Minerva SA
BOVESPA:BEEF3
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Minerva SA
Earnings Call Analysis
Q3-2023 Analysis
Minerva SA
Looking back on the first nine months of 2023, Minerva Foods emerged with admirable operational and financial results. Displaying strength in both execution and commercial acumen, the company reported a gross revenue of approximately BRL 7.6 billion, an EBITDA of BRL 714 million, and a net income of BRL 141 million for the third quarter. Over the last twelve months (LTM), the gross revenue was approximately BRL 29 billion, with adjusted EBITDA at BRL 2.7 billion and net income accumulating to BRL 350 million. Excluding the impact of acquisitions, the free cash flow amounted to BRL 803 million for the quarter and BRL 1.2 billion LTM, signifying a balanced and stable capital structure. The company ended the quarter with an adjusted net leverage at a stable 2.8x net debt over EBITDA.
Minerva's recent strategic actions included acquiring 16 of Marfrig's industrial plants in South America, which promises to enhance the company's slaughter capacity by 42% for cattle and 34% for sheep. Distributed across Brazil, Argentina, Uruguay, and Chile, these assets integrate well into Minerva's existing structure, paving the way for expected operational and commercial synergies.
Optimism abounds in Minerva's perspective on the global animal protein market, particularly due to increasing animal availability in South America and drawback in North American supplies. Persistent sanitary and climate challenges worldwide, such as those caused by El Niño, create volatility and arbitrage opportunities. However, Minerva's focus on geographic diversification serves as a hedge against these risks, reinforcing a productive commercial outlook. Confidence particularly stems from signs of recovery in the Chinese economy and beef inventories, as well as potential new export permits, which bode well for South American producers looking ahead.
The company's capital management prudently balances growth pursuits with financial stability. Minerva has achieved remarkable free cash flow generation and maintains a prudent leverage rate, poised at the end of the quarter at 2.8x. This financial prudence is also exhibited in their careful management of acquisitions and the issuance of bonds, showcasing a commitment to a risk-adjusted approach to growth.
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Good morning ladies and gentlemen. Welcome to Minerva Foods' video conference to present the results of -- for Q3 2023. With us today, Mr. Fernando Galletti de Queiroz, CEO and Mr. Edison Ticle, CFO and IRO. We inform you that the presentation is being recorded with a simultaneous translation into English. Translation is available by clicking the interpretation button. For those listening to the video conference in English you may mute your regional audio in Portuguese by clicking on mute original audio. The presentation is available for download at ri.minerva.com. [Operator Instructions] We would like to clarify that any statements that may be made during this video conference regarding the Minerva's business prospects, operational and financial goals are projections made by the company's management which may or may not materialize. Investors should understand that political, macroeconomic and other operational factors may affect the company's future and lead to results which differ materially from those expressed in such forward-looking statements.And to open this videoconference I now turn the floor over to Mr. de Queiroz, CEO.
Good morning and thank you for participating in the Minerva Foods video conference to present the results for Q3 2023. At the end of the first 9 months of 2023 Minerva has delivered a solid set of operational and financial results which attest to the consistency and discipline of our business strategy. Our focus on operational execution, our commercial expertise and arbitrage capabilities were fundamental to the quarter's performance; to strengthen our corporate strategy and consolidate Minerva Foods' leadership on the continent. In Q3, our gross revenue totaled approximately BRL 7.6 billion, EBITDA was BRL 714 million, and net income was BRL 141 million. LTM, the results were very solid, with approximately BRL 29 billion in gross revenue, adjusted EBITDA totaling approximately BRL 2.7 billion and accumulated net income of BRL 350 million. We also did well in terms of free cash generation. If we exclude the impact of the acquisitions of ALC and BPU, the company generated BRL 803 million in the quarter BRL 1.2 billion LTM, thus contributing to a balanced capital structure, which remains stable. At the end of the quarter net leverage was 2.8x net debt over EBITDA.Before we move on to a more detailed discussion about this quarter's results, I would like to share with you a little bit more information about the recent acquisition of some of Marfrig's assets in South America. In August, we announced to the market the acquisition of 16 of Marfrig's industrial plants in South America, including 15 cattle slaughtering and deboning plants and 1 sheep plant. These assets are distributed across Brazil, Argentina, Uruguay and Chile. After the consolidation phase, they will increase our slaughter capacity by 42% for cattle and 34% for sheep. This move is closely aligned with our business strategy. After completion and approval of the legal procedures, the acquisition of Marfrig's assets in South America and the recent completion of the acquisition of BPU in Uruguay will contribute to enhance our business strategy by expanding our geographic footprint by unlocking operational and commercial synergies and by maximizing our ability to arbitrage. Our management remains extremely committed to completing this process and subsequently to integrating the new assets over the next few quarters.Let's now talk about our performance in Q3. As I always do in our video conferences. Before we move on to the highlights of the quarter, I want to share a little bit about our vision regarding the outlook for the global animal protein market. This market remains very promising with a very positive outlook for South American players. The continued increase in the availability of finished animals in our continent, together with the constraints in North American beef supplies continue to afford opportunities for South American exporters.Additionally, there are persistent sanitary and climate difficulties in some of the main animal protein producing regions in the world. This is expected to deteriorate even further because of El Nino. Climate problems in our sector generate volatility throughout the agribusiness chain. But thanks to our geographic diversification strategy, this gives us several arbitrage opportunities in the global animal protein market. Our strategy towards geographic diversification allowed us to build a unique manufacturing compound with unique arbitrage capabilities, thus mitigating risks.From a demand perspective, we remain confident given the gradual recovery of the Chinese market and the local economy, together with the supply shock in the North American beef production and the beginning of a recovery in the Brazilian domestic market, we should have excellent commercial opportunities over the coming periods. We thus have a scenario that should allow South American producers to tap new opportunities. One of the examples is the recent permit to export Colombian beef to the Chinese market. And we should see all the new permits materializing over the next few months.Let's move now to Slide 2, and we are going to talk about the highlights of the quarter. Gross revenue totaled BRL 7.6 billion in Q3 and approximately BRL 29 billion LTM. Exports accounted for 64% of our consolidated gross revenue, both in the quarter and LTM. This is one of the company's main commercial drivers, testament to our commercial expertise in serving the international market. In terms of operational profitability, EBITDA in Q3 was BRL 714 million, with an EBITDA margin of 10.1%. Whilst in the last 12 months, Minerva Foods' EBITDA was BRL 2.6 billion, with a margin of 9.3%. I also want to highlight our EBITDA adjusted by the ALC and BPU pro forma, which totaled BRL 2.7 billion on an annual basis. As a result of this good operational and financial performance, our net income was BRL 141 million in Q3, a 17% increase as compared with the last quarter, totaling approximately BRL 350 million LTM.I also want to highlight our free cash generation, which was positive at BRL 608 million in Q3 when adjusted for the impact of the acquisition of ALC and BPU, it totaled over BRL 1.2 billion LTM. And finally, in terms of our capital structure, we ended the third quarter with a stable adjusted net leverage at 2.8x net debt over EBITDA and a comfortable liquidity level with a cash position of BRL 10.5 billion.On Slide 3, we are going to see all the highlights of the quarter. As I said in the beginning of our video conference, at the beginning of August, in a move aligned with our long-term strategy, we announced the acquisition of selected assets from Marfrig South America, including 16 slaughter units and 1 distribution center in Brazil, Argentina, Uruguay and Chile for a total investment of BRL 7.5 billion. Once approved by the regulatory authorities, this asset will become part of our operational footprint. Also in this quarter, we completed the acquisition of BPU in Uruguay, thus expanding our investments in the country and maximizing the arbitrage capability of our industrial compound.Another major highlight of the period was the recent announcement by the Colombian government regarding the approval of the sanitary protocol for the export of Colombian beef to the Chinese market. The bureaucratic procedures required for the effective qualification of production units are expected to be completed by the end of 2023. Minerva Foods owns 2 slaughter plants in the country and is the leader in beef exports from Colombia.Additionally, in the next few weeks, we should see the approval of Paraguay for exporting to North America. Minerva is also a leader in Paraguay and is the largest exporter. So the opening of the North American market is good news for us in terms of our diversification as regards destinations. We continue to advance our sustainability agenda, especially the geographic monitoring of supplier farms.In Uruguay, we now monitor more than 40% of our direct suppliers. The highlights were our results in the audits carried out by the Federal Public Prosecution Office, the most prominent and reliable verification body of Brazilian production chains. Minerva Foods achieved 100% in terms of social and environmental compliance in the state of Para, Mato Grosso and Rondonia, which attests to our leadership and pioneering spirits in monitoring the production chain.I would also like to highlight the evolution of the Renove Program, which continues to develop new lines of certified carbon neutral programs -- products. This is a fundamental initiative in our relentless pursuit of a more productive and efficient livestock chain, which is more sustainable and with low carbon emissions.In Slide 4, we start by showing our exports. In Q3, we remained in the lead in beef exports from South America with approximately 20% of the continent's market share, which attest to the success of our geographic diversification, one of the main competitive advantages of our business model. On the upper hand -- right-hand side of the slide, you'll see the breakdown of our gross revenue for Q3. The Americas region was the main driver of gross revenue and accounts for 40%. Brazil with 19% and Chile with 11%. Then the Asian continent with 26% of the total gross revenue with China alone accounting for 19%. As I said in the beginning, we remain confident about the performance of the Asian market over the coming periods as a result of the recovery of the Chinese economy and the depletion of the level of local beef protein inventories. These inventories should come under increasing pressure because of the acceleration of local consumption and in view of the constraints in the global beef supplies.On the bottom right corner of the slide, you see more details about the performance of our exports for both our beef operations here in South America and our lamb operations in Australia. Starting with the 2 graphs on the upper part of the slide, our beef operations, Asia continues to stand out both in the quarter and in the annualized period and accounts for 38% and 43% of export revenue, respectively. The Americas region comes next with approximately 22% in the quarter and 20% LTM followed by CIS, NAFTA and Middle Eastern customers. In the lower part of the slide, you see the breakdown of exports from our Australian operations in Q3 with the NAFTA region being the main destination and accounting for 38% of the total exports, followed by Asia with 26% and the Middle East with 17%.Before giving the floor to Edison, I would like to highlight again our optimism with the global animal protein market. The outlook in the international market remains very promising. And the strong imbalance between supply and demand continues to afford good opportunities both in markets of scale and rapid income growth, such as the Asian countries and in premium markets, such as Canada, the U.S. and Western Europe.We also have good prospects in Latin America, the Middle East, Eastern Europe and Africa. These regions traditionally present greater volatility and therefore great opportunities for arbitrage and value maximization. Our strategy is to continue to execute on our business model to explore our competitive advantages, invest in innovation, niche opportunities, risk management to achieve increasingly efficient and profitable commercial and logistical solutions with a strong focus on generating value for our entire chain of stakeholders.I now turn the floor over to Edison, who is going to talk about our financial and operational performance.
Thank you, Fernando. Moving on to Slide 5. We'll start by talking about our operational performance and gross revenue for the quarter and for the year. In line with our focus on exports, foreign markets accounted for 65% of our gross revenue in the quarter and 66% LTM. In the breakdown by region, exports from Brazilian operations accounted for 68% in Q3 and 65% in LTM. In the LatAm, ex Brazil, exports accounted for 62% of the gross revenue in the quarter and 67% LTM. In the lamb operation in Australia, exports accounted for 68% of the gross revenue at the end of Q3. On the right-hand side of the slide, you see the breakdown of revenue by origin. Brazil accounts for 50% of the gross revenue in the quarter and 47% LTM followed by Paraguay, Argentina and Uruguay with about 12%, both in the quarter and LTM. Australia followed suit and accounted for 7% of the gross revenue in Q3 and Colombia with 3%, then others with 4%, which refers to the former trading division.On Slide 6, you will see the net revenue, which reached BRL 7.1 billion in Q3 and BRL 28 billion LTM. In terms of profitability, EBITDA in the quarter was BRL 714 million, with a very positive margin of 10.1%, back to double-digit levels. LTM EBITDA totaled BRL 2.6 billion, with a margin of 9.3%. The adjusted EBITDA by the pro forma performance of ALC and BPU totaled BRL 2.7 billion in the last 12 months.As Fernando said, and I would like to endorse it, constraints in the U.S. beef supplies together with the reversal of the livestock cycle, especially in Brazil, allows us to see a very positive outlook for our industry. We remain very confident about the prospects and opportunities in the global animal protein market for 2024 and 2025.Let's talk about financial leverage on Slide 7. Our net leverage ratio measured as net debt over EBITDA for the last 12 months. And EBITDA was adjusted for the pro forma of ALC and BPU remained stable at 2.8x. In this indicator, net debt is not impacted by the down payment of BRL 1.5 billion related to the acquisition of Marfrig's assets in South America as the acquisition has not been completed yet and therefore, does not yet have an impact on the EBITDA. Therefore, we believe that this is the appropriate criterion to evaluate the net leverage. Just to be clear, the adjusted EBITDA reflects the organic performance of Minerva plus BRL 31.1 million of ALC's EBITDAs in the month prior to the consolidation and BPU's EBITDA, which considers 11 months prior to the consolidation, and this gives an adjusted EBITDA for the last 12 months of BRL 2.7 billion.On Slide 8, we are going to talk about our net income, which was approximately BRL 141 million, BRL 376 million in the first 9 months of this year. In the last 12 months, the company's net income was BRL 350 million approximately.Moving on to the right-hand side of the slide, we can see the operating cash flow in the quarter, which was positive at BRL 1.2 billion, totaling BRL 2.8 billion positive LTM.I want to highlight here the 2 main lines that helped us with our working capital in the quarter, the line of accounts receivable from customers and other receivables, which returned approximately BRL 278 million to the cash position and the line of other accounts payable, which contributed BRL 219 million.We all remember the difficulty experienced in the credit market at the beginning of 2023, which negatively impacted our performance in the working capital line, especially the suppliers line. Well, as we expected, the positive evolution in the credit market has allowed a gradual normalization of this scenario. And we expect this movement to gain even more traction by year-end as we had anticipated.On Slide 9, we will see our free cash flow. If we build up the cash flow this quarter, we start from an EBITDA of BRL 740 million then CapEx of BRL 202 million, mainly for maintenance and some organic expansion of operations. Then we have the working capital line, which released BRL 581 million in the quarter, and a cash-based financial result, which was negative by BRL 290 million. Thus, the recurring cash generation was approximately BRL 803 million in Q3. If we subtract the BPU payment, which totaled BRL 195 million, we ended the quarter with a positive cash flow of BRL 608 million.In the last 12 months, free cash flow was negative by BRL 186 million. However, it includes all the impacts of the acquisition of ALC and BPU throughout the period. During the buildup, we started with an EBITDA of BRL 2.6 billion, CapEx of BRL 665 million, a positive working capital variation of BRL 674 million and a cash-based financial result, which was negative by BRL 1.4 billion. The recurring free cash flow was BRL 1.2 billion for the last 12 months ending in September 2023. If we add the value of the acquisitions of ALC and BPU, we will have a negative cash flow of BRL 186 million. Also, the cash flow result for the last 12 months does not include the BRL 323 million in dividends we paid out in the period.Now on Slide 10, we will see the bridge of our net debt. At the end of the previous quarter, net debt was BRL 7.7 billion. Then we have the payment of early dividends totaling BRL 114 million, which increases our debt. We have the noncash effect of BRL 86 million from derivatives, which reduced our debt and then the noncash impact of around BRL 348 million related to the exchange rate variation of the portion of our debt that is linked to foreign currency.Finally, we had a positive free cash flow of BRL 608 million, which reduces our debt level. We closed the quarter with a net debt of BRL 7.5 billion, approximately BRL 200 million lower than the previous period, even when we consider the payout of dividends and also the major impact of the noncash variation of the exchange rate on our debt. This result demonstrates the great focus and commitment of our management to maximize free cash generation, which allows us to tap opportunities and also maintain a balanced capital structure.As I said before, net leverage was stable in the quarter at 2.8x. Following our cash policy, the position at the end of Q3 remained at a very comfortable level with approximately BRL 10.5 billion and includes recent issues, especially the 2033 bond with the aim of financing the balance of the recent acquisition of Marfrig's asset. In terms of our debt profile, 70% of the debt is exposed to the exchange rate variation. And I'd like to remind you that we have a hedging policy in place, which we follow to the letter. It determines that the company has to hedge at least 40% of our long-term foreign exchange exposure. The duration of our debt is 5 years. And as you can see in the amortization flow, the debt profile is very comfortable.And finally, I will comment a little bit on the liability management efforts that we have implemented over the last few years. In September, we issued a bond 2033 totaling $1 billion with a coupon of 8.875%. In October, we issued debentures for BRL 2 billion in 4 series, all of which have been swapped to the CDI pursuant to our commitment to maintaining a longer, more balanced and less costly capital structure.I would also like to highlight Fernando's comment regarding our acquisition of Marfrig's asset in South America. We are very confident in the completion of this process. We believe this is a unique opportunity for us as it is clearly aligned to our business model. After the integration of the assets, we expect to capture operational and commercial synergies, which will contribute significantly to our operational and financial performance by expanding our ability to arbitrage markets and maximize the profitability of Minerva Foods.I'd like to give the floor now back to the operator, so we can start the Q&A session. Thank you very much.
[Operator Instructions] The question comes from Mr. Thiago Duarte from BTG Pactual.
I would like to touch upon 3 points very briefly. First of all, I would like to confirm a reading and it's the following. When we look at what has been happening with slaughtering and compare the slaughtering volumes between Brazil and other countries. So there has been more slaughter in Brazil and a drop in volumes in the combined of the rest of South America or Latin America. This seems to be in line with what you traditionally do in terms of market arbitrage. So this makes me think that the margins in Brazil were a lot better than the margins in other countries where we saw a major drop in production volumes. Is my understanding correct? And if this is the case, how do these margins compare throughout this last quarter between these 2 geographies in this quarter? Is this a trend that will continue in Q4? What is your take on that? And then I would like a little bit more color about something. On the other operating revenue, we had BRL 22 million, and there aren't any more details about this figure. So could you give us some more details about this figure? And lastly, when you made comments about the prospects relating to the final deal related to the purchase of assets from Marfrig, can you give us an update on the time frames because that is extremely important, given the improvement of the cattle cycle in Brazil and whether the integration of these assets will be accelerated?
Thank you, Thiago. Good morning. I'll take the first question. Yes, arbitrage is part of our DNA, geographic diversification, the fact that we want to increase the diversification and grow the company in South America. This all helps us improve our arbitrage capabilities. You read it right, margins were better in Brazil for most of the quarter, and this then led us to arbitrage. There were also some climate problems in some countries relating, which had an impact on the availability of cattle and therefore, the volumes went down, but Brazil was the highlight for the quarter. For Q4, we are always looking for arbitrage opportunities. Brazil is doing well. We are more optimistic in terms of domestic consumption. If you look at our sales in Brazil, they have increased relative to the previous quarter and to Q3 2022. Everybody is very surprised with this very good numbers. And the seasonality is going to help us in Q4. Would Fernando like to add anything?
I think you're right. Arbitrage is carried out every week. We have surprises from other originations, which become more competitive. But this is what we do. It's exactly as Edison described.
As regards the BRL 22 million, it has to do with the reversal in the provisions made for freight. It goes back to EBITDA because we deducted it before from the EBITDA. So it makes sense to return it to the EBITDA line. So then it makes no sense in adjusting it differently. It's not a relevant figure, but that's what it means. And then your third question was about the time line for the antitrust commission to approve our deal with Marfrig. The CADE, the Brazilian antitrust authority has a year to give an opinion. This would take us to October next year. We believe that in Brazil, this could happen in 9 months. So June, July next year is a reasonable time line, but we are working hard with the CADE to make it shorter. As you know, we think the cycle in Brazil is extremely positive for 2024. So the earlier we are able to start operating these plants, the better for us in terms of extracting value from the deal. We believe that a fair estimate is between June, July next year for Brazil.As regards Uruguay, we believe it could take up to a year, but we are working to bring it down to the same time line as Brazil. In Argentina and Chile things work faster and this is also because of the size of our operations there. But the 2 factors are Brazil and Uruguay, we can close the deal in Brazil and then wait to close the deal in Uruguay. So Brazil is the most relevant part. So Brazil, Argentina and Chile, and then we wait for the Uruguayan authorities.Would you like to add anything, Fernando?
Yes, we have been working hard to expedite the process. I think it's a good opportunity. It is, I totally endorse what Edison said. There is going to be a question about the counselors of the CADE, I could take us to June, but we believe that the situation in the antitrust authorities, CADE, should be sorted out shortly and shouldn't have an impact on the procedure that regards our company.
The next question comes from Mr. Gustavo Troyano from Itau BBA.
I have a question relating to working capital. In the last 2 quarters, we discussed that there was a greater volatility, and this had to do with the embargo of China that brought a little bit more volatility to that line. In Q3, have we seen a normalization of that line item in the sense that exports to China have been normalized and all the working capital lines relating to the exports are now behaving normally, so to speak. And then also, looking ahead, should we expect a major variation in this line because maybe another variable is also going to be normalized?
Yes, you're right, things are going back to normal. This line can have an even more positive impact as the volumes of exports to China grow and grow back to what we saw 3 quarters ago. Your reading is correct. You're absolutely right, and we might see a surprise there, a good thing in the next 2 quarters.
The next question comes from Mr. Tiago Harduim from Citi.
I would like to explore 2 topics. The first one has to do with the Chinese market. Can you give us a little bit more color about your expectations towards the end of the year? We had the Chinese New Year coming up. You also said that the inventories in China are a bit lower. So I would like to have a little bit more details about this specific indicator. Then the second question has to do with the new permits. Colombia will now be able to export to China. We heard news about Brazil being able to export to the Dominican Republic. And you also made the comment just now about Paraguay being able to export to the North American market. What are the impacts of these new permits and how do you see this going forward?
China is showing signs of recovery, but mostly, it's a depletion, a reduction in existing inventories. So Brazil had volumes that were bottled up because of the embargo. So all these products that were in the pipeline had reached China at once. So the inventories were artificially high. Consumption is picking up. China is becoming more and more westernized in terms of habit. So we believe that China is going to be the major driver in the market. In terms of the permits, the Chinese market for Colombia will be a big transformation. Colombia has very little permits. Colombia is investing very heavily in having new sanitary agreements. So it's a big achievement for the Colombian government. We export 90% of the beef in Colombia. So it will have a positive impact on our profitability. In terms of the Dominican Republic, it's a small market, but it's yet one more destination for Brazil to export to. And the U.S. for Paraguay as well would be a big destination, Paraguay exports to the United States and also provides raw materials for companies in Argentina, Brazil and Uruguay, who will be able to produce products for the U.S. So that's another very significant permit for Uruguay.
Our next question is from Mr. Alencar from XP.
I would like to follow up on the cycle dynamics. There was an improvement in Brazil, which we did not see in Brazil -- in the Brazilian results because of the deterioration of Paraguay. But let's think about 2024, the supply of cattle for slaughter in Brazil is favorable. So in terms of the supply and margins, this is a positive dynamic for you, but there was a bad surprise in Paraguay. Is there an expectation in terms of a change in the cycle of Paraguay or a structural increase in Paraguay or Uruguay, for example? And given your geographic diversification, can you mitigate the risks or -- but changes in the cycles would be positive. So I would like to understand a little bit more about the timing in terms of the reversal of cycle and improvement in structural margins in other countries, given that Brazil, in Brazil, the scenario is quite benign. I have also seen the cost of animals in Brazil has been picking up. And the effect of lower costs, has this been captured in Q3. Is this going to go on in Q4, you have a hedging strategy. How can this have been carried to Q4 in terms of demand of Q4, are you optimistic, especially in the domestic market?
In terms of cycle in Paraguay, the ranches are retained in the females. New areas have been occupied by ranches, and it's just natural to send the female animals to those areas. So there are no females being slaughtered. But this, on the other hand, signals a higher supply because these females are going to give birth to calves. So Paraguay is one of the countries that we believe is going to become a protagonist in South America. In Uruguay, the cycle is positive. In Q4, we should see a stronger position of Uruguay. It's just natural that there are -- that there should be better cycles in different countries, and this is factored into our strategy towards diversification. In Brazil, the dynamic is very positive. And Brazil is going to have a strong supply as well. So we feel very confident with the cycle in Brazil in the next year or 18 months. And in terms of demand in the United States, we see that things are tough, especially for the next 3 years. The cycle in the U.S. will take a lot longer to reverse. And South America will step into that space. And an example of that are the new permits we have received.
Just the final part of your question. You can see that in the gross margin. The gross margin was record and the gross margin reflects also the drop in the price of cattle. You know very well that we don't carry anything to the fourth quarter. We are exposed to the market variations, but we have a positive view about the price of cattle. In the futures curve the prices are more or less flat. So this is what we included in our budget for 2024. But for what you want to see, just look at the gross margin, which was record for a third quarter.
My question was, do you think you have reached the peak? Or is there going to be an improvement in the gross margin?
We think so, but not on the supply, but on the price of beef, gross margin may improve; if you look at the price of cattle. And if we look at the market, the price has been flat. But Fernando just described a very positive scenario in terms of international demand. So if you join these 2 things in the equation, it points at probably better gross margins in the quarters ahead of us.
Our next question is from Mr. [ Musi ]from Morgan Stanley.
I would like to go back to the working capital topic. In this quarter, there was a release under the receivables and inventory line. Was there something specific in this quarter? This were the 2 stronger lines? Was there any specific country or any specific event that allowed you to have a better inventory line, maybe China? And then in relation to Q1, we saw that working capital was weaker under the supplier line. There was an improvement in Q2, and there was a deterioration in Q3. So how do you see that in terms of more working capital being released in Q4 and in Q1 2024? Are we going to see an improvement in the supplier line, in the receivables? Will the inventory line improve? So how do you see the working capital line going forward?
So let's take it in 2 parts. Inventories went down and production is the same, but we sold more. And the inventory consequently went down. We can't sell what we don't have. Then in terms of suppliers, 40% drop. So we'll have less to pay to suppliers and the effect -- the accounting effect is as if the supplier count was getting worse because we have less funding being granted, but that's not the case. If we think in terms of heads, head of cattle, this wouldn't have changed, but the price has dropped by 40% year-on-year. In terms of additional release of working capital in the last 12 months, the company has grown in terms of volume, and we have released over BRL 600 million in terms of working capital. We always want to be more efficient, but you have to be reasonable in terms of what you ask from us. You have to look at the numbers. There is no way we can work with 0 working capital. There is some space to improve. I talked about the payable accounts. This has to do with the advancements relating to China. This may go back. But BRL 674 million in terms of working capital released in 12 months, it's not negligible. In Q1, this was totally -- almost totally offset in the following quarters. I'm not going to commit to something much better than that in terms of working capital. But I don't think the working capital will detract from the cash. We have a very good level. We were able to offset the hit we took in Q1, and this is what I had to say.
[Operator Instructions] I would now like to turn the floor over to Mr. Ticle, who's going to read the questions that were asked in writing.
We have a question from Nikolay, Lighthouse Capital. He asks whether we have changed our expectations in relation to the EBITDA of the assets we have acquired. And the answer is no.He also asked whether the acquired assets will generate cash flow immediately.And the answer is yes. I mentioned this in the presentation. If we had just the major figures, EBITDA, if we take the maintenance CapEx and the financial expenses, the additional financial expenses due to the acquisition. We estimate that these assets could add some BRL 300 million in terms of free cash on a yearly basis without us doing anything just by using the EBITDA that we believe they are having today, which is 7.5%, 8%. So the answer is yes. These assets will be integrated and generate free cash, even if we deduct the maintenance CapEx and the financial expenses.And then what is expected in terms of the integration of the assets of costs?No, we are not bringing any fixed cost structures. This will allow us to save BRL 500 million in terms of SG&A because these assets do not bring costs with them.
This was the only question we had in the Q&A. Thank you very much. We'll now close the Q&A session. And I would like to turn the floor over to Mr. Fernando Queiroz to make his final remarks.
Thank you so much for attending this video conference to discuss the results of Q3. We are very optimistic with the domestic market and the international market alike. New permits for South America. South America should take up more space in the international market, we will become increasingly prominent in this scenario. And finally, I would like to thank Minerva's team for the excellent work that they have been doing for their commitment, for the transformations that they have been able to achieve. We continue to focus on generating results and income. And our culture together with our pillars is the language we speak. This is what we live by. Thank you very much to all, and we remain available should you have any questions or need further clarification. Minerva's conference is now ended. If you have questions, send your question to the IR team. Thank you very much for participating, and have an excellent day.