Minerva Foods and Athena Foods had a total of seven facilities certified to export to China for 2019. Three of them in Brazil, three in Uruguay and one in Argentina, with a combined slaughter capacity of 9,940 head/day. At the Brazil Division of Minerva Foods, Asia accounted for 39% of shipments in the same period, an increase of 12 percentage points over 2018. For the year, led by China, Asia accounted for 46 percent of Athena Foods’ external sales revenue, a 10 percentage point advance in the annual comparisons.

Other Markets
The opportunity of broadening the range of qualified markets provided by geographical diversification also places Minerva Foods in a unique position in South America. In 2019, the Company benefited from access to the United States market via Argentina and the authorization of imports to Japan from beef produced in Uruguay, a country that, like Paraguay and Colombia, was also authorized to export to Saudi Arabia.

In Brazil, the turning point was the opening of the Indonesian market, which is one of the largest markets for halal cuts in the world – something the country had been trying to achieve for the past three years. In all, ten plants in Brazil were qualified by October of which half are owned by Minerva.

In addition, South American producers have been filling the vacuum left by Australia, whose production has been tremendously affected by climate-related problems.

These developments signal the strengthening of South America as a major beef supplier to the world and further enhance Minerva’s unique geographical diversification and operational footprint.

Experience
Geographical diversification also involves the strategic positioning of 15 offices around the world acting more than just as business representatives. The teams of each office are composed of local professionals, aligned with the business strategy of the headquarters. As a result, the Company is able to draw up a specific and solid plan for each country where its brand is present.

The purpose for preventing, mitigating and managing impacts and risks is also to promote operational efficiency, the safety and health of employees, compliance with environmental controls and to maintain the quality of the products so that they are manufactured in accordance to sound sanitary conditions in compliance with international standards and in accordance with animal welfare practices.

In addition, the location of the industrial units in all the important cattle-producing regions of Brazil, Argentina, Colombia, Paraguay, and Uruguay reduces exposure to risks such as health outbreaks and climate change, which may jeopardize production that is dependent on resources such as water, electricity and animal feed.

The risks associated with climate change are mitigated through monitoring according to socio-environmental criteria (traceability) that aim, among other aspects, to combat deforestation.

Consolidations in recent years have resulted in customers of considerable size, sophisticated, and with a greater purchasing power, therefore more able to operate with reduced inventories, opposing price increases and demanding lower prices, as well as more promotional programs and specifically customized products. Likewise, they may use the space set aside for the Company’s product display to present their own label products, which may adversely affect the financial results. To mitigate these risks, the Company maintains a diversified client portfolio, and its exports are distributed in approximately 100 countries, in addition to having sales offices located in 15 regions around the world.

Concern about the possibility of occurrence and spread of diseases affecting cattle may mean restrictions or suspension from the market. Therefore, the Company frequently monitors the sanitary conditions of the countries where it has production units. All cattle for slaughtering acquired in Brazil are inspected by veterinarians of the Federal Inspection Service (SIF) and the Ministry of Agriculture Livestock and Supply (MAPA), which authorizes the production and processing of beef. In Paraguay, the Servicio Nacional de Calidad y Salud Animal (SENACSA) is responsible for controlling F&M disease through a system of scheduling and on-site verification of herd vaccinations by its accredited technicians. In Uruguay, supervised by the Ministry of Livestock, Agriculture and Fisheries (MGAP), the country has been declared free of foot-and-mouth disease through vaccination. In Colombia, where an outbreak of F&M disease was identified in late 2018, the Ministry of Agriculture and Rural Development (MADR) has been responsible for its control. In Argentina, which is supervised by the Ministry of Livestock, Agriculture and Fisheries, the Patagonian region has achieved FMD-free status without vaccination and the rest of the country is free through vaccination. Another disease that can affect cattle is Bovine Spongiform Encephalopathy (BSE). However, a resolution by the World Organization for Animal Health (OIE) recognizes Brazil, Argentina, Colombia, Paraguay, and Uruguay, areas where the Company has operations, as countries of negligible risk for the disease.

In addition, it has adopted social and environmental responsibility criteria for the operations located in Brazil and Paraguay in relation to the registration of cattle suppliers in compliance with labor legislation. Investments in the modernization of its units are continuously being made in order to adapt them to the legal requirements and the eventual requirements of the Public Ministry of Labour.

Throughout 2019, there was an effort made to strengthen the relationship with local communities and several projects were carried out to foster stronger proximity. Particularly noteworthy is the annual Open House event, which welcomes neighboring communities to visit the facilities, their processes and environmental controls, products, and services. Another example is the Rural Communities Assistance Project (PASCOR) in Pará, which aims to train and qualify the local workforce in order to introduce them into the labor market.

This interest by the market has awakened within the Company the potential to intensify the disclosure of its good practices regarding the traceability of its supply chain, which is carried out through the monitoring of 100% of its cattle suppliers.

In 2019, Sustainability management became the main topic for Minerva Day in Brazil and in New York, during meetings and other performance review activities. Exposure of the subject was also expanded through the press and social media.

Continuous evolution
There has not been a single year in the history of the Company in which sustainability management has not been improved, 2019 was no different. Faced with the market’s concern about the fires that raged in the Amazon, Minerva Foods presented its investors with a positive panorama of its operations.

One of the key highlights is in the area of chain traceability, with the mapping and geospatial monitoring of all of its livestock suppliers in the region, thereby ensuring that 100% of its portfolio presents environmental and labor compliance and land use compliance.

The success of this effort ultimately set the Company apart from others in its sector. Minerva Foods is among the companies that have been audited by the Federal Public Ministry (MPF) for its operations in Pará and, in 2018, achieved the best results among major companies in terms of social and environmental monitoring of the supply chain. An audit of cattle purchases for 2018 and the first half of 2019 has not been initiated by the MPF to date.

In the Amazon biome, Minerva Foods also undergoes an independent audit of the Public Commitment for Livestock. In 2019 it again obtained 100% compliance in all its purchases in relation to compliance with the social and environmental criteria adopted.

In Brazil, the Company monitors more than 9,000 suppliers in the Amazon, covering an area of more than 9 million hectares, which translates into 100% geospatial mapping of suppliers located in the biome. The commitment extends to Paraguay, where Minerva has pioneered geospatial monitoring of the Chaco biome through criteria adopted concerning illegal deforestation, encroachment into indigenous lands, and areas of environmental preservation. In that country, in just a little more than a year of operation, the company has already had more than 50% of its suppliers mapped and the remainder certified by an independent audit conducted by independent auditors, BDO RCS Auditores Independes in December 2019.

With such a high degree of monitoring of its supply chain free of deforestation, the Company has made the largest contribution among other companies in its sector, in the fight against climate change through the mitigation of Greenhouse Gas (GHG) emissions resulting from changes in land use. It is also the only company in the sector currently financed by the IFC, of the World Bank Group, which supports its commitment to sustainability and its leadership in managing the socio-environmental issues of its production chain.

Since June 2019, the Company has been a member of the Global Roundtable for Sustainable Beef (GRSB). Composed by experts, academics, and large companies from four continents, GRSB aims to share management practices and maintain constructive dialogue concerning the directions of the global industry. As a new member, Minerva Foods strengthens the representativeness of the South American continent, which is the largest meat producer in the world, in global discussions. The Company is very transparent in its activities in the capital markets in response to the challenges of the chain and actively participates with its investors and shareholders. Therefore, sustainability guidelines are always present in meetings with investors in Brazil and abroad, and also with institutions such as the Emerging Markets Investors Alliance, in which Minerva participates in the roundtables regarding sustainability in the value chain for beef.

In 2019, the complete integration of all operations expanded the benefits of geographic diversification and reinforced the effectiveness of the risk management model, pillars of operational and financial excellence that have defined Minerva’s trajectory.

The operational and financial performances reflect not only the high demand for beef and the strong momentum in the industry but also the Company’s excellence in managing its operations. It was this combination that provided a net profit of R$ 16.2 million for the year.

The evolution of the capital structure stood out as an additional highlight. The leverage, measured by the net debt/Ebitda indicator adjusted by follow on resources, was reduced to 2.8x, the lowest level in recent years, contributing to a solid cash position of R$ 5.5 billion, taking into account the resources from stock offerings.

During the period, the Company reaffirmed its commitment to deleveraging and creating value for its shareholders. The Board of Directors approved a new policy for the allocation of results that expands Minerva’s capacity to pay dividends as a result of its more balanced capital structure. This new policy provides for an increase in the minimum payout from 25% to 50% whenever the leverage in the closed year is equal to or less than 2.5x.

For the next few years, the goal is to further leverage the competitive advantages that have made Minerva Foods the largest exporter of its sector in South America, with a 20% market share. The Company will continue to invest in innovation, risk management, and market intelligence to achieve operational, commercial and logistical solutions that are increasingly more efficient, by arbitraging the markets and allowing distortions to be transformed into opportunities, with lower risk and higher profitability.