Minerva SA

BOVESPA:BEEF3

Earnings Call Transcript 2021-Q3

[Operator]

Good morning. Welcome to Minerva's Third Quarter 2021 Results Conference Call. Today, with us, we have Mr. Fernando Galletti de Queiroz, Chief Executive Officer; and Edison Ticle, CFO and Investor Relations Officer. We wish to inform you that this presentation is being recorded. [Operator Instructions] The audio and the slide show of this presentation are available through a live webcast at www.minervafoods.com/ir. You can find the presentation for download on the webcast platform, IR session.

Before proceeding, we wish to mention that forward-looking statements may be made during this presentation relating to Minerva's business prospects, operating and financial estimates and goals. They are based on beliefs and assumptions of the company's management as well as on information currently available. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions and industry conditions and other operating factors can also affect the future results of Minerva and could cause results to differ materially from those expressed in such forward-looking statements.

We would now like to turn the floor to Mr. Fernando de Queiroz, CEO, who will begin the presentation. Please, Mr. Queiroz, you may start the presentation.

[Fernando De Queiroz, executive]

Good morning, everyone, and thank you for participating in Minerva's earnings conference call for the third quarter of 2021. Minerva Foods reaches the end of the first 9-months of 2021, reporting an outstanding operating and financial performance with revenue and EBITDA at record levels, consistent net income and cash generation in addition to maintaining a balanced capital structure.

Even in the face of a challenging scenario, the company's performance in this quarter reflects the good fundamentals of the global beef market, resulting in an accumulated growth of 42% in our growth revenue and 10% in our EBITDA when compared to the previous year. Our geographic diversification plays an essential role in our performance because it permit -- allows us to arbitrate markets with greater agility, accelerating our operations when necessary, and thus, reducing risks, volatility, maximizing our operating efficiency and financial profitability.

In this context, the operations of Minerva [ Athena Foods ] continues to be highlighted this year with its gross revenues reaching BRL10.8 billion in the 9-months of 2021, an expressive growth of 69% when compared to the previous year. Our operational footprint distributed throughout South America is one of the main pillars of our business model. Playing a key role in maintaining our profitability and also acting as an important risk mitigation agent.

In line with the maintenance of this strategy and as previously informed to the market, in the third quarter 2021, we evolved with our first initiative in the Australian market in partnership with SALIC, announcing the acquisition of 2 lamb slaughterhouse plants in Australia. This initiative is in line with Minerva's Food strategic direction and uniquely complements our operations in South America, maximizing commercial opportunities and operational synergies, reducing risks and contributing to our strategy of consolidation in the animal protein export market, always respecting our commitment to financial discipline and a solid and balanced balance sheet.

The COVID-19 pandemic is not over yet, and it continues posing challenges to the world population. However, the global beef market remains in high demand, with emphasis on Asia, which remains firm as a major demand driver and largest global beef importer in a scenario that should become even more stressed in the coming months due to recovery of the global economy, which opens up more opportunities for exporters in South America.

Prospects for the end of the year and beginning of 2022 are increasingly positive with the global scenario returning to normality and the advance of vaccination stimulating reopening of economies and supporting the resumption of important segments such as tourism and food service. We see a scenario of consumption acceleration, not only in the foreign market, but also in the domestic markets in South America, reflecting an extremely positive situation for products and especially for beef exporters in our continent.

In the third quarter '21, we made progress in innovation area where we launched My Beef em Casa, our online sales platform within Ifood, where we started to make our products available to users of the app. In this first moment, my Beef em Casa will continue to serve the consumers here in the city of Sao Paulo. And yet another movement that brings Minerva Food closer to the final consumer beef. We also announced another Corporate Venture Capital initiative with the investment in Traive, a startup in the agricultural sector that with the support of artificial intelligence, advanced data analysis seeks to offer a set of financial solutions such as credit, insurance and other services for small and medium-sized rural producers reducing bureaucracy and contributing to more transparency and less risk in the agri market.

Currently, with operations in the United States and Brazil trade, thrives, product portfolio encompasses solutions for the supply chains of the main agricultural commodities such as soybeans, corn, cotton, sugarcane, coffee and weed and supported by Minerva's track record and expertise of Minerva Foods, we are also going to advance in the new opportunities in livestock and the beef chain.

Now let us move on to Slide 2 to start the presentation of Minerva Foods Q3 21 results. We started with net income, which remains positive for the eighth consecutive quarter reached approximately BRL 73 million Q3 2021. Year-to-date, net income is positive by BRL 449 million. Considering the last 12 months, Minerva's net income totals approximately BRL 563 million.

Free cash flow, which is one of our priorities, has been positive for the 15th consecutive quarter, totaling BRL 83 million in the quarter and BRL 849 million in the 12-month period. 2021, our free cash generation totaled BRL 817 million. Since 2018, the company has accumulated more than BRL 4 billion in free cash generation, confirming the consistency of our operational and financial management, which reflects a robust cash generation which we continue to report quarter after quarter.

Growth revenue reached a record level of BRL 7.8 billion in the quarter and BRL 26.6 billion in the last 12-months, a strong growth on an annual basis of 43% and 36%, respectively. I would like to highlight the performance of our exports, which accounted for approximately 70% of our gross revenue, both in the quarter and the past 12-months. As a natural result of the strong international demand for beef, a reflect of our exports at Minerva Foods.

Now talking a bit about our operating profitability in Q3 '21, our EBITDA also reached a record level, reaching BRL 648 million, an increase of 17% year-on-year with an EBITDA margin of 8.8%. In the past 12 months, Minerva's Foods EBITDA has also been a record, totally approximately BRL 2.3 billion and delivering a solid EBITDA margin of 9.1% in the period. As in previous periods, another highlight of this quarter, and one of the main pillars of our management continues to be the solidity of our balance sheet. We ended Q3 '21 with net leverage stable at 2.4x net debt over EBITDA and in line with Minerva Foods capital discipline.

Our liquidity also remains very comfortable with BRL 8 billion in cash at the end of the period, which combined with the duration of 5.6 years of our debt and guarantees as great tranquility and flexibility in the face of future challenges and opportunities. Still talking about our balance sheet. I want to stress that we continue to improve our capital structure. In this context, I want to mention some initiatives, such as the reopening of Bond 2031 at the beginning of the quarter. Now more recently, in October, we also had the 11th issue of debentures of the company, in addition to the redemption and cancellation of approximately BRL 384 million related to a portion of 2028 bond as we announced this week.

I will over our presentation of results, Edison will provide a little more detail about all these initiatives. Now let us talk about the other highlights of the quarter. As approved by our Board of Directors. And as a result of the good operational and financial performance of Minerva Foods, we announced a payment to prepaid dividends in the amount of BRL200 million or approximately BRL0.35 per share, representing approximately 45% of the year-to-date profit.

When we add the current distribution with the proceeds paid previously throughout '21, we reached BRL 304 million or BRL 1.2 per share in earnings distributed to our shareholders in the current year. This represents an expressive dividend yield of approximately 12% based on the closing of October. The recent distributions of earnings reflect Minerva Foods commitment to generating value for its shareholders, while respecting our capital structure as it is worth noting that the company's financial leverage remains stable around 2.5x, even after the payment of the aforementioned interim dividends.

Another interesting highlight which took place in the exercise window at the beginning of October was a cash inflow of BRL 252 million referring to warrants subscribed by or undertaken by the controlling group, further improvement of Minerva Foods liquidity position. It is worth remembering that we still have BRL 60 million in subscription warrants that's available in the market that should enter the company's cash by end of 2021.

Finally, I must talk about the evolution of our sustainability agenda. And I would like to highlight 2 main initiatives. The first was the launch of the app, Prospec, which allows rural produces throughout Brazil to carry out geospatial surveys and access historical and social environmental analysis of supplier Farms. This way, we are transferring the highest technology used in our analysis and monitoring systems to the producers palm of hand, contributing to the reduction of deforestation risk and livestock chain.

The second highlight goes to the results of auditor by the Federal Public Ministry in the state of Para, where Minerva Foods have achieved a 100% social environmental compliance, being the only company among the major players in the sector to present such excellent performance. It is noteworthy that the Public --, Federal Public Ministry's audit is the main public tool for transparency on practices to comply illegal deforestation activity. In addition for being very proud, the excellent results achieved that Minerva Foods confirmed the pioneering spirit and seriousness of our work when the topic is sustainability.

During the presentation, Taciano will bring further details about this and other important advances by Minerva in the relation -- in relation to the ESG agenda. Now let us move to the next slide to comment on Minerva's operating performance in the quarter, starting with exports.

Q3 21 consolidated our leader food ship position as the largest beef exporter in South America, with approximately 20% market share in the continent. Minerva's leading role in beef exports is the result of our geographic diversification in the region, which supported by our 16 international offices and are providing us with a great competitive advantage and prominent position in the international market.

It is worth mentioning that the geographic consolidation of Minerva Foods in South America protects our profitability from the long-lasting and consistent upward movement in international grain prices. This is due to the model of cattle raising, predominant in our continent. And thus, the upward movement of grains in the international market ends up having a reduced impact on our operations.

On the right side of the slide, we have the performance of exports by region. Asia is still highlight, representing around 63% of the export revenue in the past 12 months in Brazil, an expansion of 7 percent points compared to the same period of the previous year. It is worth highlighting here 10% share that we place in the NAFTA region. As the -- the main destination, U.S.A., which reflects the strength of this market and reopening to Brazilian beef.

In the case of the operation of Athena Foods. Further down on the slide, the Asian market has been the main destination for our exports, 37% of the total exported by the division in the past 12 months, followed by the Americas region, which accounted for 29% of the total exported. I want to take the opportunity to highlight the assertiveness of our geographic diversification strategy and the benefits of our operational footprint in the main beef producing and exporting countries here in South America.

You all know that the end of Q3 21 was impacted by China's restriction to Brazilian beef, and this ended up reflecting on our operational and financial performance. However, as a result of our geographic diversification, we redirected Chinese demand to 4 of our plants in Argentina and Uruguay, which include a daily slaughter capacity of around 6,000 heads a day, approximately 60% of Minerva's consolidated exposure. In this way, we continue to serve customers in China through operations outside Brazil, which has allowed us to reduce risks and mitigate impacts inherent to this type of jurisdiction. Worth mentioning that we are still waiting the resumption of exports to China from Brazil, and we expect this situation to normalize soon.

Returning to the quarter's results, the performance of export makes increasingly evident the growing international demand for beef and the unique competitiveness of South America, especially from Asia, where we noticed that the consumption of beef protein has increased consistently and as a reflection of changes in the population's eating habit, which increasingly considers beef as an essential item in their daily diet.

Another highlight in our portfolio is the growing exposure of the North American market, especially here in Brazil, a market with high income capacity, and which due to the advanced stage of vaccination has already been showing consistent signs in the resumption of economic activity and consumption level. Finally, I emphasize, once again, that the fundamentals and prospects in the global beef market remain very solid in the short and long term. We have a combination of factors that are very positive for the coming periods, which will benefit beef producers in our continent.

Demand for beef protein remains quite consistent in emerging markets, especially in Asia. In addition, we have the advance of vaccination and recovery of the global economy, which gained strengths week after week with the reopening of markets and it prints a strong recovery movement in consumption, especially in tourism and foodservice, segments that were strongly impacted since the beginning of the pandemic that we already have signs of strong recovery in most developed countries.

Finally, we to date the rise of [ grains ] and the persistent restriction in the supply beef from Australia, which continues in balancing the world market and particularly benefiting exporters -- this promising horizon Minerva Foods strategy is to continue to maximize our competitive advantages, investing in innovation, niche opportunities, risk management, market intelligence to achieve increasingly efficient and profitable commercial and logistical solutions, always trusting our corporate culture, the work of our team and respecting our commitment to ethics and sustainability. Now I hand over to Taciano, who will talk a bit more about the sustainability agenda of Minerva Foods.

[Taciano Custodio, executive]

Good morning, everyone, and thank you, Fernando. When it comes to sustainability, combating illegal deforestation and climate change, Minerva Foods stands out with results. Our backing is not advertisement and long-term goals. Our balance is a measurable result, publicly disclosed and supported by the main public audit process in Brazil, the audit of the commitment in beef in Para. The audit supervised by the Federal Public Ministry or General Attorney's Ministry is the only official third-party verification audit in Brazil, where all the data for analysis is provided by the government. All the results are publicly disclosed and can be verified on the website of the General Attorney's ministry of Brazil as well in the presentation link.

And for the third consecutive year of the audit, Minerva Foods stand out for its results with a 100% compliance to verify illegal deforestation, land grabbing, slave labor, invasions of environmental conservation units, indigenous in Colombia lands, environmental and land tenure regularization. This is the real commitment to combat illegal deforestation is the amazing result of the commitment of the Minerva Foods team and [ renove ] producers commitment that extends to all states we operate and also outside Brazil.

In Paraguay, we geographically monitor 98% of all purchases, and we maintain our commitment to reach 100% of the purchases monitored by the end of the year. On Slide 5, we present SMGeo Prospec in partnership with Nice Planet Geotechnology. We launched on October 21st, the most innovative agribusiness application. It is the transfer of technology from those who have the best results in geographic monitoring to -- of the change to the hands of producers.

The application allows you to carry out geographical analysis throughout the national territory. With the simple use of QR code of the rural environmental registry, the car. Producers can now verify the social environmental compliance of their business partners with simplicity and agility with no complications. The app is available on the App store and Google Play. It's worth checking the launch of the application on Minerva Foods YouTube channel with the details of how it works.

On Slide 16, we will talk about Minerva Foods low Carbon emissions program in the production chain. The world demand changes and the rule is to keep renewing. The renove program is to accompany these changes go beyond. It is to engage and collaborate with the production chain in the implementation of low-carbon production prices. It is measuring and monitoring the carbon balance of funds. It is to facilitate the access to payment for ecosystem services and the carbon market. It is recognizing the advances of modern tropical livestock, which protects the environment and develops people and geographies. All this, in collaboration with research institutions, agents of organized society, companies and producers using internationally recognized methodologies.

We are proud of the path Minerva foods is taking in sustainable meat production. We will be at COP, telling more about renove. Follow Minerva Foods on social media and learn more. I will now hand over to Edison, who will detail the operating and financial results.

[Edison Ticle Filho, executive]

Thank you, Taciano. Let us move on to Slide 7. Let us talk about operating performance and the breakdown of divisions shares and Minerva's gross revenue. This Q3 has been the case throughout the year as Minerva Foods continues to standout. Once again expanded share in the revenue accounted 56% of consolidated gross revenue for the quarter, while Brazil division reached 38% and the trading 6%, complementing our total revenue. Now talking about capacity utilization. In Q3 '21, we operated on a consolidated basis with a capacity of approximately 77%, still reflecting the operational limitations imposed by the pandemic.

At Athena Foods, the level of utilization grew almost 5% points compared to the previous quarter. This is the result of our geographic diversification, which at the end of the quarter allowed us to redirect the part of production that we have been getting from China from plants in Uruguay and Argentina since exports by Brazil were restricted in September, and thus, we accelerated operations at Athena Foods and cap supplying our main destination market.

As Fernando commented, this move confirms one of Minerva's main competitive advantages. Geographic diversification, which gives us a unique opportunity to arbitrate markets always in search of operational and commercial optimization of the production chain. In the Brazilian division, we had a slight drop, 70.4%, mainly impacted by the lower volume for the Chinese market at the end of the quarter. As we have mentioned previously, consolidated utilization remains below our historical level of 80% that should be resumed over the next few periods with the event of vaccination process, recovery of the global economy at the end of the pandemic.

It's worth mentioning that in our analysis, we consider the concept of net utilization, reflecting working days on operation of each of the plants operating in our portfolio. On the right-hand side of the slide, we highlight our consolidated export by region for Q3 '21 in last 12 months. As Fernando mentioned, Asia continues to be the major client with a major role, representing 46% of exports in the quarter. In the past 12 months, the share of the Asian continent remained at 47% of Minerva Foods export, that is continued to be our main export destination.

Moving on to Slide 8. Let us talk a bit about financial results, starting with net revenue, which reached a record level of BRL 7.4 billion Q3 '21, strong expansion of more than 43% compared year-over-year. When we look at it from perspective of the past 12 months, we have a robust year-on-year growth of nearly 36%, totaling more than BRL 25 billion in net revenue in the past 12 months. In the composition of this revenue, as I mentioned previously, it's worth highlighting the good moment for exports, which reached a share of approximately 70% of total revenue, both in the quarter and the past 12 months.

Speaking of profitability, Minerva's EBITDA reached a record level this quarter, reaching BRL 648 million, an increase of 70% year-on-year. In the past 12 months, our EBITDA totaled approximately BRL 2.3 billion, an increase of approximately 8% on an annual basis and once again, record level for the past 12 months. It is very clear on this slide, the operational dynamics of our company, which basically spread business. It's a business spread. Our profitability is based on the ability to pass on or transfer price, especially when we have scenario cost pressure.

Despite recent increase in cattle price which corresponds 80%, 85% of our total cost, company has been very efficient in transferring these increases to customers, especially in the export market, which is main focus of Minerva. As a result, we have been able to deliver consistent level of profitability over the past despite the upward movement in animal prices, especially July, August and September.

I want to highlight again the benefit of our geographic diversification, especially when we talk about Athena Foods, which despite the more complicated situation in Brazil in terms of cattle supply, Athena has a much smoother situation which continues to contribute a lot to the growth of company's revenue and also profitability, which I mentioned on the previous slide. This division represents 56% of consolidated revenue in the quarter.

In Q3 '21, Athena Foods was even more important with the restrictions imposed by China at the end of the quarter, blocking exports from Brazil, we continue to serve our customers through Athena Foods operations in both Uruguay and Argentina. This makes clear the fundamental role that our geographic deviation has had and continues to play in Minerva Foods business model.

Before moving on to the next slide, due to this temporary movement in China, which partially impacted the numbers for the quarter. I want to talk a bit more about the month-by-month performance in the third quarter. As you know, the end of Q3 turned out to be a typical due to China's restriction to Brazilian beef, and this ended up impacting the performance in the quarter as a whole. When we stratify the analysis month by month, we can see a very positive performance, both in Brazil and in the Athena Foods operation.

If we take month by month, for example, July, the consolidated Athena margin was already running at a low 2-digit level, impacted by the strong demand and reflecting the acceleration of beef prices in the international market. This scenario ended up being maintained in August with a slight negative variation in Brazil due to the off-season period, which ended up pushing the price of the animal in August, but Athena Foods continued operating in a very resilient way.

And thus, operating profitability in August also ended up at a very attractive level, very close to the low double-digit level. And then we get to September. And China ended up blocking Brazilian beef, which ended up impacting the end of the quarter. I will be repetitive and comment again, but in the case of Minerva Foods, we have the benefit of the operational footprint distributed by the main beef producing countries in South America and that due to this geographic diversification, we were able to mitigate the impact of the absence of China to Brazil and redirect large part of Chinese demand to Athena Foods.

However, even with this initiative to mitigate risk, the Brazil operation ended up feeling some effects. Some cargo of rates had to be redirected to less profitable markets, and we also have impact on the cost of expenses, such as the entire scheduling and export logistics.

In addition, the price of the animal has an inertia does not received immediately right at the beginning of the [ industry ]. So part of the cattle we had already bought ended up being purchased at a much higher price, and this meat produce was not for a market that was as profitable as the Chinese market. We had to redirect to other markets. And with that, the profitability was somewhat compromised. All of this affected the EBITDA margin in September specifically, and impacted our profitability in the quarter. So in September, Brazil had a major drop in the EBITDA margin, about 50 basis points to 70 basis points. But at Athena, we managed to keep the margin levels above double digits. So when we look at the quarter as a whole, we managed to maintain a very healthy EBITDA margin. And more importantly, EBITDA cash generation is much higher than what we were planning at the beginning of the year.

Looking now at last quarter, in October, we continued with the absence of China for our Brazilian exporters, but we already have an important recovery scenario margins returning to the high single-digit level we saw in August. Just talking about Brazil why this happens, because the sales operational schedule is already better reflecting the restriction imposed by China. We had a major drop in the price of animals at the end of September and throughout October, which ended up being absorbed by the industry and obviously ended up benefiting our profitability level.

In Brazil, with the profitability level in September, which was very low, has returned to the levels of July and August. In this context, it is obviously still early. We still have November, December to follow. But we have great expectations of delivering the last quarter of the year, performance superior or higher to what was seen in the Q3 because they were like, first, positive impact of year-end seasonality. 2, strong price movement in the international market and 3, the price of cattle here in Brazil, which ended up dropping between 15%, 20%, 30% depending on the market during the month of October. And compared to the previous quarter, it is at a much more attractive level for the industry.

So in the worst-case scenario, we think that the fourth quarter, even considering restrictions imposed by China, we will have a profitability level, at least the same level, but very likely higher than the profitability we have seen in the third quarter. We are still waiting for the resumption of Chinese exports. We still believe that this will happen soon. But given the scenario I have explained above, even considering that China does not return, we remain very confident to have the fourth quarter even better than the past quarter.

Let us move on to Slide 9 to talk about financial leverage. We show our leverage ratio, measured by the net debt-to-EBITDA ratio for the last 12-months remains stable at 2.4x. The company's net leverage indicator has remained stable since the beginning of 2020. Even considering disbursement of BRL 210 million in the share buyback program and another BRL 541 million in distribution of dividends paid throughout this period.

Minerva's current level of leverage reflects our commitment to seeking and maintaining a more efficient capital structure, less costly with lower risk profile, fully align with our financial strategy. It's worth mentioning that discounting, the amount of BRL 200 million related to the dividends, which should be effectively paid now by the end of November, the company's net leverage remains practically stable between 2.4x and 2.5x in the ratio, net debt over EBITDA.

Let us move on to the next slide to talk about net income and operating cash flow. Q3 '21 was another quarter of positive results. Net income reached approximately BRL72 million in the quarter and has already accumulated approximately BRL 450 million in the 9-months of '21. If we consider accumulated past 12-months, net income totals BRL 563 million. This result is a reflection of our commercial financial strategy over the months, past months and quarters, total focused free cash flow, generation risk management, especially reducing indebtedness, pillars that have been priority for the company and have contributed to a way relevant to the results that we have achieved quarter after quarter.

Moving now to the right-hand side of the slide, we see operating cash flow positive 3Q reaching BRL 412 million, even considering in variation of working capital, that consumed BRL 204 million in cash this quarter, where the main impact came from the accounts receivable row. In the line of -- In the last 12-months, cash flow from operating activities totaled BRL1.8 billion positive. On Slide 9 and 11,, we talk about the greatest priority of Minerva, which is free cash flow.

On Slide 11. We see in the bridge of third quarter, free cash flow remained positive for the 15th consecutive quarter, reaching BRL 83 million after the result of the foreign exchange hedge. This being more almost 4 years in a row with positive cash generation. Making the free cash flow build up in the quarter, we started with an EBITDA before nonrecurring items, BRL 639 million, CapEx of approximately BRL 179 million, mainly concentrated on investment in maintenance and expansion of our -- some of our plants and also reflecting the anticipation of some investments foreseen in the schedule for the next quarter, such as additional investment in modernization, expansion of operational capacity in Colombia.

Then we have the working capital account, which consumed BRL 204 million, as I mentioned, previously impacted by the accounts receivable in line with the cash-based. Financial results, which was negative BRL 212 million after non-recurring effect of approximately BRL 9 million due to social expenses, charges that we have with the [ pagani ], we reach a positive recurring free cash flow of BRL 52 million in Q3, which after positive cash result, BRL 30 million due to foreign exchange hedge policy, we reached a free cash flow in the quarter of BRL 83 million.

Talking about the past 12 months, free cash flow totaled approximately BRL 850 million. Start from EBIT of BRL 2.3 billion, CapEx in the past 12 months, BRL 400 million, which was impacted by the expansion improvement of several plants and our operational chain and also by our Corporate Venture Capital initiative. And in addition, the working capital variation, negative by a BRL 148 million in past 12-months and cash-based financial result negative by approximately BRL 898 million. We also have BRL 32 million nonrecurring items related to the pandemic. And adding up, we reached a free cash flow of approximately BRL 850 million positive in the past, reflecting an excellent operational and financial performance of the company in this period.

On Slide 12, we present the bridge of the net debt. At the end of the previous quarter, net debt totaled BRL 5.3 billion. Now we recently had a cash inflow of BRL 252 million, referring to the exercise of controlling group subscription bonus as a subsequent event, which obviously adjusts the net debt down. During the quarter, the cash flow before the result of the foreign exchange hedge was positive BRL 53 million. We also had the impact of the hedging instrument that ended up reducing our debt by BRL 30 million in the cash concept and other BRL 170 million positive with accounting effect only.

We also have a cash effect -- negative impact of BRL 759 million related to exchange variation on the portion of our debt that is paid to the foreign -- to dollar. So adding all these accounts and setting up the bridge, Minerva's ends the quarter with a net debt of approximately flat around BRL 5.5 billion, even considering that the exchange rate moved from BRL 5.0 to BRL 5.49 at the end of the quarter.

I want to emphasize once again that our current hedge policy continues to require that we have at least 50% protection for long-term passive or liability exchange exposure that this can be seen in our expenditure to our financial statements as well as our balance sheet. Our foreign exchange exposure is also highly protected making us more confident to continue focusing on the company operating and financial execution, seeking path of generating value to our shareholders.

On our next slide, we will talk about the capital structure and Minerva Foods recently Liability Management initiative. As we said before, our leverage ratio, measured by the net debt over EBITDA ratio for the past 12-months ended up for the quarter, 2.4x. Our cash position at the end of the quarter. We remain very comfortable around BRL 8 billion. Adjusted by the inflow of subscription warrants from the controlling group, but also impacted by the re -- purchase and partial cancellation of the 2028 bonds, as highlighted on the slide.

Speaking of indebtedness, about 71% of our debt is exposed to exchange variation. As I mentioned previously, this management is committed to protecting our balance sheet. So we have a hedge policy that determines that the company must have at least 50% of its long-term foreign exchange exposure hedged, and this has proven to be very efficient given this recent foreign exchange volatility in Brazil. Currently, our duration is around 5.6 years, with almost 90% of our indebtedness in the long term, and 65% of amortization concentrated only from 2028, as you can see in the chart below.

On the right-hand side of the slide, I also present a few more details, the Liability Management efforts that we have been implementing since mid-2020. More recently, we can highlight the buyback and cancellation of $70 million or approximately [ BRL 700,875 ] of the 2028 bond contributing to the reduction of our gross debt. And obviously, the cost of debt in July, we had the 2031 bond retap, raising an additional BRL 400 million in addition to anticipate -- in order to anticipate some more expensive debt rollover that would occur in the short-term in our balance sheet.

And finally in October, we had the 11th issued debenture by the company in the amount of BRL 400 million maturing in 5 years yielding CDI plus 1.60% per year. It's worth mentioning that the proceeds of this transaction will be used to pay our sixth issue of debentures maturing on May, 2022 and yielding CDI plus 1.80% per year. Therefore, we are going to have an extensional debt profile and a reduction of the annual cost of our debt, which ends up translating into a lower level of financial expense.

The result of all these initiatives addition to reduction, cost of our debt and gross leverage also reflect the stretching of our debt profile with most relevant maturities being concentrated in 2028 and [ 2025 ]. The Liability Management efforts reinforce our commitment to financial discipline, pursuit of capital structure, sounder, more less cost with lower risk profiles, especially well aligned with our shareholder value creation strategy.

Let us move on to the last slide of the presentation to talk about early distribution of dividends, which is obviously one of the ways to generate and deliver value to our shareholders. On Slide 14, as Fernando commented at the beginning of the presentation, generating value to our shareholders is one of the main priorities of this management does. In line with the excellent operating and financial performance we have re-achieved in the recent quarters with the consistent execution in our -- of our leverage reduction process. We announced yesterday the distribution interim dividend in the amount of BRL 200 million, which gives a dividend of approximately BRL 0.35 per share.

If we take the earnings already distributed over 2021, we have first [ JCP ] in January and a net amount of BRL 19 million to complementary dividends in April. In the order of BRL 384 million and now this distribution dividend of BRL 200 million, we have reached a total of approximately BRL 600 million or BRL 1.2 per share in dividends effectively paid in [ 2020 ]. We are talking about a significant dividend yield of over 12%, considering the asset price at the end of October.

This scenario has only been possible with all the dedication and effort of the Minerva team in the recent years. And our priority has always been very clear, focus on cash generation rate, reduce debt and level of leverage, create conditions for Minerva Foods to manage and deliver value consistently and relevantly to its shareholder. Finally, it's worth emphasizing that this scenario of distribution complementary driven does not compromise Minerva's of strategy of maintaining a healthy and balanced level of leverage. You can see on the bottom right of the slide that, if we do the leverage account considering the cash outflow related to these BRL 200 million dividends, the net debt over EBITDA ratio for the past 12 months is stable 2.5% as I mentioned earlier.

In other words, with this distribution, we still have a comfortable balance sheet, a solid balance capital status, much less cost with lower risk profile, which ends up providing opportunities like this to generate and distribute even more value to our shareholders. Let us move on to our Q&A session. Thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Ricardo Alves from Morgan Stanley.

[Ricardo Alves, analyst]

I think the result itself has positively surprised. We wanted to know about the strength, considering your comments on the performance of Athena look really impressive. In this sense, considering that demand is so strong, our base case and the market is that there will be a normalization of China in 2022. When you think about next year, in addition to this volatility of the fourth quarter in 2022, do you see a scenario that is doable of more margin, operating at low double digit, a bit over 10%, considering that the Brazil margin is running at pre-suspension levels, considering that you have very sound levels in the sense speaking about margin of the year a bit ahead. If you have some specific of global prices of beef that would help you?

[Fernando De Queiroz, executive]

Ricardo. I am going -- well, first, I would like to take the opportunity of your question to make a correction. I have described the performance of the company in the quarter, month by month, something that I don't usually do. Because I thought this quarter made sense because the ban on China occurred in September. To recap, in July and August, we had Athena operating at 2 digit and Minerva one high digits when we have the ban in September because the cattle price was high. We have -- we had to reprogram logistics Minerva margins in Brazil for 500 basis points and 700 basis points. Not, as I mentioned previously on the call. So for levels 9% and moved to levels below 4% in August -- in September, actually.

On the other hand, the margins of Athena continued very healthy, sound level of low 2 digit. And we closed the quarter at 8.8% with quite important performance. When we move to October, the margins in Brazil recover to levels of July and August, and Athena keeps the same level. Therefore, October, we had a margin that was very similar to what July and August were, which were the best months in the third quarter. Even at the near scenario in which we do not have China in the fourth quarter, we should have a performance in the worst-case scenario, like the first quarter, but much like -- more likely than -- better than the third quarter. If the conditions given now were given in October are kept until the end of the year.

So how do we look at 2022? Very difficult to give you prospective margin in 2022 because there are many things happening. For example, we have major pressure in terms of freight prices reflected in this quarter and some renegotiations of contracts that matured our expenses, sales, we are in the process of drafting our budget. I cannot give you a reference or margin prospect. But if everything happens the way they are -- is happening, we will repeat in 2022 the performance for 2021, in the worst-case scenario. So the balance of supply and demand of beef tends to get worse, more tighter. The economies tend to recover more strongly, removing the Brazilian economy, economies abroad. We see especially in Asia, greater movement next year than in 2021. So this certainly drives more consumption of beef, which reflects in price.

Second point, we have a major change in terms of livestock cycle next year. We have been mentioning this 2018, '19, and that's our base scenario from the second semester 2022, we would have a change in the cycle. The good news is that we see a huge amount -- number of animals that were born in this period that probably will be available to the market before we expected. This should support a scenario of cattle prices on average in 2022, lower than 2021, even assuming this recent drop of September in which prices move from [ debt ] level of BRL 315 million, BRL 320 million and above and came close to BRL 260 million, BRL 270 million. Even considering this as the average, we are going to have cheaper cattle than we had in 2021.

With these drivers put on the table, it's very difficult for us to have a scenario for 2022 in which the margins would be worse than 2021. It's exactly the contrary. The amount of improvement is hard to measure at the moment. Adding to what Edison said, we have noticed that our thesis of investment based in South America, how much we are making in markets worldwide. So apart the [ porch ] and the thesis of being produced beef in the region of the planet, which is most competitive gains, strength, space, and it has increased. We have a favorable cycle in Brazil for next year, as Edison has described. And you have the recovery of economies with a stronger demand. Especially driven by the southeast of Asia. So we are very optimistic, not mentioning the margins with indication that the next 2, 3 years, we are going to have a reality that is quite favorable in South America.

[Operator]

The next question is from Rodrigo Almeida from Santander.

[Rodrigo Reis de Almeida, analyst]

I would like to touch some points. First, talk about capital allocation. So you have a very sound cash position, BRL 8 billion, even considering the bond buyback and dividends announced, your position is quite strong. I would like to understand what you can think in terms of capital structure from now on the additional dividend. So do you have a more robust buyback status, so you see certain [ limitations ] So I would like to hear from you cash allocation focus and the strategy in terms of reduction of gross debt going back to the point of the previous question. So prospects for fourth quarter, short term, how can we think about your level of growth? So the levels for Athena, can we think that you can have a higher level at Athena Food? What do you -- How do you think this can impact the cattle prices in countries like Uruguay?

And still on this point, in terms of expenses, so it's grown along quarter against quarter. So you talked about logistics. I would like to understand how this impacts the normalization. If this has any relation to a more challenging global scenario. I would like to understand how all of it is impacted and possibilities. If you have any sort of views on [ MAS ], et cetera, and Athena Foods? Could you comment on that?

[Edison Ticle Filho, executive]

Rodrigo, I am going to answer the first and the third, and then Fernando will answer the second. Talking about the third SG&A what drew the prices were freight expenses. You can see that throughout the world, we have logistics costs. We had some contracts that were signed that matured. In the third quarter, we re-signed a contract of a high level. So therefore, we have an effect that happens once in the quarter. From now onward, we should not expect additional increases. There was an increase in expenses with freight. In third quarter, we locked them in the content. And this is going to be permanent or maintained next quarter.

So in terms of capital structure, so BRL 8 billion that we have in cash, our commitment of $400 million is debt buyback or rollover. $400 million is something like BRL 2.2 billion about. This will be used over the next few months and quarters in buyback/rollout when I say, we have issued the bond. I am going to use the money to amortize debt. And now we have BRL 100 million with the ventures that we have issued that are going to be used to redeem a series that will mature may, and we are going to have anticipated redemption probably by the end of November. The specific date will depend on the best economic ratio in terms of fee and anticipated redemption. There's a clause that from a certain date in November, the fee has dropped significantly. We are just waiting for the date because from the financial standpoint, it's worthwhile waiting 2, 3 weeks to redeem the amount.

More major -- mostly the excess cash we have, the policy of cash that is have about 3 months cattle. We should have BRL 5 billion, between BRL 4.5 billion, BRL billion 5. We have 8 -- the 3 additional -- BRL 3.5 billion additional to BRL 2.6 billion to BRL 2.8 billion will be used for prepayment of debt/rollover and anticipated amortization. Regarding dividends, we are anticipating payment of dividends follow the policy defined by the Board. Previously, we will wait for the end of the year and depending on the conditions of capital structure, leverage and net income at year-end, we should have a complementary distribution of dividends after the disclosure of closed balance sheet 2021. I am going to hand over to Fernando to answer the second question.

[Fernando De Queiroz, executive]

Rodrigo. What I highlight here is the ability and instruments that Minerva has of arbitration, the various sources, origins and various plants. We have made an administrative chain that we are going to add a bit more color of next year, which is LatAm North, Brazil, Paraguay and Colombia and LatAm South between Uruguay and Argentina. So this division has to do with market access and especially the type of raw materials type of cattle we have in those markets. With this change, we have gained great speed, more integration between the portfolios between the possibility if you're allocating from one country to the other.

So what we have seen at Athena is that we have had some countries that were highlighted or stood out in this allocation. This happens weekly based on the cattle price, currency, access to market. And obviously, as we have mentioned here in the presentation, with certain sanitary changes that we have had as was the case of China. The speed we moved and that today, we prepare through the instruments of analytics, AI and portfolio analysis, they allow us to allocate and reallocate when events happen very quickly, our portfolios and production, especially operation -- operating areas. So our action is very strong. So if China is bad, we have contingency plans already established. If it doesn't resume, we move on. We are prepared for whatever scenario we face ahead.

[Operator]

The next question is from Thiago Duarte from BTG Pactual.

[Thiago Duarte, analyst]

I think that more than the discussion of the margin now being discussed. In one of the previous questions, I think one of the points that has been drawn attention most, is the share is dynamics of top-line. The power, strength of growth in revenue. In this context, I would like to discuss 2 points. First, when we talk about export mix to the market in Asia. Obviously, without China, it's been showing this strength and some in the past few quarters. When we look at Brazil and Athena, the performance of NAFTA in case of Brazil and Americas in the case of Athena.

I would like to -- and this helps to explain in addition to Asia. It helps explain a lot this dynamics of the average price quite stronger in the past quarter. I would like you to comment if you can, about which markets in these various geographies. It seems that at the U.S., we know has had a great performance in terms of beef demand. That is an important part of the answer. But if you could comment a bit on this, I think these are 2 geographies that are drawing our attention in a situation. Edison made an interesting comment on -- regarding top-line. In his presentation, where he showed the evolution of EBITDA and margins over the past quarters, mentioning that this is as a level of spread.

You operate this very well -- have been operating it quite well over the past years. And this dynamic of top-line that is very strong and margins showing some performance regarding top-line, quite strong. I would like you to discuss a bit the space you have -- if you have for average prices to continue growing as they have. It's quite impressive, especially you see average prices in dollar at a high that is quite steep for the past quarters. I would like to hear that in this level, spread on revenue that is very strong. If it makes sense, that the revenue has more space to grow or not. Because if we take Brazil, this recent drop in the price of cattle, we assume that it's going to impact average prices of peace.

I would like to ask you this question on the [ top line ] in couple of assets, geographies space for high and additional prices. And the other one was CapEx. We have seen the CapEx of growth. If you can give some direction on these levels on sustainable levels of CapEx in the next quarters and next year?

[Edison Ticle Filho, executive]

I am going to talk about CapEx and then Fernando can give you a better color. For CapEx, we acquired Colombia a year ago. How we discovered that we were going to invest to increase capacity, production in those plants as we had made in the first acquisition and the investments we make. We increased lines and slaughter houses become double, production capacity in a 1, 2-year period. We are adopting exactly the same tactics. Colombia has become a market in addition to quite important to us in terms of top line, in terms of profitability. It started accessing some markets that it did not before.

Now we have become an even more relevant player there and it makes all sense from the standpoint of attracting synergies, having more value and the operation to anticipate this CapEx that was going to be made this year. And next year, we decided to bring it earlier for the third and probably fourth quarter. We continue with this head of maintenance CapEx in this range of approximately, if you take our history, BRL300 million roughly a year. Plus something of expansion that was programmed for Colombia over 2 years that we are bringing forward for the third quarter probably first quarter next year.

[Fernando De Queiroz, executive]

Adding to Edison has said, this organic growth that we see in some of the origins, balancing a bit more. Each one of the countries that we have in a proportion of the available cattle access and market access. This highlight of Colombia gave, it's quite relevant. On your 2 questions, Minerva has always had this DNA of risk management, and this leads to a strategy of opening -- more opening that are possible or more openings that are possible markets. China is very important, but we consider that Southeast Asia is quite relevant. So other markets like Malaysia, Philippines, Indonesia, Singapore, Vietnam are relevant to us as well. We -- with diversification in the Middle East, we have a base for various countries where we operate. NAFTA and Americas and especially Chile, also, become very important destinations going back to Colombia.

Colombia has had recently the approval for -- to export meat and beef to Chile, we are not only pioneers, but with the brand -- branding of Minerva, you can quickly leverage markets in those places. So geographic diversification in both in origin and destination considering internal or domestic markets are quite relevant. All of this allows us that within this business spread. Moving to your second question, allows us to have options, allows us to have alternatives to redirect our production and our sales according to the market. So what do you have in this matrix? Great opportunity with the investments we have made. In the past 2 years of analytics, they allow us to identify opportunities and the opportunities are quickly transferred to operational areas. So that we can reduce [ natural ] changes and keep stability of margins.

The other thing you have mentioned about prices on the international markets, it's not us. It's the market itself. We are seeing food, inflation, beef inflation in all areas. In all consumer markets, what we believe that there is a NIM balance, looking at what happened in other producing countries. We have a reduction of supply, which maintains beef at high levels. Just to reinforce one of the positive surprises that we have had has been how China has changed its habit quickly and less flexible, less sensitive to price. If you analyze what is happening, beef has become an item that is aspirational of the middle class in China. And this, you can imagine the power this has. So even with high prices, rising price demand maintains reasonably stable. So we see good prospects from now onwards, but I reinforce what I said in the previous question with Rodrigo, the strength that arbitration has so that within the spreads, we can be increasingly more efficient.

[Operator]

The next question is from Gustavo Troyano from Itau BBA.

[Gustavo Troyano, analyst]

My question is more focused on the impact of exports from Brazil to China. Looking at the use of capacity and level of slaughter in Brazil. And you have just curved quite well the dynamics of profitability month by month. I would like to know about the use of capacity, if you can give it month by month, considering that the use of Brazil had a slight drop in the fourth quarter, considering the third quarter. Can you give more granular view over the third quarter, especially focusing on September when we should see an impact of a ban of China on the slaughter. And I would like to know about [ quality ] about the use in Brazil on October. Not to know about the impact use risk end of the fourth quarter is worth in October or is it a bit more flat October, November?

[Edison Ticle Filho, executive]

Look, capacity utilization has been in August to the revenue -- The number. This is close, how we have average capacity for the quarter. Athena, in average, was over 80% in the 3 months. I cannot give you a precise number, 8.2, 8.1, 8.3, on average, over 80 -- accumulated 81% on average. Brazil did not. Brazil had a greater utilization in July and August dropped a bit below 70. The levels were about 72%, dropped below 70% in September, but in October, it got back to September level and all. October operated on an average, that was the previous quarter, and considering seasonality, it's accelerating. This is what I can tell you because we actually have a third quarter seasonably more favorable in Brazil than the fourth quarter. Again, just making the various [ discoms ] use of capacity is always calculated adjusted by working day of each month, each quarter.

[Operator]

[Operator Instructions] The next question is from Guilherme Palhares from Bank of America.

[Guilherme Palhares, analyst]

I have 2 brief questions. Adding to the agenda on China, regarding the impact on the domestic market, you see cattle prices in September, you have high prices and price of beef more resilient in that. So to what extent can we -- looking at the fourth quarter, not only considering seasonality -- what we have...

[Operator]

Mr. Guilherme Palhares has been disconnected, could you please continue with the webcast questions?

[Edison Ticle Filho, executive]

Well, I am going to read a few questions from the webcast and try to answer them. First question, an agreement to revenue margin fourth quarter considering China and Brazil. I think I have answered this question over the presentation. So the buyback of the ventures will happen in November. Yes. The date will be considering the subscription. So we have a date from which we have the fees that are lower.

We are going to look at that, and we are going to form the date that is most conveniently economically for the company or financially for the company. How much of volume can be directed to amongst the geographies? This is a question and our decision we make quickly. As Fernando said, we have a matrix of optimization that is weekly, where we take all the prices that we can sell. All the cuts produced at all Minerva plants, weekly. So we make this optimization of this matrix, and then we get to the ideal points, considering all the variables involved, logistic costs, working capital, foreign exchange rate, freight and especially conditions of each one of the plants.

When I put Brazilian plants to run the matrix with the ban of China. Obviously, China is no longer a possible destination. China become a possible destination to be maximized from other geographies. So I cannot give you a color as to volume. All volumes are produced weekly. They are sent to the geographies according to the optimization metrics.

The impact of ocean freight for the company? We use ocean freight, as I said, have been increases. We had some contracts that have been renegotiated simultaneously in the third quarter, you could have impacted on our financial statement of increase in SG&A. An additional point on ocean freight, all the proteins, the most expensive is beef. So therefore, in terms of percentage, the impact is lower on beef than, for example, on chicken and other animal proteins.

So the situation of China and also pork. So the pork price has increased. We have seen this 2 weeks ago. So there was a drop. And pork is no longer -- beef is still at a level that is quite high. And pork has started to increase again. So we continue having the same lack of supply demand for next year, especially considering consumption growth that should continue to happen in Asia, to the question on lamp, it's not in Brazil -- well, actually, it's lamb. Lamb is not in Brazil. It's on Australia. We do not intend to have lamb in Brazil.

So comment on the swine cattle in China? [ Some ] mentioned that dropped 30% of what it was because the crisis, and they had great recovery because 2019, 2020. This reflected, by the way, the increase of consumption grains in China to feed the herd. The herd has reached 75%, 80% of what it used to be before the ESF crisis still 20%, 25% lower, but there has been a major recovery. Why is this good? Because the effect of this important recovery of the [ sinha ] growth if does not stop despite of that because he that based on volumes and prices practiced in the domestic Chinese market. Going back to [ Rodrigo's question ], he asked whether the drop of prices in beef brings an impact of volume in Brazil. Beef has very high income.

So the price need is lower, what happens when the protein prices grow. So we have replacement between projects. Since all projects become -- became expensive. So you have this happening to the dimension if beef drops, and other proteins may keep the same level, you have an increase in volume due to arbitration and replacement. If the movement is more or less equal and coordinated, than what will determine volumes is the income volume.

So if the ban from China is over, if the price -- purchase price of China will improve in Athena? If the ban of China is over, we will round the weekly matrices, considering that Brazil can export to China. What will happen? More volumes from Brazil will be directed to China. And I see Athena volumes that were from other countries, for example, U.S. and Chile, that was Brazil will continue to be served by the Athena plant and the final mix in terms of margin will be better than what we had in September.

I think I made this very clear during my presentation when everything was open and all the plants maximizing their return, we had Athena operating low double digit and Brazil has a drop in single digit. In October. Brazil continued ban by China, but with the drop in cattle prices, the low single-digit in Brazil became high single digits, and we had margins in October close to what we had in July and August. Therefore, if we have China ban scenario that we have seen in July and August should happen in November, December with a positive effect of seasonality on one hand and also another point -- positive point, which is the drop in cattle prices on the other side. I think this is it. Thank you.

[Fernando De Queiroz, executive]

Regardless of the environment that we have, the moment is still challenging. We will continue to face this together the way we can have conducted our business with RD&A. Prospects for the vaccination should be advanced faster and fills us with hope with the expectation of the end of the pandemic and a new normality and the new market, we are dedicating increasingly towards a broad, closer to suppliers, to our customers, regardless of where they are in terms of geographies.

One of those pillars that I have mentioned to our culture is sustainability. Increasingly, this is a differential for companies that want to be global players, for companies that are placed in different markets in different geographies. So we keep on being paying attention to the global market of beef and more than ever confident and the power that we have in South America, our corporate values to reinstate our commitment to capital discipline in ethical and sustainable practices. We believe this is the best way to generate sustainable, valuable value in the long term. Thank you very much for your interest in Minerva Foods, and we remain at your disposal for any questions, clarifications so that we can be increasingly stronger and closer to. Thank you all very much.

[Operator]

Minerva's conference call is ended. We thank you for your participation, and we wish you a very good day.