint and the support provided by its international offices, is uniquely positioned to capture opportunities in the global beef market, a movement that is already shaping up with the various accreditations granted to producers on our continent over the last few years.

Finally, I'd like to say that I'm excited about the new prospects on the horizon with the integration of the new assets. The acquisition of the 13 new plants in addition to expanding our operational footprint, which now includes 46 industrial facilities across 7 countries, enhances Minerva Foods' competitive advantages and allows the company to further maximize the benefits of its geographic and capacity diversification strategy and its ability to arbitrage the global beef protein market.

We remain confident about 2025, and we'll continue to capitalize on opportunities in the global beef market, always focusing on risk management and seeking an increasingly efficient, profitable and less volatile performance.

Now I'll turn it over to Edison, who will talk about our financial and operating performance.

[Edison de Andrade Melo e Souza Filho, executive]

Thank you, Fernando. Let's turn to Slide 8 and start with Minerva's operational and financial performance, both for the quarter and the year. The international market accounted for 60% of our gross revenue in the quarter, 62% in the year, excluding the others division. Breaking it down by region, exports in the Brazilian operations reached 48% in the quarter and 53% in '24. In our LatAm operations ex-Brazil, exports accounted for 71% of gross revenue in the quarter and 70% in the year. The lamb operation in Australia was no different. Exports reached 77% of gross revenue at the end of Q4 and 78% for the last 12 months.

On the right-hand side of the slide, we have the breakdown of revenue by origin. Brazil continues to stand out, representing 47% of gross revenue in the quarter and 48% in the year, followed by Argentina as the second main origin, both in the quarter 15% of exports revenue and 13% in '24. Paraguay contributed 13% in the quarter and 14% in the year, and Uruguay, 10% in the quarter and the year. Australia accounted for 5% of our revenue in the quarter and 6% in the year. Colombia, 4% in our revenue breakdown. And the others line item, which refers to the former trading division, contributed 6% of our revenue in the quarter and 5% in the last 12 months.

Moving on to the next slide, we're going to talk about net revenue and EBITDA. Starting with net revenue, which reached BRL 10.7 billion in Q4 '24, once again, a record revenue for the quarter, up 74% on year-on-year and 26% quarter-on-quarter. I want to highlight that even without the contribution of the new assets, the net revenue for the quarter was a record at BRL 10 billion. In the year, Minerva Foods' net revenue totaled BRL 34.1 billion, also a record for the annual period.

Now speaking of our profitability, EBITDA in Q4 '24 was another record, BRL 944 million, the highest-ever recorded in the quarter and representing a 56% increase year-on-year and 16% compared to the previous quarter, totaling a margin of 8.8%. Obviously, we have the impact of expenses with the new start-up of the new plants, which are still far from operating at optimal levels. The capacity is close to 50%, which has a negative impact on our profitability.

In '24, EBITDA added up to BRL 3.1 billion with an EBITDA margin of 9.2%. For yet another year, we were able to verify the consistency and stability of our operating margin, ratifying the benefits of our geographic diversification strategy, which maximizes our ability to arbitrate the market and contributes to maintaining good operational and financial execution.

I would like to highlight that although the new assets have effectively been in operation for approximately 40 days, there were a lot of bank holidays, especially in Brazil, we do believe that the results achieved are in line with our plans. In addition to reduced samples, the assets, as I said, operated with an average utilization rate of 45% to 50%, which is considerably less than our historical average of 70% to 75%, which is natural given the operational ramp-up process. Even so, these assets have had very positive performance. Out of the BRL 944 million EBITDA, they contributed with BRL 40 million to BRL 45 million even considering such a short period of time in operation, some of the plants have not gone into operation and those that have operated at close to 50% capacity.

And they had an initial very high cost of the beginning of the operation, the beginning of the integration, the beginning of the ramp-up and also the beginning of Minerva's management of those new plants. So I would say these results are excellent, in line with what's expected and in terms of profitability, even better than what could be expected for such a short period of operation.

As you know, our business model, which focuses on arbitrage and maximizing results makes it difficult to assess each asset's profitability separately. Even so, we have tried to measure these plants' separate profitability. So as I said, the performance was around 400 basis points below Minerva's consolidated level. But it's good news because we believe that in 2 to 3 quarters, all of these assets will be operating at excellent profitability levels as Minerva's historical plants.

Looking at the first quarter in '25, we can already see that happening. Speed and efficiency in the operation of these assets will continue to increase. We are increasing utilization and capacity levels. We are opening the new plants that had not started operations under our management yet. We still had some relevant assets that did not go into operation in Q4. So they'll go into operation in Q1. So we'll increase capacity use, the utilization of new assets, which will improve the learning curve, enhance volume curves, revenue curves and the profitability of these new assets.

Moving on to Slide 10, we'll discuss our financial leverage. Well, our leverage ratio as measured by the net debt over adjusted EBITDA indicated for the last 12 months came in at 3.7x. That EBITDA was adjusted by the 10 months pro forma of the new assets, which was estimated at approximately BRL 1.1 billion. The increased leverage reflects the payment of approximately BRL 7.2 billion for the acquisition. So if we add up everything that has been paid in, that's approximately BRL 7.2 billion, of which about BRL 5 billion was paid in advance and the rest was paid in October, of which 9 million are working capital adjustments that will be readjusted again according to our contract terms. So there should be some of it coming back over the next 60 to 90 days.

We've paid the CDI correction on the price of assets of BRL 264 million and the difference, which is about BRL 5.3 billion was the price originally agreed to pay for the assets in the acquisition. As we have been sharing with you since we announced the acquisition, this is to be expected. We expected increased leverage as an initial effect of the consolidation process. As soon as we're able to move forward with the operation of the new assets, driving volumes, revenue, capturing synergies and naturally maximizing cash generation to reduce our debt and our leverage, we will continue to pursue and to deliver leverage decrease and also decreasing indebtedness this year and next year.

Let's now turn to the next slide to discuss the net profit and operating cash flow. Our net profit in the quarter was negative BRL 1.6 billion, both in the quarter and the year. If we adjust the quarter's net results for the noncash FX variation of BRL 1.8 billion and calculate the recurring net result for Q4, then that would be BRL 229 million.

Moving on to the right side of the slide, we can see the operating cash flow in the quarter, which was very strong, positive at BRL 2.5 billion, benefiting from the working capital efficiency, which has to do with our supplier lines and the other accounts payable line item, especially from the advance from customers. So we prepared the company to integrate Marfrig's former assets in the suppliers line. We increased the use of our financial instruments to improve those accounts line items.

And in terms of customer advances, we've prepared the commercial department to operate in growing markets or which are added to our portfolio such as Mexico, Egypt, Algeria, China, so all of that has been helping us manage our working capital.

Our operating cash flow totaled approximately BRL 6.6 billion, very strong results. So I'd like to take this opportunity to highlight our excellent operational, commercial and financial execution, which has consistently delivered positive operating cash generation even in last year's challenging scenario.

Let's move on to Slide 12 to talk about our main priority, which is free cash generation. Building up the cash flow this quarter, we started with an EBITDA of BRL 944 million, and the working capital line freed up BRL 692 million in the quarter, as I explained in the previous slide. CapEx was approximately BRL 220 million, focusing mainly on investments in maintenance and organic expansion of our operations. BRL 60 million was organic expansion, increasing our capacity to products in Colombia and Argentina.

And then we have the cash basis financial results, which was negative BRL 739 million in the quarter and then the positive results of cash derivatives, which was BRL 314 million. Thus, we have reached cash generation of approximately BRL 1 billion in Q4, again, a new quarterly record.

Now looking at the year's results, free cash flow was positive BRL 2.4 billion, building up. Again, we started with an EBITDA of BRL 3.1 billion. CapEx was BRL 748 million, also mainly due to maintenance. Then working capital freed up quite a lot this year, BRL 934 million, especially due to the suppliers line item and other accounts payable, as I explained in the previous slide. And then moving on to the cash basis financial results, which was negative by around BRL 888 million.

Adding up all the variables, free cash flow was BRL 2.4 billion, resulting in an annualized free cash flow yield of around 85%. We're generating a lot of cash and the company's cap is too low. Again, I'd like to highlight the remarkable cash generation delivered by the company this year, '24, which is the result of our focus, discipline and consistency in executing our strategy. As I have reiterated, this company's management has a tireless commitment to operational excellence and free cash generation, which allows us to continue to pursue more deleveraging our balance sheet in '25 and '26, and a more efficient and less onerous capital structure.

Now on Slide 13, we'll discuss the bridge of our net debt. At the end of the previous quarter, net debt added up to BRL 7.4 billion. For the debt bridge, we first have the impact of the acquisition of the new assets, adding up to BRL 7.2 billion, then the benefit of free cash generation of close to BRL 1 billion, the effect of FX variation with a negative impact of BRL 2.2 billion on indebtedness and the impact of roughly BRL 133 million related to noncash derivatives. Adding up the variables and building up the bridge, we arrive at a net debt of BRL 15.6 billion at the end of the period.

Looking at what happened in 12 months, we started on the 1st of January '24 with BRL 7.4 billion net debt, added the BRL 7.2 billion from the payment of new assets and also the positive impact of BRL 2.4 billion free cash generation in the year. Then we have the FX variation impact, mainly noncash of BRL 3.6 billion a year and noncash derivatives of BRL 110 million, adding up to BRL 15.6 billion in net debt in 2024.

Now on the next slide, we're going to talk about the company's capital structure. As I mentioned previously, net leverage measured by the net debt over adjusted EBITDA ended the quarter at 3.7x. It is worth remembering the EBITDA was adjusted by the pro forma 10 months of the new assets. We're still in a very comfortable position with a very conservative cash position. Even paying for the assets from Marfrig, we still have close to BRL 15 billion in cash and a duration of approximately 4.4 years with approximately 83% long-term debt, as you can see in the amortization flow at the bottom of the slide.

As for our debt profile, roughly 76% of the debt is exposed to FX variations, but we do have a hedging policy, which we follow to the letter, and it currently establishes that the company hedges a minimum of 50% of long-term FX exposure. I'd like to highlight that even in a quarter with strong FX variations, our hedging policy was essential in protecting our balance sheet, delivering a positive result of BRL 930 million in Q4.

The derivatives line is worth highlighting the hedging and negative results related to mark-to-market of our future export hedging positions going on the opposite direction to the protection of our balance sheet. So we were sold in dollars, and we locked future margins of the operation at an exchange rate that was very compelling for our positions sold in dollar and mark-to-market of our inflation swaps, which we used to protect our long-term debt in reais, swapping the index, so we're not passive to long-term inflation in Brazil, but to be passive in CDI. As you know, the inflation curve widens up to 300 basis points depending on the time in the fourth Q, we had to do the mark-to-market, which led to a noncash loss in the results of Q4.

Add all of that up, it had an impact of our FX hedge, which was BRL 360 million due to these 2 line items, which go into this calculation. Again, I'd like to underscore the accuracy and efficiency of our hedging policy, which even in a quarter of extremely high FX volatility has managed to be effective in efficiency and protecting our balance sheet. I'd like to reiterate once again that we continue to actively pursue an increasingly balanced capital structure with lower risk profile.

As Fernando said at the beginning of the conference call, over the next few quarters, we'll continue to move forward with the integration of the new assets, fast tracking them and capturing operating and commercial synergies, always focusing on maintaining consistent results and long-lasting results for the company.

Like Fernando, I also want to thank the entire Minerva Foods' team for their dedication and effort throughout this very hard and long integration process. Everybody has kept their focus and continue to be in line with our values and especially our management model. We'll continue to focus on working hard on the integration of the new assets, but remain very confident in our business plan.

Now I'll turn the floor back over to the operator so we can start the Q&A session. Thank you very much.

[Operator]

[Operator Instructions] The first question is from Thiago Duarte from BTG Pactual.

[Thiago Duarte, analyst]

My questions are about the integration process of the new assets. The first one is about the EBITDA. Thank you, [indiscernible], for clarifying the contribution of the results of the new assets in the last quarter. It's curious to see this 1.1 pro forma EBITDA, which you used to calculate the leverage on a normalized basis. Obviously, it makes sense. But if you could explain where the BRL 1.1 billion came from that you've used. It's not the annualization of the quarter's results, as Edison said in the presentation. So I'd like to understand if that is a number we can consider as something you believe to be feasible and credible in the midterm. So considering 25 for these new assets. So that's my first question.

The second question is about the ramp-up speed, looking at the slaughter volumes in the quarter where assets were far from running at full capacity, I would say that's quite high. So where are we right now? We're at the end of March. Has the ramp-up curve remained stable in the last 3 months, considering the first Q's utilization of these new assets? And my last question is how much have these new assets coming into the company's portfolio helped to explain the drop in the share of exports or the increase of export share in the market this quarter? Because that stands out, especially considering what Edison said. There was an increase in China, new markets, the U.S. with a higher share, but it did affect the domestic market share. So how much do the new assets affect the change in the sales mix?

[Edison de Andrade Melo e Souza Filho, executive]

I'll take the first couple of questions, and Fernando can answer the third one. In terms of the BRL 1.1 billion of pro forma EBITDA, we have Minerva's plants close to the assets that we have acquired. So the calculation is very similar to the EBITDA profitability per head for each of these plants. We also have a ramp-up assumption of capacity utilization, which results in BRL 1.1 billion. So these new assets to give a range, if they operate at full capacity, depending on the region, if we add them all up together, we're talking about BRL 100 million to BRL 150 million a month EBITDA of these assets. So if we do a conservative calculation for 10 months, that gives us BRL 1.1 billion. So it's a very realistic number. It's actually quite conservative.

Second question, the ramp-up has continued. These assets are operating close to 70%, between 65% and 70%. When we took over, we weren't able to start operating a couple of plants. One of them went into operation at the end of last year. But there's still one plant which is down because it wasn't in operating conditions. It wasn't up to par with Minerva's operating conditions. So we had to do some CapEx that will take a while. It has taken some time, and it will take a while before it goes into operation. It's a plant in Mato Grosso. So that has delayed the ramp-up somewhat.

But other than that, the new assets are performing according to what was expected, according to our plan. If you remember, our integration plan was ready practically 6 months after the acquisition. So practically February and March last year, the plant was ready, not only for the operations, but also on the financial side. So there's the working capital highlight. As soon as we took over the plant, we were able to impose considerable efficiency on most of them.

Fernando will take the third question.

[Fernando De Queiroz, executive]

As for the domestic and international market mix, yes, it has to do with the plant integration. Brazil and other countries have bureaucratic processes so that the exports can be changed over. So that restricts our operating plan in terms of which markets to access. China, for instance, we only got China's approval in March for -- well, it's not really an approval.

The approval was transferred to us in 4 plants only in March. So that slows down our allocation of the operating metrics. And there's also the usual seasonality at the end of the year, there's more demand in the domestic cycle. It's usually better. So with further approvals, we should be increasing exports, and we should also see some improvement in our profitability.

[Operator]

The next question is from Lucas Mussi from Morgan Stanley.

[Lucas Mussi, analyst]

I have a couple. The first one is to Edison about how we can think about cash generation in 2025. If you could give us some color on what we can expect in terms of total CapEx, including the new assets, working capital, net interest expenses, so we can understand how we can think of cash generation this year, especially considering the fact that these assets are now running close to 70% utilization rate.

Second question is not really about the integration of the new assets. In other countries, ex-Brazil, if you could give us some color on profitability. I know that we usually look at consolidated results across Minerva operations because of your arbitrage. But if you could talk about the cattle cycle in Paraguay, Argentina, Colombia, where profitability might look more compelling for you right now and over 2025.

[Edison de Andrade Melo e Souza Filho, executive]

Well, first of all, let me just say we don't have an official guidance. We don't disclose an official guidance. So we're still looking into things before we disclose that, but we've decided not to disclose the guidance. In any case, let me try and share some of what we're seeing based on the numbers from Q4 '24 and Q1 '25.

Looking at revenue, if we look at Q4 numbers and considering what's happening with the ramp-up of new assets now in the first quarter, we're talking about a quarterly revenue based on what we've seen in January and February of BRL 12 billion to BRL 14 billion. So above Q4 because of the ramp-up of the operations. So we're talking about BRL 50 billion, BRL 56 billion, BRL 58 billion. Margins are closer to margins in Q4. I think the range would be slightly longer, I'd say, between 8% and 9% for the year. This is based on what we saw in Q4.

Now calculating the EBITDA, we're talking about a range of BRL 4 billion to BRL 5 billion. I've already talked about CapEx. Maintenance CapEx for these plants is very similar to Minerva's usual old CapEx. There may be some additional CapEx because of the delays I mentioned of the plants we've received, especially this plant that is still down. So that might up close to BRL 200 million. So we're talking about BRL 500 million, BRL 600 million. That's the usual Minerva CapEx. We're talking about twice that amount for 2025.

Working capital, we've been very efficient. Even though the new plants might require an additional BRL 400 million to BRL 500 million to ramp up, I really believe our working capital efficiency. So we might bring that down to 0 or BRL 200 million and BRL 250 million tops for the year. And now with the higher debt levels, we're talking about BRL 2 billion. So if we do the math, this company's ability to generate over BRL 1 billion -- between BRL 1 billion and BRL 2 billion free cash, considering CNTP, that will obviously be used to reduce our debt.

One of the instruments we've been using is to buy back. We've bought close to USD 70 billion with a 13% discount, which reduces our net debt because you're canceling on face value and you're only spending 86% to 87% of the value that was canceled. So those are our prospects. That's our budget in general terms with a degree of uncertainty for 2025.

[Fernando De Queiroz, executive]

Lucas, as for the cycle for the different countries, in addition to the cattle cycle, we have FX. Going back to Thiago's previous question, the Brazilian domestic market has been a destination for Paraguay, Argentina and Uruguay. South America is becoming the main supply platform in the world increasingly, especially considering the tariff war that is going on in the world. So South America is very well positioned even though countries have different treatments.

Let me give you an example of how important that is. As I said, in Q4, Brazil was a destination for neighboring countries in South America. And because of the appreciation, Argentina with the FX appreciation has now become an export destination for us. So in addition to all other export destinations, we export from Paraguay, from Brazil to Argentina. So Minerva's unique platform allows us to have very efficient arbitrage, and it offsets cycles and create opportunities because of the arbitrage that is possible among these different countries.

[Operator]

The next question is from Gustavo Troyano from Itau BBA.

[Gustavo Troyano, analyst]

If we could go back to how much working capital you expect to use in the new plants, you talked about BRL 400 million to BRL 500 million for the acquired plants. Can we compare that to the expectations from the last few calls, which was BRL 700 million to BRL 800 million? Is that delta what's been used up? Can we have the same expectation and part of that has already been used up considering the slaughter capacity for Q4, as you said? And the second question is still on working capital.

In the last earnings release call, we talked about 0 consumption or BRL 200 million for the year, and it was about BRL 900 million. So where did that efficiency come from? Could you talk about how you've been working on that? And my last question is about the consumer scenario in Brazil. You've talked about a reduced export mix. I'd like to hear about the profitability dynamics in Brazil. And if you'll be able to pass on prices in the domestic market, is demand going up? Will it continue to be favorable as we saw it at the end of 2024?

[Edison de Andrade Melo e Souza Filho, executive]

Well, the initial expectation for working capital was BRL 700 million for new plants, including Uruguay. If we remove Uruguay, that might go down to BRL 600 million. As I said, since March last year, we have been getting the company ready to improve efficiency, not only in working capital at our old plants, but also to have the least impact possible on consumption when we took over the new plants. We ended the year with the utilization capacity of 50% of these new plants with the exception of one, which didn't go into operation. But on average, it is 50%. So a considerable part of working capital was invested in the opening of these new plants last year.

What we're missing in terms of a more efficient metric than we were expecting gives us the projection that we shared with you, using up BRL 200 million to BRL 250 million over the year. The main reasons for that was the mix. As Fernando mentioned, looking at the domestic market, there was an increase in share. There's a shorter cash cycle. We also had the line item from the customer advances, which has to do with the market mix, the fact that we are increasing volumes in some markets, even considering China's share decreasing in volume, it's increasing because we're increasing production, or we have the prospects to increase production over the year once the approvals are transferred. So we have Argentina, Algeria, Egypt, Mexico. There are some other markets in the Middle East, which we consider to be riskier, but we see a prepayment from clients, which will help our working capital.

And the third line item I'd like to highlight is the suppliers' line item. We have an agreement with some financial partners where our cattle producers can get paid in advance and their spread means we get a rebate from the bank, which goes into our finance accounts. And the effect of that is that we have access to more cattle with a longer payment term, and we can pay in advance or in a shorter period to our supplier. So the financial instruments plus the credit policy of advanced payments plus the mix were the reasons behind this very efficient working capital last year.

[Fernando De Queiroz, executive]

In terms of passing on prices to the domestic market, Gustavo, well, it depends on the category. So if you look at a less elastic segment, so premium cuts, for instance, they have been going up and more on a par with international markets. The intermediate category in Brazil is suffering in terms of passing on prices. So there's a trade-down in demand for cheaper products. So in practice, medium cuts to cheaper prices have seen a smaller spread. So it's quite segmented what happens in the domestic market. It continues to be an important market and will be even more important to us. But in terms of a comparison between the Q4 and Q1 '25, we will see more exports in our sales mix.

[Operator]

The next question is from Mr. Pedro Fonseca from XP.

[Pedro Fonseca, analyst]

I have a question about the international market. You've already mentioned that you're optimistic about China. So what are you expecting in terms of volume and prices? We're hearing about a pickup in demand and as a consequence, price. Have you heard anything about that? And do you have any expectations for the Japanese market? A lot has been said about that. Do you think that market might become an important market right off the bat? Or should we expect a volume ramp-up over time?

[Fernando De Queiroz, executive]

Pedro, we are highly optimistic when it comes to South America and Brazil's position in the international market as the most competitive supplier. What we look at is the current cycle of countries in the Northern Hemisphere. The U.S. is still slaughtering cows. They are reducing their herds structurally because it's not just about the normal slaughter and recovery cycles. They are slaughtering cows, young cows. So if you're slaughtering young cows, you are compromising the next production generations. The same thing is happening in Europe. And this year, we've started to see the same happen in China. So the market will definitely see an increase in North-South trade, which is the main difference. What draws our attention is that even with an increase in countries such as the U.S., an increase in prices, we see considerable demand resilience. So going back to China coming back to the market and more countries, especially in the Northern Hemisphere also. Japan is one of the main import markets. A mission, we'll be leaving next week, and we'll have representatives from the Brazilian government and the private sector going to Japan. And the key in Japan will be Brazil's tariff system. We have been working with the government. We have been raising awareness about the importance of the sanitation agreement and the tariff agreement. So we can have a system that will give us access. But there is no question that there's a lot of growing demand in Japan.

[Operator]

The next question is from Mr. Guilherme Palhares from Santander.

[Guilherme Palhares, analyst]

I have a couple of quick questions. Before Minerva, we saw other companies that operate in Argentina disclose their results. So I'd like to hear from you about whether there has been any effect? IFRS, hyperinflation, have they had an effect? Do you expect an effect? And the second question is about how you see the availability in Brazil. Your data has shown female slaughter. So I'd like to hear your perception on that.

[Fernando De Queiroz, executive]

Well, there's nothing relevant to say about Argentina in accounting terms. No highlights this quarter, nothing that has affected or distorted our numbers like we saw in Q4 last year where we had negative revenue. So this time around, everything is business as usual. About the cattle cycle, well, Guilherme, the cycle in Brazil is normal. Our estimate is that this year, availability will be slightly less than last year. But let's not forget that last year, we had all-time high records. So we'll continue to have considerable levels. And that is the result of the hard work we've put into modernizing cattle production, higher weight, younger cattle weighing more, which shows that we have a very positive dynamic in Brazil. And cattle in Brazil has become a great diversification option. If you look at what's happening in ethanol from corn, DDG available will be very important in terms of feed complement when it comes to cost. So we're very optimistic about the producers' capacities. We are supporting a lot of different initiatives. There's a lot of technology to be developed in cattle raising, and we export that technology to other countries. South America is definitely becoming the main beef export source to the rest of the world.

[Edison de Andrade Melo e Souza Filho, executive]

Let me mention a couple of points. In terms of cattle availability, as Fernando said, the cattle cycle is normal. So we should see a reduction in the number of animals for slaughter compared to last year. But if you compare to 2023, this year's number will be higher than what we saw in 2023. Another interesting point is that the improved productivity that Fernando mentioned has a lot to do with the increase in fertility rate, which has gone up to 50% in the last 10 years. And that's very powerful when it comes to animals that are ready for slaughter. They are younger and heavier. And the third point, speaking about this year more specifically, looking at the second half and you consider feedlots, considering the price of the arroba of lean cattle and the price of grains in the diet, feedlots profitability has been very compelling. So we could have a pleasant surprise when it comes to the number of animals that are ready for slaughter, especially in the second feedlot round as of September, October, closer to the end of the year, which is a scenario we didn't have visibility of last year. And this year that we're monitoring grain prices and the arroba price of lean cattle, we're more optimistic, especially when it comes to the distribution of these animals over the year.

[Guilherme Palhares, analyst]

Let me just ask a second question. Fernando, you just talked about ethanol from corn. Could you talk about your opinion about whether that will be transformational for the industry in Brazil or not? South America as a whole has extensive production, and it looks like there will be some changes. We'll have some centers in Brazil because of corn -- ethanol from corn. Could you give us some color not only about 2025, but the next 5 years on how this industry is growing?

[Fernando De Queiroz, executive]

Well, Brazil has been a leader in using byproducts from other agro industries to feed cattle from orange pellets, cotton, by sugarcane, by gas. And ethanol from corn is one more input that producers can use, and it's a very efficient input, which is DDG. So that will help diversification because producers will have a wider diversification mix in the crops and in their properties. So it's -- DDG will be very positive, especially for beef.

[Guilherme Palhares, analyst]

And will that have an organizational impact for you, considering maybe capturing some of that feedlot opportunity?

[Fernando De Queiroz, executive]

Yes. Our plants are very well positioned. We're in areas where ethanol from corn is growing, and we do have partnerships with these producers. But we will not be investing in feedlot, no, but we have partnerships with them. The ROIC on feedlot, we're very capital intensive, and it's very different to calculating the profitability for those who own the land. So in terms of return on invested capital for us, it doesn't make sense. But if you own the land, then it makes sense in terms of profitability for them.

[Operator]

I will now turn it over to Mr. Ticle to read the questions in English.

[Edison de Andrade Melo e Souza Filho, executive]

First question is from Luis. If we imagine free trade between the U.S. and Argentina, what would be the impact for Minerva given the U.S. has become the main export destination?

Well, on the one hand, it would be very positive if we could sell Argentina's products without paying for the tariffs. In Brazil, we pay 23% tariff to go into the U.S. outside the quotas.

In terms of the price to be paid for acquisitions in Uruguay, would it have the same CDI addition?

Well, there was a new proposal made in Uruguay, and we'll only be disclosing the terms of that request when it has been 100% approved by the regulatory agency there.

Will the company maintain the same projections made when Marfrig's plants were acquired?

Well, we talked about the pro forma performance. So I think that's clear.

[indiscernible] questions. Can you talk about how you are contemplating tariff risk in the U.S., both in terms of the direct potential impact and in the event that the U.S. actions trigger volatility in trade flows to other regions and also in terms of volume considering Asia. What protections and/or opportunities may exist in such scenarios?

Well, Fernando talked about the trade wars. And to us, that's an opportunity. Generally speaking, countries that have trade relations with the U.S. and China should benefit from the trade war because there will be opportunities in both countries. Let's not forget that we already paid 26% in tariffs, which is very high. Now there's news that potentially Australians will also have to pay that tax. So Australian beef competes directly with Brazilian and South American beef without paying tariffs. So if Australians have to pay the same tariff, that will be a game changer for us in terms of our trade relations to export beef to the U.S.

Second question is, what was the EBITDA impact of the new assets in Q4?

I talked about that during my explanation. The contribution was BRL 40 million to BRL 50 million in the quarter, assuming a capacity use close to 50% and considering one of the plants has still not gone into operation.

When will Minerva go back to paying dividends or interest on capital?

Well, we're focusing on protecting our balance sheet. We took a very strategic step, and it changes that for our company. Dividends or interest on capital will be paid, as soon as the law says we have to, 5%, and we'll only increase that when our leverage level is below or close to levels pre-acquisition, which is close to 2.5x net debt over EBITDA.

Next question about tariffs again and the trade war. I think I've answered those.

And a question about the BRL 1.5 billion loss and net revenue of BRL 34 billion.

It's easy. Just read the balance sheet. There was a noncash expense of over BRL 3 billion worth of noncash FX variation due to the FX volatility in '24 in Brazil. Our hedging policy protected our exposure considerably, but even so, we still had to incur a noncash loss at the end of the year, more specifically in the last quarter.

Will there be an adjustment in the purchase value of the Marfrig plants?

As I said, we have a working capital clause in those assets, especially in Argentina and Uruguay and Chile. That adjustment made us have to pay BRL 90 million more. We were buying what was in those plants. We have 60 days to audit and agree with that figure. We will notify the other side if there's anything more to be paid or paid back to us. So over the next 60 days, there will be some readjustments. It won't be anything relevant, obviously, less than BRL 90 million in the adjustments that we saw when the purchase was settled.

That's it. Thank you. I'll turn it back over to Fernando for his closing remarks.

[Fernando De Queiroz, executive]

Thanks, everyone, for joining us on this conference call. In Minerva's new phase, it's very important to be transparent. And for you, analysts, those of you who keep up with the company, ask all your questions, clarify any doubts, take away any noise from communication, every day that goes by, we'll have more information about our strengths in this new Minerva.

And it's worthwhile mentioning the global context. I talked about it. Edison talked about it during the presentations. We are very much in the right place at the right time. And South America is occupying this very important space in one of the last commodities to become global. Beef and meat has always been a very local commodity. The international market has always been a secondary market, and it has become and will continue to be a very relevant market.

To conclude, I would like to say a heartfelt thanks to Minerva's team taking part in the integration process, the team that is running the plants. And to this new team that is now in the Minerva team, I want to say to you, you are doing a fantastic job. You're making all the difference, both in terms of time and in terms of implementing our culture in these new assets that are now part of our group. We'll continue to work hard on the integration, but I really want to highlight the team and to thank them profusely.

We're here if you have any questions, if you need to clarify anything. Thank you for joining us on this conference call on 2024 results, and we'll have more positive surprises for 2025. Thank you.

[Operator]

Thank you. Minerva's earnings release video conference call is now concluded. For further questions, please contact the Investor Relations team at [email protected]. Thank you for joining us, and have a great day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]