Minerva SA

BOVESPA:BEEF3

Earnings Call Transcript 2024-Q3

[Unknown Executive]

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

 

This presentation is being recorded and simultaneous translation is available by clicking on the interpret button. If you listen to the video conference in English, you have the option to mute the original audio in Portuguese by clicking on mute original audio. The presentation is available for download at ri.minervafoods.com in the Presentations tab. [Operator Instructions]

 

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

 

To begin the earnings release video conference call for the third quarter 2024, I will now turn it over to Mr. Queiroz for his presentation. Please go ahead, Mr. de Queiroz.

[Fernando De Queiroz, executive]

[Interpreted] Good morning, everyone, and thank you for joining us on Minerva Foods earnings conference call for the third quarter 2024. Minerva has concluded the first 9 months of the year, delivering robust operating and financial results, thereby reaffirming the consistency and discipline of our business strategy. Once again, the company has demonstrated that geographic diversification is a key pillar of the operational and commercial execution of our business model, reducing risks, maximizing our arbitrage capacity, and strengthening our corporate strategy as the largest beef exporters in South America.

 

In Q3 2024, our gross revenue totaled around BRL 9 billion, with a record EBITDA reaching BRL 813 million and an EBITDA margin of 9.6%. In the last 12 months, gross revenue has reached approximately BRL 31.4 billion with an EBITDA of BRL 2.8 billion. Free cash generation, a priority for the company, continues to be a highlight, having reached BRL 667 million in the quarter, adding up to BRL 1.6 billion last 12 months in Q3 2024. Our sound cash generation performance continues to contribute to our capital structure, which concluded the quarter with a net leverage adjusted by the advanced payment for the acquisition of new assets at around 2.6x net debt over EBITDA.

 

Before we discuss the results, I'd like to highlight the completion of the Marfrig South America assets acquisition in Brazil, Argentina, and Chile and the start of their effective operation. Let's start on Slide 2 with more details about the integration process.

 

Starting with a timeline of events. On August 28, 2023, we first announced the acquisition of selected Marfrig assets in South America. More recently, on September 25, '24, we were notified of the approval by the Brazilian Antitrust agency. And then on October 28, 2024, we announced the completion of the acquisition of plants in Brazil, Argentina, and Chile, a total of 13 new industrial plants and one distribution center. Therefore, Minerva's industrial park now includes 46 units across seven countries and a daily slaughter capacity of 41,789 heads of cattle and close to 26,000 heads of sheet. Total investment in the assets was BRL 7.2 billion, of which BRL 1.5 billion were disbursed in advance in Q3 '23 and BRL 5.7 billion was paid now at the end of October '24 as per contractual corrections and adjustments.

 

It is worth noting that the three units in Uruguay that are part of the acquisition operation are still being assessed by the local antitrust agencies, and that process should be completed by the end of the year. Since August last year, when the acquisition was first announced, the company has been working on planning and developing the integration plan for the new assets. Initially, we established an executive integration committee led by Minerva Foods senior management to be responsible for establishing guidelines and monitoring the integration governance. In order to ensure complete alignment with Minerva Foods culture, strategy, and business plan.

 

The integration process was divided into four major phases: planning, validations, start of operations, and capturing synergies. The first two phases focus on analytical planning, collection, monitoring, and validation of data, the information and documentation required for the full operation of the assets and covering all macro aspects of management, legalization, operation, commercial, people management, labor, health and safety, engineering and infrastructure, information technology, accounting, tax, financing, sustainability, and international offices, among others.

 

More than 600 company employees were involved in the early stages. Approximately 620 procedures and manuals were prepared, 109 training videos were produced and more than 180 training sessions have been planned for the first 30 days of the integration. We also created the integration portal with a view to facilitating access to information 



and continuous communication with new employees. Since October 29, the date on which we effectively began to operate the new assets, we have continued to further the integration process and have sought to perform increasingly in accordance with Minerva Foods management model, focusing especially on monitoring operations, sales, and risk management. 



The success of this integration depends on the implementation of the Minerva Foods management model, which includes operational and commercial efficiency programs and process standardization. Always in line with our risk management model. We believe there are many opportunities to maximize efficiency and capture synergies as the integration process progresses. Operations, engineering, people management, supplies and livestock procurement, commercial logistics, tax, and finance are some of the macro areas that have been mapped out for the development and implementation of efficiency programs in the near future. 

 

As this stage progresses, synergy gains and strategic benefits of the acquisition will become increasingly more clear and will enhance Minerva Foods' competitive advantages. all at a very interesting time in the global beef market, where there's growing demand and supply is quite restricted. Finally, Minerva Foods' expertise in this kind of initiative should be highlighted, having made more than 20 acquisitions since 2005 and an excellent track record in delivering consistent results, risk management, financial discipline, and maximizing profitability. 

Over the next few quarters, we will continue to update the market on how the integration is progressing as well as how the new assets are performing. Let's now circle back to our performance in the third quarter 2024 on Slide 3. 



Let's start with gross revenue, which reached BRL 9 billion in Q3 '24 and BRL 31.4 billion in the last 12 months. Exports accounted for 60% of the consolidated gross revenue in the quarter and 62% year-to-date. They remain one of the company's main operational drivers and confirm our ability to arbitrage and access to international markets. 

Now moving on to our operating earnings. EBITDA in the third quarter reached a record level of BRL 813 million and an EBITDA margin of 9.6%, contributing to a net income of BRL 94.1 million in the quarter. In the last 12 months, Minerva Foods EBITDA totaled BRL 2.8 billion with a margin of 9.5%. I'd like to highlight our free cash generation, which reached a significant BRL 667 million in Q3 '24, adding up to approximately BRL 1.6 billion in the last 12 months, a result that reflects the Minerva Foods operational, commercial and financial excellence. 

Finally, speaking of our capital structure, we concluded the quarter with a net leverage of 2.6x net debt over EBITDA, which combined with our solid cash position of BRL 16.8 billion puts us in a comfortable position with flexibility enough to face challenges over the next 2 years. 

Now let's move on to Slide 4 and take a more detailed look at other highlights of the third quarter. This quarter, we made an important investment in the acquisition of 98% of Irapuru Energia's shares with a view to self-producing electricity from clean and renewable photovoltaic sources, which will be enough to supply 9 Minerva food plants in Brazil. This is an initiative that will make a direct contribution to our decarbonization goals as per Minerva Food sustainability commitment. 

 

As I mentioned at the beginning of the presentation, at the end of October, we concluded the acquisition of Marfrig South America's new assets. Therefore, we have now completed the acquisition of 13 new plants, 1 distribution center in Brazil, Argentina, and Chile, which will add almost 11,000 heads a day to our total slaughter capacity, an increase of around 35%. Total investment disbursement in these new industrial units was BRL 5.7 billion and was concluded at the end of October. 

 

In this third quarter '24, we have continued to advance our sustainability agenda, one of Minerva Foods' main corporate values. We've reached our goal to monitor 100% of direct supplier farms in Uruguay, bringing forward our public commitment goal by 1 year. It is worth noting that these direct supplier farms located in Brazil, Argentina, Paraguay and Colombia are already 100% monitored. 



Our BPU unit in Uruguay has become part of the select group of plants that are certified to produce the Zero Carbon impact line, which includes animals from partner farms that implement regenerative and low-carbon agricultural practices through the Renovi program. Our subsidiary, MyCarbon, has entered into several partnerships for the development of carbon credit projects with relevant stakeholders in Brazilian agribusiness, focusing on initiatives that support and foster regenerative agricultural practices that increase the capacity to capture carbon and reduce greenhouse gas emissions, thus maximizing productivity and promoting more sustainable agricultural practices that also contribute to the generation of carbon credits. 

Now let's turn to Slide 5 to talk a little bit about Minerva Foods export performance in Q3 '24. In the third quarter, we continued to lead beef exports from South America with approximately 20% market share in the continent, once again reaffirming our geographic diversification strategy and reiterating our expertise in the international market. The upper quadrant of the slide shows the gross revenue breakdown by destination for Q3 '24. The Americas region was the main gross revenue driver with a total of 34% share Brazil being the highlight with 18% and Chile with 6%. 

 

Next, we have Asia with 22% of total group's revenue, with China accounting for 15%. The NAFTA region was a highlight, accounting for 18%, consisting mainly of the U.S.A., which accounted for approximately 15% of our gross revenue. I want to take this opportunity to once again highlight the performance of the North American market. The restriction on supply of animals in the country continues to impact local production and putting pressure on prices and creating opportunities for South American exporters.

 

 Furthermore, it is worth highlighting the recent recovery in the Chinese market, which continues to increase volumes and has also started to affect prices in the international market. In the chart below on the left, we can see our beef operation exports in Q3 '24, Asia being our export revenues most relevant region. with 29% of the share, of which China accounts for 20%. The NAFTA region reached 25% share with the U.S.A. being the main market with 21% share, followed by the Middle East, which represented 13% and the Americas region with 12%. 



Next, we have Eastern Europe, the European Union and the African continent with 9%, 8% and 4%, respectively. As I mentioned previously, the NAFTA and Asian regions continue to have a significant performance, adding up to 54% of Minerva Foods beef export revenue. In LATAM third quarter '24, Asia remains the main export destination with 30%, with China being the main country with 23%, followed by NAFTA region with 19%. The U.S. is the main destination country with 17% share. the Americas with 15%, Eastern European countries with 13%, and the Middle East with 12% share. Last 12 months, in the 2 charts on the right, we see our lamb exports in Australia. 

 

In this quarter, NAFTA has remained the main destination with 41% share, the U.S. being the main market with 37%, followed by Asia with 24% and the Middle East with 15%, Europe with 11%, adding up to our total lamb exports. In the last 12 months, Q3 '24, NAFTA continues to be the main region with 39%, Asia with 23%, the Middle East with 19% and Europe with 11% .



Before turning the floor over to Edison, I would like to once again reiterate our optimism with the coming quarters and the prospects for the global animal protein market. This mismatch between supply and demand continues to create a favorable scenario in the market. 

 

While the United States is facing one of its worst beef cycles, its demand continues to be resilient, which has an impact on the entire global beef chain. China is also beginning to experience restrictions on its domestic production, which consequently increases its demand for beef imports and should put even more pressure on global supply. 



Finally, before turning the floor over to Edison, I would like to say how excited and optimistic we are about this new Minerva Foods phase, the integration of 13 new plants in addition to expanding our operational footprint, which now includes 46 industrial units across 7 countries enhances Minerva Foods' competitive advantages and allows the company to further maximize the benefits of its geographic and capacity diversification strategy to arbitrage the global beef protein market. 

 

We remain confident now at the end of 2024 and continue to pursue maximum operational, commercial and financial efficiency with an eye out for market opportunities, focusing on risk management and seeking to increasingly efficient, profitable, and less volatile performance. And finally, I would like to take the opportunity to welcome the new employees and thank the entire Minerva Foods team for their dedication and efforts throughout this process. Now I will turn the floor over to Edison, who will talk about our financial and operating performance.

[Edison de Andrade Melo e Souza Filho, executive]

[Interpreted] Thank you, Fernando. Let's now turn over to Slide 6. Let's start with Minerva's operational performance and gross revenue, both for the third quarter and the last 12 months. In line with our focus on exports, the international market accounted for 65% of our gross revenue in the quarter and 64% LTM Q3 '24, excluding the others division. Breaking down by region, exports in the Brazilian operations reached 57% in the quarter and in the last 12 months. In our LatAm operations ex Brazil, exports accounted for 71% of the gross revenue in the quarter as well as last 12 months. The Lamb operation in Australian was no different. Exports reached 81% of gross revenue at the end of Q3 '24 and 75% last 12 months. 

 

That relative drop of exports share in Brazil shows how thriving the internal market has been this year, especially in the third quarter in terms of volumes and prices, and that encouraged us to leave more volume in the domestic market than exports. On the right-hand side of the slide, we have the breakdown of revenue per origin. Brazil continues to stand out, representing 48% of gross revenue in this quarter and the last 12 months, followed by Paraguay, which became the second main origin with 15% both in the quarter and last 12 months. Argentina contributed 12% of the revenue in the quarter and 9% last 12 months; Uruguay 10% and 12% of revenue in the quarter and last 12 months, respectively. 

 

Australia accounted for 7% revenue both in the quarter and last 12 months and Colombia, 4% share both. And in the others line item, which refers to the former trading division contributed with 4% of our revenue last quarter and 5% in the last 12 months. 



On Slide 7, we will talk about net revenue and EBITDA. Net revenue reached BRL 8.5 billion Q3 '24, record revenue for the quarter, up 20% on year and 11% quarter-on-quarter. Last 12 months, Minerva Foods net revenue added up to BRL 29.5 billion. Now about profitability. We had a record EBITDA in the quarter, BRL 813 million, up 14% year-on-year and 9% compared to last quarter, resulting in a 9.6% margin. In the first 9 months of the year, EBITDA reached BRL 2.2 billion, in the last quarter '24, and our EBITDA added up to BRL 2.8 billion with an EBITDA margin of 9.5%. As I mentioned, this quarter's revenue and EBITDA have been historical records for the company. And this is a testament to the sound operational and financial execution that Minerva Foods has been delivering. It is also worth highlighting the consistency and stability of operating margin, which is a result of our risk management model, our distribution model, and how we manage our sales channel, a testament to the benefits of our geographical diversification strategy, which maximizes our ability to arbitrage the market and has evidently contributed to maintaining a high level of profitability and much less volatile than our peers. 



Now moving on to Slide 8. Let's talk about financial leverage. Our leverage ratio as measured by the net debt over EBITDA indicator for the last 12 months came in at 2.6x. And that indicator does not consider the down payment of BRL 1.5 billion, which was disbursed for the acquisition of Marfrig's assets in South America. Now on the next slide, we're going to talk about net profit and operating cash flow. Just to remind you, in the second quarter, our net leverage was practically 3x. Thanks to our strong free cash generation, it dropped to 2.6x this quarter. 



On Slide 9, our net profit was BRL 94 million in the quarter. In the last 12 months, it was roughly BRL 23 million. On the right-hand side, we can see our strong operating cash flow in the quarter, positive at BRL 1.9 billion and roughly BRL 5 billion in the last 12 months. 

 Here again, I'd like to highlight Minerva Foods' excellent operational, commercial and financial execution, and it continues to deliver consistent operating cash generation even in a challenging and volatile market scenario. 





On Slide 10, we're going to talk about free cash generation. Building up the cash flow this quarter, we started with an EBITDA of BRL 830 million. The working capital line returned BRL 625 million in the quarter, especially due to the other accounts payable item, which are advances of sales to clients and a sound performance in the suppliers line. Our CapEx was approximately BRL 148 million, focusing primarily on maintenance and organic expansion of about BRL 30 million, BRL 35 million. Financial result on a cash basis was negative BRL 623 million because it includes the financial expenses of the debt, which was taken on to pay for the acquisition of Marfrig's assets. 

 

 So our cash generation was approximately BRL 667 million in the quarter. And I would also stress that our free cash generation added up to approximately BRL 1.4 billion. Looking now at the year-to-date result over the last 12 months, free cash flow was positive BRL 1.6 billion, building up our cash generation. Last 12 months, we started with 2.8 billion EBITDA, CapEx of BRL 620 million, and positive working capital variation of BRL 560 million and the financial result on a cash basis was about BRL 1 billion. Adding the variables together, we arrive at a free cash flow generation of BRL 1.6 billion, which is equivalent to a free cash flow yield of around 40% compared to the current market cap of the company. Again, I highlight the strong cash generation that the company has delivered this quarter and has delivered over 2024, which is a result of our focus, discipline, and consistency, especially in the operational field. 

 

 As I have reiterated to all of you, this company's management has a tireless commitment to financial discipline, seeking a more profitable, less costly structure with a lower risk profile for the company. Now let's turn over to Slide 11. to talk about the bridge of our net debt. 





At the end of the previous quarter, net debt added up to BRL 8.1 billion for the debt bridge in Q3, we've had the benefit of a total free cash generation of BRL 667 million, which reduced the debt and an impact of BRL 164 million on indebtedness and also the impact of approximately BRL 126 million related to noncash derivatives, especially related to our debt protection associated to inflation. Adding up the variables and building the bridge, we arrive at a net debt of BRL 7.4 billion at the end of the quarter, a reduction of more than close to BRL 700 million compared to the previous quarter. 

 

 Let's move on to the next slide to talk about our capital structure. As I mentioned, net leverage measured by net debt over adjusted EBITDA has decreased to 2.6x, excluding the BRL 1.5 billion disbursed to pay for Marfrig's assets. Following our conservative cash management strategy, we concluded the third quarter in a comfortable position with approximately BRL 16.8 billion and a duration of approximately 4.4 years, with approximately 83% long-term debt, as you can see in the amortization flow chart at the bottom of the slide. As for our debt profile, 77% of the debt is exposed to FX variations. But because of our hedging policy, which we follow to the letter and has been very successful in the last 5 to 6 years, according to our policy and given the current hedging cost policies and the size of our indebtedness, we have to keep at least 50% of long-term FX exposure hedged. 

 

 And right now, we're close to 55%. Again, we will continue to practice that FX hedging policy, especially in a scenario of higher volatility, which is what we have been seeing in the last few quarters. I'd like to reiterate once again that the company continues to actively pursue an increasingly balanced capital structure with lower risk profile. 





Finally, as Fernando said at the beginning of the presentation, at the end of October, we concluded the acquisition of 13 industrial units and 1 distribution center in Brazil, Argentina, and Chile, with the following 3 units in Uruguay still pending. They are under analysis by antitrust agency, and we expect the definition by the end of the year. With the completion of this stage, at the end of October, we paid BRL 5.7 billion, BRL 5.3 billion for the plant, BRL 265 million to the ghost of the CDI correction and BRL 91 million referring to other price adjustments that were already in the contract and which will undergo due diligence for validation over the next 2 weeks. So there may be a return of part of those funds by the seller. It's worth remembering that in August '23, we had already anticipated the payment of BRL 1.5 billion, thus completing the total of BRL 5.7 billion paid last week.





Like Fernando, I'd like to take this opportunity to welcome the new employees and thank the entire Minerva Foods team for their dedication and effort throughout the process. We continue focused and working on integrating the new assets, and we're very confident in our business plan, especially for 2025 and 2026.



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

[Operator]

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

[Thiago Duarte, analyst]

[Interpreted] Fernando, Edison, you mentioned that you're optimistic for the next few quarters and especially considering the recent high prices for the [ Auroba ] in Brazil, which affected the ends looking at the third quarter. But now in the fourth quarter, we'll go in at a higher level of cattle prices. Could you talk a little bit about how you see that impact on profitability looking forward, both in terms of pricing capacity, we saw that in the third quarter and the need for working capital, including the new plants that are going into operation now, considering that cattle in Brazil is so much more expensive, how would that change your view in terms of margins in the fourth quarter and looking forward and the need for working capital to ramp up the plants that are going into the operation? Please correct me if I'm wrong, Edison, you were talking originally about BRL 600 million, BRL 700 million in working capital for the new plants. Will that change looking forward?

[Fernando De Queiroz, executive]

Interesting question, Thiago, because despite everything we've been saying, you believe whatever you want, you write whatever you want. So what's the point in telling you that we think the market is looking good internationally? There's a lack of beef, and that will give us an opportunity to increase prices in beef, pay for that price for cattle here and keep profitability. What's the point if nobody believes it? So I'd rather tell you, yes, the scenario looks rough. The fourth quarter is going to be terrible with higher cattle prices. But God willing, we're betting on the mid- to the long run that things will be positive.

[Daniel Ordonez, executive]

Thiago, let me jump in. In terms of what we see looking forward, in the U.S., there's a significant reduction in local production, and we're seeing the same thing in the main countries in Europe. So we're monitoring closely what's happening in the cycle in China. There is an inertia in the short term and cattle prices have gone up. And there is an inertia to pass those prices on. So in the international market -- and let me use China as an example. China went from 4,500 to 5,400 this week, a very liquid market. That's the average. So, that's an indication.



Yes, in the short term, there is a mismatch, but the scenario as a whole is highly positive. And let me reiterate that South America, not only Brazil -- you're looking at Brazil, and I think you should look at the different cycles in different countries, especially for Minerva because Minerva has huge diversification. You should look into how these cycles will improve and get worse in different places. But considering the macro scenario, there have never been so many open markets. All countries in South America have never had as much access to the international market. So there's been a change. Beef will truly become an international global commodity. And there is no other company that is as well positioned as Minerva to capture those values.

 

As for what Edino said, do we want to look at the very short term? No. What they're thinking about is the next quarter. Or do you want to look at the long term? Yes, there will be fluctuations. And obviously, the fourth quarter for us will be a quarter of integration. It will be a very important quarter, but the scenario of supply/demand in the global market has never been this favorable to South America as a whole. And the ability to arbitrage -- the arbitrage instruments that Minerva has is proof of that. They show that. Edino has said that we will reduce volatility. And that's it.



We're not going to promise anything we can't deliver. That is one of Minerva's characteristics, and that's how we have always worked.

[Thiago Duarte, analyst]

[Interpreted] Very clear. To my second point about how we -- or how you imagine your working capital will pan out in the integration of the plants with higher prices of capital. So I'm trying to remember the figures you mentioned, BRL 70 million or BRL 800 million. Please correct me if I'm wrong, Edino, will that change now that input prices have gone up?

[Fernando De Queiroz, executive]

[Interpreted] It will have a small impact on part of our production. Part of the Brazilian production, Yes. There is a fluctuation in working capital, which has to do with the price of beef, the price of cattle, but nothing material and definitely nothing of any concern, [indiscernible].

[Operator]

[Interpreted] The next question is from Henrique Brustolin from Bradesco BBI.

[Henrique Brustolin, analyst]

I have a couple of questions about the new assets. Now that you're operating the units that you have been there for a few days, but you've been monitoring the operations for a few weeks. What would be your first diagnosis on the assets? Is there anything different to what you had originally imagined? And how will that affect the expectation of contribution to results that you disclosed last year? And my second question is about the same context. How do you think the ramp-up of operations should take place in Q4, but also in 2025?

[Fernando De Queiroz, executive]

[Interpreted] Henrique. We've been operating those plants for 8 days. So we're still looking into things. The positive surprise has been how welcoming the team has been. It's a different management model. Our plant managers tend to play a more active role in decision-making. It's less hierarchical. But the welcome has been great. As is only natural, maintenance in some of the plants is a bit below our standards. So it will take a little bit of time before we can bring it up to our usual standard. 

 

And when it comes to markets, based on our international structure, we already know how we're going to place products in the international market. Right now, we're transferring export permits. Each country is different. Each country has its own reality. So it's only natural that we'll have transferred all of that by the end of the year. As for the ramp-up, well, based on our experience, to bring things up to our standard, we did an experience with the seller to switch plants. And I think it will take -- to get to our usual standards, it will take about 4 quarters -- 4 to 5 quarters.

[Operator]

[Interpreted] The next question is from Gustavo Troyano from Itau.

[Gustavo Troyano, analyst]

I'd like to talk about China. There may be a reduction in supply in the region, and that has led to a potential price increase. And we've already seen that in exports to China in the October data. So I'd like to hear from you if we'll continue to see that acceleration at the end? And will that continue as we go into 2025? So I'd like to hear your view on that beef supply in China? And can we expect those prices to react in exports to China? And the second part of my question is about demand. You talked about the U.S. and there was a highlight in October prices to -- exports to the U.S. Did you continue to see the same dynamics going into the fourth quarter? And about working capital in the last quarter at Dino, we talked about your expectations of working capital for the next year, which was about BRL 200 million. Does this change in mix affect what you saw for the next year? So if the U.S. and China performed the way they did, had that been considered in your expectations for the year?

[Fernando De Queiroz, executive]

[Interpreted] Well, about China, China is the third largest beef producer in the world. And China last year, had huge female slaughters last year because producers were losing a lot of money. So there's an additional pressure on the Chinese market for production. It's an additional female production pressure. So more pressure and culling of females. Now there's been a huge decrease, and they're not producing new calves. So yes, regardless of the increase in consumption, which continues to take place because there has been a change in local habits. But because of the local -- the reduction in local production, that will be replaced by exports, whether it will come from Brazil or Colombia or Argentina or Uruguay because those are the 4 countries we can export from.



We're looking into it every day, but there will definitely be a replacement. The scenario remains the same in the U.S. Low production levels, a reduction in local production, and no effect on the demand. So there's more room for imports. And my answer to your question is no, Gustavo.

[Operator]

[Interpreted] Our next question is from Lucas Mussi from Morgan Stanley.

[Unknown Analyst]

[Interpreted] My first question is about Uruguay. How are you seeing Uruguay right now? Because we know it's a delicate situation in light of the facts that have come to light in the last few weeks. Has your expectations changed? Do you see any risk in the operation in Uruguay, maybe not, going forward? Or is your base case still that there will have to be some kind of negotiation? And my next question is about Argentina. The situation is still volatile, still difficult at a macro level. What would you like to see? What do you need to see happen in the country in terms of FX or domestic consumption so that you can feel more confident to accelerate your operation in Argentina and pick up historical volume levels pre-this more volatile macro scenario?

[Fernando De Queiroz, executive]

[Interpreted] We can't say much about Uruguay, Lucas, because we're still waiting on the antitrust agency. What I can say is that there's no surprise on what's happening, but we're still positive about the outcome in Uruguay. As for Argentina, the geopolitical situation in Argentina, its alignment with some countries including the U.S. is important. But more than that, the internal agenda in Argentina is extremely positive. The FX has gone down from 20% to 15%, the FX difference between the 2 exchange rates, which makes the rules clearer. But the new measures are the most interesting thing. 



This new administration, Argentina, and the World Bank have started to trace the birth of animals, which gives it more access to markets because there's direct and indirect monitoring. There's been a huge reduction of informality. So all the work that Argentina has been doing, there's also the implementation of electronic invoices. So Argentina is on a very relevant track of tracing, formalization, and equitable rules. If there is a country that we're optimistic about for 2025, that country is Argentina.

[Operator]

[Interpreted] [Operator Instructions] The next question is from Leonardo Alencar from XP.

[Leonardo Alencar, analyst]

[Interpreted] Congratulations on a very strong quarter. Can we go back to the new plants, please? I know it's a sensitive topic, especially when it comes to the strategy. But you said that domestic market has surprised you because it's very solid, reducing Brazil's exposure to the external market. Could that help you ramp up the new plants, especially considering that you will be -- you've only been operating those plants as of the 4th of November, but the ramp-up could be shorter considering a strong quarter of the internal market. 



And the other way around, what would make more sense, theoretically speaking, lower volumes from these plants in more profitable market? Or do you really want to fill up the plants due to the operating challenges that you have? So that's my first question. Second question, it's definitely a favorable scenario in Brazil, very strong margins, but the gross margin was slightly below quarter-on-quarter. I know that that may not be about Brazil because there might be a margin increase in Brazil. If you could talk about Uruguay, Paraguay, Argentina quarter-on-quarter, so we can understand the dynamics of those markets. Has it been positive or negative for your consolidated results?

[Fernando De Queiroz, executive]

[Interpreted] To your first question, the fourth quarter is traditionally a strong quarter for the domestic market. And Brazil has had a positive inertia when it comes to the domestic market. Now, what I'd like to say to all of you is you always talk about Brazil. Minerva is all about South America. The Brazilian domestic market is supplied to buy us from Uruguay, Paraguay, Argentina, and now from Chile. Our footprint is much bigger than the regional impact of a country. Of course, Brazil has a bigger weight and will have a bigger weight. But the Brazilian domestic market for Minerva is supplied by many different countries. 



So yes, we do increase our capacity to arbitrage. We look at Brazil, just like we look at China. What is the best place? Is it more profitable to produce for market A, whether it be Brazil, China, or the U.S. So yes, the Brazilian domestic market will become even more relevant right now, especially in the fourth quarter because of seasonality and because of what's happening in the economy. And inertia in the domestic market is faster than inertia in export. So it helps the ramp-up of the plants. And we still have the same dynamics of use. We look at the capacity of each location, considering profits and the required volume to do that. 



Now we have even more instruments to do that. We have more options to do that with this wider footprint and a more diversified footprint. As for profitability and gross margin across countries, yes, there will be variations. There's the FX effect. Some countries have a more delayed exchange rate. Countries with a bigger depreciation have a positive impact when we look at exports. But the other way around, in places where there's an appreciated currency, they become a destination for exports from neighboring countries. So yes, we are aware of the importance of those markets and the arbitrage that Minerva can do, and is the only company that is in a position to do.

[Operator]

[Interpreted] The Q&A is now concluded. I would like to turn it over to Mr. Fernando Queiroz for his closing remarks. Mr. Queiroz, please go ahead.

[Fernando De Queiroz, executive]

[Interpreted] Thank you very much. The company is going through a very important moment. We've concluded operations that we have been waiting a long time. We have some work ahead of us to bring these plants up to Minerva standards with the same management model. And the management model is based on arbitrage, risk management, and looking for the best opportunities. 



I would like to add what I said in my answer to one of the questions. The international scenario is extremely favorable. South America is gaining traction and taking a more important place and playing a more important role in the international market. We are fully aware and we are very confident in the next steps and our commercial structures that are in place so that we can serve the current international beef wave. Once again, I want to thank Minerva's team. This team is hugely important to the integration so that the integration can happen as quickly as possible. In less than one week, we were able to get the plants up and running, which is quite a feat because there's bureaucracy, there's the sanitation side of things. But in one week, we were able to get those plants up and running. And we are very, very grateful to the team for how they've done it in such a short period of time. 



And I'd like to reiterate my welcome to the new team, which are now integrating Minerva Foods' new team by adding their ideas, their experience. We are here for you. We're going through a transformation, and we are here to explain our discipline, our strategy, and the fact that we are true to what we believe. So we're here for you. All you need to do is reach out and contact us. Thank you.

[Operator]

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



[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]