Minerva SA
BOVESPA:BEEF3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
5.39
7.95
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Minerva SA
You don't have any saved screeners yet
Good morning, and thank you for participating in this conference call to discuss the results of Minerva Foods for Q1 2023.
Good morning, ladies and gentlemen, and welcome to the video conference to disclose the results of Minerva for the first quarter 2023. Today with us are Mr. Fernando Galletti de Queiroz, CEO; and Mr. Edison Ticle, CFO and IRO. We inform you that the presentation is being recorded with simultaneous translation into English. [Operator Instructions] Additionally, we inform you that the presentation is available for download from ri.minervafoods.com. [Operator Instructions]
We would like to clarify that any forward-looking statements that may be made during this video conference relating to Minerva's business outlook, operational and financial targets are based on projections of the company's management, which may or may not occur. Investors should understand that political, macro economical and other operational factors may affect the future of the company, thus conducting to results which differ materially from those expressed in such forward-looking statements. To open this video conference, I now turn the floor over to Mr. Fernando Queiroz, CEO. The floor is yours, sir.
Good morning to all, and thank you for attending the video conference to announce the results of Minerva Foods for Q1 2023. Minerva started 2023 with a sound operational and financial performance despite the volatility and the challenges in the global scenario. Our focus on operational execution together with our financial discipline and commercial expertise were essential in maintaining a sound set of results. This further strengthens our corporate strategy and consolidates our position as one of the main players in the global animal protein market.
In this first quarter, our gross revenue was BRL 6.8 billion, and EBITDA was BRL 532 million. The net income was BRL 114 million. In the last 12 months, results are very sound with over BRL 32 billion in gross revenue and adjusted EBITDA of BRL 2.9 billion and an accumulated net income in excess of BRL 654 million. Our capital structure, one of our priorities, is healthy. We ended the quarter with a net leverage of 2.6x net debt over EBITDA despite the impact of the outlay of BRL 245 million relating to the acquisition of ALC in Australia.
One of our main strategic pillars is -- strategic -- is the geographic diversification, and this was decisive during the quarter given the period of restrictions placed by China in the exports of beef from Brazil. This ban lasted 30 days, but we were able to serve our Chinese clients from Argentina and Uruguay, thus mitigating against the risks and the impacts of the restriction. This attests to the advantages of our operational footprint. We continue to arbitrage between origins, and we focus on the more profitable origins for a certain market. Before we move on to the highlights of the quarter, I would like to talk about the prospects in the global beef market for the next few quarters and how our strategy and business model position us uniquely to capture such opportunities.
The global animal protein market, in particular, beef, has very sound fundamentals and a positive outlook, especially for South America. The increase in the availability of finished animals in our continent together with the restriction in the North American supply of beef in the next few years allow us unique opportunities for exporting. Additionally, there are persisting sanitary issues in some of the main regions producing animal protein, as is the case of the recent outbreaks of Asian flu in the Americas and in Europe and the persistence of the swine flu which still impacts the Asian continent.
And finally, we still have to highlight climate change and the challenges it poses. It generates volatility throughout the agribusiness industry, especially in the grain market. This leads to cost pressure and food inflation and creates a favorable scenario for South American exporters. As we have said in the last few quarters, the global supply of beef is limited, and this should become even more limited given the strong restriction in the North American production of beef in the next few quarters. This will reduce the availability of animals and raise production costs.
On the other hand, Brazil benefits from an increase in the availability of cattle as the cattle cycle resumes. This increases the competitivity of our continent in the international beef market. Therefore, we have a scenario that should create new commercial opportunities for producers in the continent, as is the case of the recent permits to export beef to Canada and the new plants which have been approved for exporting to Indonesia. Mexico also has become an entry point for South American beef.
We will now move on to Slide 2, where we will talk about the main highlights of Q1 '23. And I start with the gross revenue, which was BRL 6.8 billion in the first quarter and BRL 32 billion in the last 12 months. This was a 7% growth year-on-year. Exports totaled 63% of the consolidated gross revenue in the quarter and 67% in the last 12 months and is one of the main commercial drivers of the company. The performance of our exports reflects the consistent global demand for beef and attests to our commercial expertise in serving the international markets.
Now in terms of operational profitability, EBITDA in the quarter was BRL 532 million with an EBITDA margin of 8.3%. In the last 12 months, the EBITDA was BRL 2.7 billion with a margin of 9%. Also, our adjusted EBITDA, which includes the performance of 7 months of 2022 of ALC, and totals BRL 2.9 billion on a yearly basis. Our net income was BRL 114 million in Q1, and in the last 12 months, it was BRL 654 million. Again, I would like to highlight the competitive advantages relating to our geographic diversification, which was essential in Q1 2023 given the restrictions placed by China on Brazilian beef. This allowed us to arbitrage markets in a scenario of volatility and thus, allowed us to control risks and maximize profitability.
On Slide 3, we are going to talk about our capital structure. At the end of the quarter, net leverage was 2.6x net debt over EBITDA despite the outlay of BRL 245 million relating to the acquisition of ALC. Our liquidity is at comfortable levels, and our cash position is BRL 6.4 billion. That, together with a debt duration of 4.5 years, allows us to feel comfortable and take advantage of the opportunities in the next few years. We continue to improve our capital structure. And throughout the quarter, we canceled approximately $8 million in bonds, referring to the issue 2031. Looking back to the last 3 years, the company has bought back and canceled approximately BRL 2.6 billion in bonds, which attests to our commitment to a sound capital structure, which is less costly and has a better risk profile. Edison is going to give you a little bit more color later.
I would like to highlight one of the pillars of our management, the generation of value for the shareholders. In April, we approved at the shareholders' meeting the payment of complementary dividends worth BRL 208.6 million. That is BRL 0.36 per share. If we include the BRL 128 million paid out as early dividends in August 2022, Minerva has distributed to the shareholders approximately BRL 337 million or approximately BRL 0.58 per share in the fiscal year 2022. This is the third consecutive year in which the company is able to deliver robust payout of dividends. And this, again, stresses our commitment to financial discipline and value generation.
In January, we increased our access to the Indonesian market with the approval of the unit of Janaúba. Another piece of good news was the opening of the Mexican market for beef -- for Brazilian beef. 6 of our plants in Brazil have been approved to export to Mexico. Mexico depends on imports of beef from the U.S. And this opening for new suppliers from South America is yet one more sign of the difficulties that North American producers are expected to encounter in the next few years. We have also improved our geographic diversification by acquiring BPU Meat in Uruguay. This consolidates our leadership in South America and increases our ability to arbitrage in the international market.
Our ESG agenda is moving forward with allocated funds, and we have been gearing efforts to achieve the targets relating to our sustainability commitment. Our work with the supply chain has achieved recognition by Carbon Disclosure Project and the Forest 500 ranking. We continue also to move forward with the geo monitoring of our indirect supplier ranchers, thus engaging suppliers in our social and environmental agenda by using SMGeo Prospec, our app, to further improve the monitoring of our supply chain. And finally, under the Renove Program, we continue to improve our technical cooperation agreements with partner ranchers to try and convert mainstream livestock management practices into regenerative practices which can increase productivity and eliminate or at least reduce GHG emissions.
These are initiatives which are aligned with the strategic drivers of Minerva Foods. Sustainability is, for us, essential. Additionally, in foreign markets, sustainability is a differentiating point, and it allows Minerva to serve clients at other levels of the distribution chains. And this is an essential differential, a competitive advantage in terms of accessing markets.
We are now going to move to Slide 4 and talk a little bit about the operating and financial performance of Minerva in Q1 '23. We will begin with the exports. In the beginning of 2023, we again consolidated our position as leaders in beef exports in South America. We have approximately 20% of market share in the continent as a result of one of the main competitive advantages of our business model, geographic diversification, which was, again, essential given the challenges in Q1 2023.
On the upper right-hand side of the slide, you see the breakdown of the gross revenues. Unlike other quarters and as a result of the restrictions placed by China on Brazilian beef exports in the beginning of 2023, Asia was not the main revenue driver. In this scenario, the Americas region was the main revenue driver and accounted for 45% of the total. I would like to highlight the performance of Brazil and Chile. We were followed by Asia with 26% of the gross revenue. However, we are very confident relative to the performance of Asia in the next few years, and we should see the level of the beef inventories decrease as local consumption increases and also due to global supply shortages.
On the lower right-hand side of the slide, you see more details about our exports of beef in South America and our operations of lamb in Australia. We start with the 2 charts at the top, that is, with our beef operations. Asia is still a highlight in the quarter and in the year, 44% and 50% of the export revenue, respectively. The region of the Americas followed suit with a similar share for the quarter and for the last 12 months, then the NAFTA region and our European Union customers. Below that chart, you'll see the breakdown of our exports from Australia in Q1. The NAFTA region is the main destination and accounts for 39% of the total exported, followed by Asia with 23% and the Middle East with 21%.
Before turning over to Edison, I would like to highlight our optimism relative to the global animal protein market, in particular, beef and lamb. With the addition of Australia in our footprint, we have increased our access to the international animal protein market, maximizing opportunities to arbitrage markets with a focus on reducing risks and increasing profitability. The beef operations will benefit from the lamb operation, and the lamb operations will benefit the beef operations.
The outlook in the international market is extremely promising. And there is a strong imbalance between supply and demand, which [ afford ] great opportunities in high scale and fast income growth markets, such as Asian countries, and in premium markets, such as Canada, the U.S. and Western Europe. We also have a good outlook in Latin American countries, Middle East, Eastern Europe and Africa, which are regions that traditionally present more volatility and therefore, excellent opportunities for arbitrage and maximization of value.
Our strategy is to pursue our business model, maximizing our competitive advantages, investing in innovation, niche opportunities and risk management to have commercial and logistics solutions, which are increasingly efficient and profitable, and this all to generate value for our stakeholder chain. I'll turn the floor over to Edison, who is going to talk about our financial and operational performance.
We are now going to move to Slide 5. We're going to talk about our operating performance and gross revenue, and we are also going to give you a breakdown of our lamb business in Australia. With our focus on exports, the foreign market accounted for 67% of the gross revenue of the first quarter. And in the breakdown per region, operations from Brazil were 64% in the quarter and 68% LTM. In South America, ex Brazil, exports accounted for 67% of the gross revenue in the quarter. With the lamb operation in Australia, it was no different, and exports accounted for 72% of the gross revenue in the quarter.
On the right-hand side of the slide, you have the revenue breakdown per origin. Brazil accounts for 43% in the quarter, followed by Paraguay, Argentina and Uruguay at similar levels in the quarter and also LTM. Australia comes through after that and accounts for 7% of the gross revenue in the quarter, and Colombia with 5%. Then under Others, we have the old trading division, which no longer includes the Australian business. In this slide, you can see the benefits of our geographic diversification strategy, which allows us to arbitrage markets to pursue operational and commercial optimization. This will become even more important once we consolidate our footprint in Australia.
On Slide 6, you see the net revenue, which was BRL 6.4 billion in Q1 and over BRL 30 billion in the last 12 months, a 6% growth year-on-year. In terms of profitability, EBITDA in the quarter was BRL 532 million, and the margin was 8.3%. LTM EBITDA was BRL 2.7 billion with a 9% margin. The adjusted EBITDA, according to the pro forma performance of ALC in 2022, was -- the EBITDA was, in the last 12 months, BRL 2.9 billion.
I'd like to highlight that the performance of the quarter was impacted by the restriction placed by China on Brazilian beef during most of the period, and this had an impact on the quarter, especially on our operation in Brazil. Our geographic diversification and [ sellers' ] option, for example, played a key role during these restrictions and allowed us to continue to serve China through our operations in Uruguay and Argentina. This, again, attests the effectiveness of our strategy and allowed us to partially mitigate against the restrictions. We were able to reduce or minimize the impacts of the Chinese restrictions.
As was said by Fernando, with the recent shipments to -- from Brazil to China, we are very confident regarding the outlook and opportunities of the Chinese markets in Q2 and Q3. This has become stronger week-after-week with the reopening of the services, the mobility of people, the recovery [ in tourism and ] events and other drivers, which accelerate the consumption and put pressure on the beef inventories in China. We are seeing a gradual recovery, and this should become stronger in the next few weeks, contributing to an increase in volumes and in our opinion, also an increase in export prices. And this context, together with the supply shortages in the U.S. and the change in the cattle cycle in Brazil, we have reasons to think that the outlook is positive. And we should see an improvement in Q2, but Q3 and Q4 will be the best quarters this year.
In terms of leverage, on Slide 7, our leverage measured as net debt over EBITDA in the last 12 months was 2.6x, which is practically the -- a very balanced leverage level despite the challenges in the quarter, especially in the beginning of the year and also after the disbursement in February of the last installment relating to the acquisition of ALC. This adjusted EBITDA refers to the organic performance of Minerva and adds BRL 200 million of EBITDA from ALC in the 7 months before consolidation. This gives us an adjusted EBITDA of BRL 2.9 billion, and that's why we have 2.6x in leverage.
In the last few years, we have been very disciplined and maintained a very sound and balanced capital structure. We have reduced leverage and financial liabilities. We always look to have a balance sheet that is less costly and with a better risk profile. This is our commitment and a cornerstone of our management. As you can see, even in a quarter that was difficult with the restrictions of China and the situation of credit in Brazil, which affected the funding of our suppliers, the financing of our chain, we had to act and help the suppliers to provide financing. And this required working capital circa -- approximately BRL 1 billion. And despite that, the leverage level was still very healthy.
We are going to talk now on Slide 8 about our net income, which was BRL 114 million in Q1 and BRL 654 million in the last 12 months. On the right-hand side of the slide, you see the free cash flow in the quarter, which was negative by BRL 8 million and totaled BRL 2.3 billion positive LTM. The working capital line was affected by the strong volatility in the credit market [ interest ] in the quarter, and the credit situation was less favorable. And therefore, the company had to be more aggressive in using cash to finance the supplier chain. And this had an impact on our supplier line item. You who monitor the markets, you know about the volatility and risk aversion in the credit market in Brazil, especially in Q1 because of the Americanas case. We expect this scenario to improve as of Q2. But unfortunately, there is a credit crunch because of the offer of credit to the chain or also the increase of spreads in Brazil, and this was very significant after the Americanas event.
On Slide 9, you see the data on our free cash generation. If we do the buildup, we start with an EBITDA of BRL 532 million; CapEx, BRL 126 million, mainly on maintenance and some organic expansion of operations; then the working capital, which burned BRL 841 million in the quarter, as I said; and finally, we have a financial result which was negative by BRL 172 million. The cash burn was BRL 608 million in Q1. Then we have the additional impact of the payment to ALC for BRL 245 million, and we have the final results in the period, which was a cash burn of approximately BRL 850 million.
The free cash flow was slightly negative by BRL 33 million and includes all the impacts of the acquisition of ALC in the period. If we do the buildup, we start with BRL 2.7 billion in EBITDA; BRL 1.9 billion in CapEx; then the variation of working capital, which was positive by BRL 318 million; and the financial result, which was negative by BRL 1.2 billion, which includes passive interest and the cost of hedging. After summing up everything, we have a negative FCF by BRL 33 million. And if we exclude the net impact of the acquisition of ALC, which was BRL 401 million in Q4 '22 and BRL 245 million in Q1, our free cash flow was positive by approximately BRL 613 million. We've generated a free cash flow in the period which was more or less the same as the acquisition that we made at the end of the year. So the free cash flow would be 0 despite the expansion with the purchase of ALC. This doesn't include the BRL 328 million in dividends paid in the period.
Again, our management is committed to creating value to the shareholders. If we look back 5 years and exclude the impacts of the acquisition of the ALC, the company has generated approximately BRL 5 billion in free cash flow. And in the last 3 years, we generated BRL 3.3 billion, and we have paid out BRL 1.3 billion to the shareholders, and this includes the complementary dividends. So we have been working to reduce leverage to improve the capital structure, and we have focused on generating value to the shareholders by distributing dividends.
On Slide 10, we see the net debt bridge. At the end of the last quarter, net debt was BRL 6.7 billion. The free cash flow was negative by BRL 608 million. As a result of the net debt and the hedging policy, we have a noncash effect of BRL 195 million coming from derivatives and the positive noncash impact of BRL 38 million relating to FX variation. And then we paid the acquisition of ALC and we paid BRL 245 million, which increases our gross debt. The debt at the end of the quarter was BRL 7.7 billion.
We continue to apply financial discipline and a relentless pursuit of a sound balance sheet. And this is a priority for 2023. Fernando and I have been very vocal in relation to the soundness of our balance sheet and our commitment to capital discipline. We feel even more comfortable to continue to focus on financial, operational and commercial execution in the company to create shareholder value.
On the next slide, I'm going to talk about capital structure. That's Slide 11. Net leverage, measured as net debt over adjusted EBITDA, was 2.6x. And following our cash policy, the position at the end of Q1 '23 was comfortable with approximately BRL 6.4 billion in cash. In terms of debt profile, 59% of the debt is exposed to the foreign exchange variation, and we do have a hedging policy, which we [ followed to the letter ]. Given the cost of hedge today, the size of the debt and the exposure, we need to have at least 30% of the long-term foreign exchange exposure under hedged. And this has protected our balance sheet, especially given the recent volatility of the exchange rate in Brazil. Our debt duration is approximately 5 years, and 85% of the debt is in the long term, as you can see in the amortization flow.
And lastly, I'm going to talk about the liability management efforts. We have repurchased and canceled approximately $8 million in Q1. Looking back in 3 years, we have bought back and canceled approximately BRL 2.6 billion in bonds, thus reducing the cost of our debt and the growth leverage. Again, we pursue a very balanced, healthy capital structure. We have been emphasizing our commitment to financial discipline and to creating results and shareholder value. We continue to try to make Minerva Foods a dividend payer in a consistent manner, and this has only been possible with our dedication and the effort of our team with a focus on the cash performance and improvement of our capital structure. This allows Minerva Foods to distribute value in a consistent and relevant manner.
I now turn the floor over to the operator.
[Operator Instructions] The first question comes from Mr. Ricardo Alves from Morgan Stanley.
The first question, just to go back to the supply line. There is a credit crunch in Brazil. You had to use the resources available in your balance sheet. How do you see the supply line going forward in the next few quarters? It's not clear to us that things should go back to what they used to be. Are you more optimistic? And just for us to understand how much of the BRL 867 million are accounted for by this supply chain financing where you have to be more aggressive, can we say it's not going to happen again? And then your leverage went to 2.6x, and the points that Edison raised were interesting. You emphasized your commitment to dividend payouts, to capital discipline. But in this context where you had a more difficult quarter, where a lot of cash was burned, in terms of M&A now, do you have a different idea now relative to what you said some months ago?
And then the second question, given the fact that China was not a destination in the first quarter, your margin was 8.3%, which came as a surprise to many investors. Many investors thought the margin could be a lot lower. So the price is increasing. The price of the arroba is going down. So what is your outlook for April and May? Is it above 9%?
Ricardo, in terms of working capital, you will give me an opportunity to give you a better explanation. What happened was the following. Irrespective of having similar or different operations to Americanas, in our case, it was completely different, as I explained, the banks have become more conservative. So the [ draw ] risk and [ these convenience ] risks, although they are commercial operations between the parties, they are less available now. So this is how it works. Part of the credit limit of Minerva is allocated to our suppliers. So they can use that limit in the banks and have an early payment of receivables. So the bank is actually taking on the risk of Minerva. So what the banks did was regardless of the risk of the counterpart, they reduced the number of lines available.
And this was not only to Minerva or to our industry, all the other sectors. For retailers, for example, if we look at the major retailers, they all saw a decrease. And many companies had to step into their supply chains and finance their suppliers. And this was no different. If you look at our explanatory notes, [ we account convenience ] agreements where we explain how this happens, this was reduced by BRL 500 million. And basically, this was because the banks gave a lower limit for our suppliers for the discounts, and we had to step into the chain as well. So we made our cash available. And we are very conservative in terms of cash, and we always have high liquidity because in situations such as this, we are able to maintain the operation working and we can extract value from this opportunity.
The fact that we interfered into the chain and used our cash to finance our suppliers allowed us to buy cattle cheaper and get some discounts for -- in payments. And this had an impact on the gross margin and on the EBITDA margin. That was a surprise because people look only to SECEX and not to the whole context. The statistics of SECEX, just so you know, are lagging behind. What you see on a weekly basis is not what is happening in terms of shipments and in terms of the transactions. This is misleading the market. The market has been reacting to those numbers. But going back to the operation as a company as a whole, when we use this type of financial tool, we also improve our margins, our gross margin and our EBITDA margin. We protect our EBITDA margin, and this was BRL 500 million in terms of our working capital.
The other one is the advancement to clients, and this is explanatory note 17 in our balance sheet. And this happened because we had a reduction in revenue. We were selling less. We didn't sell to the Chinese. So all of those advancements that we received, that is then used in the shipments because the revenues are smaller. So because of the cycle of reduction in terms of revenue in Q1, there is a release of the account and that, in turn, reduces or rather worsens our working capital situation. And what can we expect going forward? This account should improve significantly throughout the year.
And I would say it's a projection. But if we look at what happened in the other quarters and how the company's cash flow works, we believe that we will need another BRL 200 million in terms of working capital. So there was a worsening of BRL 800 million, but there will be an improvement in terms of the next quarters of BRL 600 million. So is it going to happen in Q1, in Q2? No. This will happen throughout the year. Q3 and Q4 will be the best quarters in the year. So we think we're going to see an improvement in terms of working capital.
In terms of credit lines for financing the supply chain, they were dry in Q1. A bit of it is coming back online, but it's not at the levels that we would like to see. So the improvement in working capital will come from other lines, some from the supplier line as banks become more comfortable in operating in this way to finance the supply chains. We might see some capital coming back, but the other lines will offset this worsening in Q1. And I believe we will need BRL 200 million in working capital throughout the year, and our leverage should also fall throughout the year. This investment in working capital is going to stop. The CapEx of ALC has already stopped. We have completed the acquisition. So when you look at the lines of cash flow, they will improve. Margins will improve. There will be better operating cash, and we can expect leverage to go back to the levels we saw at the end of last year.
The dividend policy is in place. But I would like to highlight a very important point, a minimum of 50% when the leverage is equal or below 2.5% at the end of year-end. But if the leverage is 2.6, the Board might decide to distribute 50%, 60%, 70%. The policy establishes a minimum amount when the leverage is 2.5. But there's nothing defined when the leverage is at a different level. This is a decision that the Board has to make when it decides to pay out interim dividends. As regards margins, Q2 is better than Q1. We can see it very clearly, but I cannot tell you how much this is going to improve. It's the middle of the quarter, but the margins of Q2 are so far better than the margins of Q1.
Thank you, Edison. Ricardo, you also asked about the M&A policy. We have 2 pillars which are extremely important in our strategy. We want to be closer to the end consumer, to the end client, and we want to diversify the geographies where we work. All of these moves, as was the case of BPU, they have to create value for the shareholders. So yes, we look at opportunities. There is nothing in the pipeline. But yes, we monitor the market.
And just to add, Fernando, it's not a quarter where we saw a cash flow which was -- it's not because the cash flow was worse in Q1, that doesn't mean we are going to change the company's policy. I mean we have a strategy in the long term, and we pursue that strategy. And this has not changed because a quarter was less than good for us. We had the ban in China, and we had the credit crunch in Brazil. These are very specific situations.
Your next question is from Mr. [ Alan Carr ] from XP.
I would like to talk a little bit about China and get a little bit more color. At the end of February, the shipments stopped. You had production dates, what was shipped to China. And then the resumption of this operation was a bit slower. There were containers traveling to China, containers that had reached China. We have heard rumors about the possibility of some containers which are in the port in China that they could be sent back and also the problem with the production dates on the container. Does this has an impact on you?
And given that you have exported less from Brazil and more from Uruguay or Argentina, which are the markets that have been able to export more to China, and what is going to happen in Brazil? Is there going to be less focus now on China and Argentina? And also, if you can give us a little bit more color about the domestic market in China. It's quite difficult to understand what's happening there.
Your question is extremely important, and we want you to understand how it happens. We have a pipeline of shipments. And during the ban, under the protocols, you are allowed to continue to produce. What came as a surprise was that China established a cutoff date that Brazil is disputing in terms of what the cutoff date should be. This is an uncertainty that creates uncertainty and insecurity in the market. And this should be sorted out. The risk of Minerva in this inventory that has not been released is of $3.5 million. It's not major. If worse comes to worst, these are commodity products that can be redirected to our other markets. So this is a situation that we see now in relation to this inventory.
The market has an inertia. And within that inertia, there was a pressure on the raw material. There was a set of factors that are pushing -- that are putting pressure on the raw materials. The international market is now more optimistic. The U.S. is seeing a negative cycle. And South America, as a whole, is taking up more space in other markets. So we do see major changes in terms of destinations. You can see the breakdown of our exports. We grew a lot in the Americas, and there are other countries in Southeast Asia which have become more relevant: Singapore, Indonesia, the Philippines, Malaysia, Taiwan. So our strategy is to diversify. China, of course, is a major destination, but we see more and more the ability to arbitrage prices in different places. So the breakdown of exports will be more and more diversified and less dependent on a single destination. This is our strategy, and it is possible. We can do that because of our geographic diversification.
Many questions that come to us have to do with the price of cattle in Brazil. It is 45%, 48% of our -- of the revenue per origin. So for us, it's the combination. We have been investing in innovation, in analytics to enable us to act fast and precisely to arbitrage the market from destination A to destination B, from origin A to origin B. So this quarter showed -- demonstrated our ability to react fast given the volatility in different markets.
And can you talk a little bit about China? What are the signals? Are you excited about it? What is the Chinese demand like?
We are extremely excited. The inventories that are on the ships, they will be arriving more or less at the same time. And these inventories are being consumed quite quickly. China now sees a resumption of activity, and beef has become an essential product. It's an aspirational product for the middle class and upper middle class in China. They see beef as one of the key products.
The next question comes from Mr. Almeida from Santander.
I would like to explore some points here, maybe talking about the Australian operations. You talked about a certain volume of slaughter, and I would like to understand 2 things. What can we expect for the remainder of the year in terms of trend? Are the next few quarters going to be stronger? You talked about 116,000 herd. What is the comparison year-on-year? Is there a better availability of animals? So I would like to understand how the slaughtering is going. And then in Australia, what is the mix between exports and domestic consumption? I thought the exports would be more relevant. So what is the mix in Australia for the lamb operation? What can we say in terms of the mix between exports and domestic consumption? And then BPU, how is the asset incorporation going? What is the availability of animals in Uruguay? And then Argentina, has there been any change in the strategy? We have seen a recovery in prices in Argentina.
Australia, it was our first quarter. We are integrating the operations. We had 2 units in Australia. We acquired another 2, and the seasonality indicates that the next quarters will be stronger. Every week, we are increasing the number of animals slaughtered. And our plan in Australia is -- or actually, our idea is to send labor, to send workers from South America to Australia because that's one of the bottlenecks there. We want to strengthen our operations and accelerate operations.
And just to add to what Fernando was saying and to give you some more detail, the U.S., which is a big client of Australia, has slowed down. And this had a negative impact in terms of volume and prices. But this is merely seasonal. We expect this to improve throughout the year because of the seasonality and also because we are integrating the plants to the new acquired plants, and we want to tap the synergies. Revenues should grow. And as a consequence, we should see a bigger contribution to our EBITDA coming from Australia.
We are also seeing bigger opportunities for exports. One of the policies that guide us is the disintermediation in Australia. We have our distribution network. We have offices. We have commercial offices outside Brazil. So we are using those offices to sell also lamb and the lamb offices to sell beef as well. So we are closer to the clients. We are closer to the end consumers. And this increases our profitability. We are, therefore, very optimistic in terms of what we can do in Australia and how much Australia should grow. What we also see in Australia is that there is a greater supply and consequently, the reduction in the price of acquisition.
In Uruguay, we are waiting for the approval by the antitrust authority. So in 6 weeks, we should receive the approval. We are waiting for the final analysis by the antitrust authority to end so that we can take over the operations. In Argentina, our strategy is to make the Argentinian operations very light. There will be volatility. Everything there has to do with the exchange rate, and Argentina could become -- could go from reasonably competitive to very competitive depending on what is going to happen to their currency. But increasingly more, the blue exchange rate will be -- we'll see its spread decrease relative to the official exchange rate.
We are monitoring what's happening there very closely. We want the Argentinian operation to be very light. We want to have all the liabilities in local currency and the assets in strong currency or linked to strong currency. And this will help us defend the operations. So all the cash we have turns into cattle basically, which is a dollarized asset. So we are trying to protect the company in this way. The domestic market in Argentina is doing fairly well. So we still look at Argentina with good eyes, although we know the transformation is going to happen or rather is necessary.
The next question comes from Ms. Simonato from Bank of America.
My question has to do with Brazil. I see that you've delivered good average prices in Brazil. And when we look at the trends, the trends were downwards in terms of the price of beef. You focused on exports. But can you give us a little bit more color about which countries helped offset the losses coming from China because your average price was very resilient? And also, what do you see going forward for the domestic market?
In terms of Brazil, one of the countries that was -- a highlight was Chile and then the United States. And look not only at the prices but also at the gross margin. We were able to ensure a gross margin because we bought well. We also used the credit crunch as an opportunity to help improve our margin by buying at better prices, and this protected our gross margin. So you have to look at the context as a whole. The prices may be a bit distorted because of quotas. We sell a lot to the U.S. in Q1. But with China coming back on stream, the gross margin should improve as of the second quarter. We are very optimistic for Q3 and Q4 this year.
And just a little bit about Brazil and the domestic market. Since the end of last year, there is no room for improvement, not a lot. Inflation has eroded. Purchasing power and employment has been increasing. So the salary mass is going to go down. If you look at the history when the [ real ] salary mass falls, the domestic market weakens then there is a positive cattle cycle. And the price of arroba should remain stable, in our opinion, or even drop in the next few quarters, and this makes us think that the beef is not going to go up. There are no drivers on the demand side or the supply side. So profitability, most of it, should come from our exports.
And just to add to what Edison said, the reduction in the United States opens opportunities for us, and these are huge. And this is in markets that used to be supplied by the United States. Look at the statistics: Mexico, Japan, Korea, Taiwan. And also into the American market, despite the quotas, we are still very competitive, and we become increasingly competitive. So as Edison says, we are optimistic. We believe that the best markets for us are the export markets.
The next question is from Mr. [indiscernible] from BTG Pactual.
I have 2 questions. The first one has to do with volumes, and I would like to go back to the discussion about Q1 -- or rather, about Q4 and last year. And what -- and from what you see in the market so far, do you think the volumes could grow at 2-digit levels in the rest of the year? And then just to tag along something that you said, Edison. You said that SECEX data is very misleading in the market. When we look at the weekly data, we see a recovery in prices for $5,100 per tonne. Is this the trend? Is it the right direction? Are the prices going to recover? And what is demand like and what impact it's going to have in terms of prices and volumes?
I think the scenario I described for the end of the year is the same. We are optimistic that volumes will grow towards the end of the year, but the volumes will be concentrated at the -- in the second semester. As regards to SECEX, this is the right trend. This is the trend that we see, and we agree with that. We are seeing a recovery in prices. But I draw your attention to the volumes. The market is very volatile, and people worry when they see a drop in volumes. And this is not only the case for beef. There is a delay of 2 months sometimes in SECEX, a lag of 2 months. So it gives you some idea, but you have to be careful when you look at those data. That statistics is a bit -- is lagging behind really relative to what we see.
The next question comes from Tiago from Citi Bank.
I would like to explore the Mexican market. You have been approved to export to Mexico, and it's a market that has a big potential given the American production which is declining. So what is your view in terms of [ size ], price and value -- and volume? Because I think the region may represent a lot in terms of exports.
It is a potential market. It is a way to enter the NAFTA area, especially outside the quota system, Brazil and Argentina. We have been exporting to Mexico through Argentina. Now Brazil is exporting to Mexico. So if you look at the import data of Mexico, they depended a lot from the U.S. They imported from the U.S. a lot. So we see a replacement there. Something we can do is to say that Mexico should export more to the United States and be supplied by imports. And Chile, for example, exports a lot of its beef and imports what it consumes. And we see that Mexico could go down the same route, but with a greater potential than the Chilean market.
We are now going to start reading the questions that were sent on the Q&A feature. Some questions have come to me, so I'm going to read them and answer them.
The first one comes from [ Antonio ]. Can you talk about the difference in price between the finished animal in Australia, U.S.? So in Brazil, 3.5, 3.6 per kilo. In the United States, 6.3. So it's a huge difference in terms of dollars per kilo. In Australia today, $4.10, $4.20 per kilo. And in Europe, it's 5.8 depending on the country. So you can see how competitive we are in South America. Brazil is more expensive than Paraguay or Colombia. There is a price gap which is huge in the raw material especially the cattle, which accounts for 80% of the cost of the industry.
And then can we give guidance on free cash flow, revenue? No, we don't give guidance. What we can say is that by looking at the figures in 2022, we expect volumes to grow at 2 digits. If you do that with flat prices, you will see that there is an expansion in terms of EBITDA and revenue, but especially in terms of free cash flow.
Then the third question asks us to give us an outlook into -- for the prices of beef with the reopening of China. I think we have answered that in the call. Prices of cattle in Brazil, what we think is going to happen. We think it's a very favorable cycle with availability of animals. And we think that 2023 will be a very good year, and 2024 is going to be even better in terms of the availability of animals. We expect prices to drop in 2023. We are seeing that as well. They could be flat relative to the prices we see now with a downward trend maybe. And in 2024, and we're very conservative, we see prices going flat in 2024 relative to the average in 2023. In terms of free cash flow, we burned working capital in Q1, but this account should improve throughout the year. We believe this specific account will not require more than BRL 200 million. So the improvement will be in the region of BRL 600 million.
And in terms of M&A, Fernando has answered that. We have opportunities, but our policy focuses on protecting the balance sheet, financial discipline, a light capital structure in the balance sheet so that we can continue to distribute value to the shareholders.
We have no more questions here. So I turn the floor over to Fernando to close this video conference.
Thank you so much for attending. It's very important for us to talk to you because this is where we reaffirm our directions, our strategies, and we share with you for contributing through your questions. They help us become sharper in what we do. We are very optimistic when we look at the future, especially given the situation in the international markets. Local markets in South America will suffer, but we focus on exporting and distributing around the world. So we are very flexible, we are fast and this is unique to us. We have also been investing in analytics and how we can become even faster, how we can use technology and state-of-the-art tools to increase our speed, our agility and our precision. Minerva is ready to grow and to reach out to more markets.
We want to be one of the leaders. We want to be a different company. Sustainability also is essential and has become a barrier for entering different markets. But we believe that sustainability makes a big difference, especially in a global market that is deeply aware of the importance of pursuing agendas having to do with decarbonization and climate change. And finally, I would like to thank our 23,000 associates for their hard work, for working in line with our culture. And they have contributed for Minerva to generate value whether the market is in a good situation or not so much. Thank you all so much for attending, and we remain available to clarify any issues or any points you might have.
The video conference of Minerva Foods has now ended. If you have questions, send your question to the IR team. Thank you very much for participating, and have a nice day. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]