Minerva Day November 10th, 2016

Transcription

1 Minerva Day November 10th, 2016

2 AGENDA 2:00pm 2017 Perspectives: Political and Economic Scenarios Keynote Speaker: Maílson da Nobrega Brazil s Former Minister of Finance 3:00pm Coffee Break 3:20pm Minerva s Corporate Presentation Fernando Queiroz CEO Iain Mars CCO Edison Ticle CFO 4:40pm Q&A

3 2017 PERSPECTIVES: POLITICAL AND ECONOMIC SCENARIOS MAILSON DA NOBREGA BRAZIL S FORMER MINISTER OF FINANCE

4 Brazil: Economic and Political Outlook Mailson da Nóbrega A presentation to Minerva Foods New York, November 10 th, 2016

5 Summary of the Brazilian situation After the disaster, the economy starts to recover but stronger growth depends on reforms Strong institutions Democracy, rule of law, free press, beliefs, markets Low political risk Consolidated democracy Great opportunities Past achievements are the basis for future growth Conscious middle class society Support for democracy and currency stability Aversion to inflation and corruption

6 Signs of economic recovery (after two disastrous years) - I Confidence in the economy returning (both consumers and the business community) Inflation declining After reaching a peak in mid 2017, unemployment rate tends to decelerate A new cycle of monetary policy has started: lower interest rates ahead

7 Signs of economic recovery (after two disastrous years) - II Petrobras coming back to normality Stock market anticipates an upturn in the economy Modest recovery in 2017 and Higher GDP growth from 2019 onwards will depend on reforms Low likelihood of banking and currency crisis. Brazil became a net foreign creditor country

8 Forecast Indicator GDP growth (%) Consumer inflation (%) Unemploy-ment rate (%) Central Bank s basic rate (%) ¾ 10.0 F/X (R$/US$) Current account (US$ bi)

9 Brazil s achievements Strong institutions Diversified industrial sector Competitive agribusiness and mineral sectors Solid and sophisticated financial system Potentially vigorous capital markets Sizable economy (amongst the ten largest in the world)

10 Brazilian agribusiness competitiveness Grains GROWTH POTENTIAL - Brazil is an important competitor and a major exporter, but is still far from being a major agricultural producer! Top World Grain Producers USA China PRODUCTION (million t) 549,5 (1º) 522,1 (2 º ) AREA (Mha)¹ 92,5 (3º) 108,7 (2º) YIELD (t/ha)¹ 5,9 (1º) 4,8 (3º) EU28 313,1 (3 º ) 61,2 (4 º ) 5,7 (2º) India 259,2 (4 º ) 116,8 (1 º ) 2,2 (5 º ) Brazil 199,8 (5º) 58,1 (5º) 3,7 (4 º ) Considering cultivated área (1º crop) 42,9 (5 º ) 4,7 (4º ) Top five selected countries. Production ranking refers to the country's position in the world. Source: USDA, Agroconsult.

11 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17* BRAZILIAN GRAINS PRODUCTION Production (million t) Area (million ha) Harvest 1990/91 to 2014/15 Production: + 260% Area: + 53% If today s productivity per hectare were as low as it was in 1990, it would have been necessary to have another 78 million ha planted with grains to achieve the same results (1990/91 a 2014/15) Source: Conab. Note: * 1º Brazilian Grain Crop Survey Crop 16/17 Oct./2015. To 2016/17 harvest: were considered the upper limits of the estimate

12 Brazilian agribusiness competitiveness Livestock Top World Beef Meat Producers EUA PRODUCTION (mi TCE) 10,8 (1 º ) TRADE BALANCE (mi TCE) -0,08 (-Imp) CONSUMPTION (mi TCE) 11,0 (1º) Brasil 9,6 (2º) +1,8 (+Exp) 7,8 (2º) China 6,1 (3 º ) -0,4 (-Imp) 6,4 (3º) Argentina 2,8 (4 º ) +0,2 (+Exp) 2,8 (4 º ) Austrália 2,3 (5º) +1,6 (+Exp) 2,1 (5 º ) Top five selected countries. Production ranking refers to the country's position in the world. mi TCE = million tonnes carcase equivalent. Source: USDA, Agroconsult.

13 Brazilian Agribusiness Competitiveness Sugarcane Top World Sugar Producers Brazil PRODUCTION (million t) 36,6 (1 º ) TRADE BALANCE (million t) +26,7 (+Exp) CONSUMPTIO N (million t) 10,8 (5º) Índia 26,3 (2º) +1,8 (+Exp) 26,8 (1º) EU28 14,0 (3 º ) -2,0 (-Imp) 18,8 (2 º ) Thailand 9,5 (4 º ) +8,8 (+Exp) 2,6 (11 º ) China 8,4 (5º) -6,7 (-Imp) 17,5 (3º) Top five selected countries. Production ranking refers to the country's position in the world. Source: USDA, Agroconsult.

14 Productio n Exports Brazilian agribusiness competitiveness World Exports and Production Ranking and Participation (2015/16) Brazil has an outstanding position in the production and global export of various agricultural commodities. Soybeans Beef Poultry Corn Sugar Orange Coffee Swine Juice 1º 1º 1º 2º 1º 1º 1º 4º 42% 28,0 bi USD 21% 5,8 bi USD 36% 6,6 bi USD 24% 5,0 bi USD 47% 7,6 bi USD 77% 1,3 bi USD 27% 6,1 bi USD 8% 1,2 bi USD 2º 2º 3º 3º 1º 1º 1º 4º 31% 16% 11% 9% 22% 54% 32% 3% Source: USDA, Agroconsult Values in million USD - calendar year 2015 Source: SECEX.

15 Brazilian Agribusiness Competitiveness Exports Value by Destination (%) China has gained importance, but at the same time the agribusiness exports growth also caused diversification of trading partners Top 3 = 64% Others = 31,4% China 2,7% Top 3 = 52% Others = 42,4% Russia 2,0% Japan 4,8% Others 31,4% USA 18,0% EU 41,0% Others 42,4% Russia 2,6% Japan 2,9% USA 7,3% China 24,1% EU 20,7% Source: AGROSTAT/Ministry of Agriculture; Agroconsult

16 Reasons for higher Brazilian agribusiness competitiveness in the near term Low state intervention Trade agreement with European Union Improvement in infrastructure and logistics Growing use of advanced technology (precision agriculture, satellite farming and drones) Deepness of capital markets (lower dependence of government credit)

17 Brazilian institutions: looking ahead Democracy Rule of law, independent Judiciary Criminal investigation by independent agencies Free, independent, competitive and aggressive press (The Economist) Market discipline The poor vote (franchise extended to the illiterate people in 1985) New beliefs in society: Aversion to inflation (higher amongst the poor) Aversion to corruption (higher in middle class groups)

18 Good prospects for the long run Limited government: Institutions allow to identify and correct mistakes A virtuous political order (Fukuyama) Strong state, rule of law, and accountability A new leadership in 2019 A reforming administration in charge A new cycle of reform A critical juncture may open a window of opportunity Opportunities:: Still there Risk: election of a demagogue or an outsider in 2018

19

20 MINERVA: RETROSPECTIVE 2016 AND PERSPECTIVE 2017 FERNANDO QUEIROZ CEO

21 RETROSPECTIVE 2016 / PERSPECTIVE 2017 SECTOR RETROSPECTIVE AND PERSPECTIVE DEMAND Global demand for beef keeps has been improving: strong growth from the emerging markets, especially Asia and MENA Developed markets: increased dependence on imports (e.g. recent opening of the US market to Brazil) Possible opening of new developed markets to Southern American countries: Japan, Canada, South Korea, Mexico, etc. SUPPLY Reduction: Australia exports dropped 22% year to date due to climate effect Argentina Production dropped 9% yoy in the 10M16 and internal demand increased 5% South America as a beef export platform Brazil: Cattle Cycle turning to positive in 2017 OVERALL SCENARIO Signs of economic recovery in Brazil Stability of the relation Real/US Dollar MINERVA FOCUS ON RESULTS Focus on Gross Margin / EBITDA / ROIC Debt and working capital management Liability Management Free cash flow generation STRATEGY Geographic diversification in South America Brazil - 70% Paraguay 13% Uruguay 13% Colombia 4% Minerva Efficiency: Risk management culture Implementation of Efficiency Programs in the Commercial and Operational level Operational Efficiency + Focus of the Commercial Strategy = generation of better, less volatile and more predictable results 21

22 EFFICIANCY PROGRAMS OPERATIONAL PROGRAM Objectives Standardize processes Increase output and productivity Minimize the volatility of operating results Main Programs Osso Branco Project Bíblia and Atitude Campeã Program Prospects of benefiting from an annual increase of approximately 10% in the Company's EBITDA when fully implemented. COMMERCIAL PROGRAM Channels Brazil Focus on food service and small and medium retailers Improvement of the Go to Market strategy Result: increase in the number of items per order and the operation s margin Paraguay Improvement in distribution Colombia and Chile Opening of DCs based on the same characteristics as that of Brazil s DCs Own trading companies (Brazil, Uruguay and Australia) Third-party product sourcing strategy Way of capturing commercial opportunities through efficient distribution channels Operational Efficiency + Focus of the Commercial Strategy = generation of better, less volatile and more predictable results. 22

23 FRISA ACQUISITION Colombia Brazil Teixeira de Freitas Unit Slaughter: 400 head/ day RATIONALE Strategical acquisition: good opportunity Complementary location (MG/ ES/ BA) Complementary distribution operation (RJ / ES / MG) Daily slaughter capacity of 1,700 head Minerva`s total capacity increases to 19,030 head/day Plants with export certification including USA and China ABOUT THE TRANSACTION Paraguay Uruguay Distribution Center and Office / Niterói Capacity by country Nanuque Unit Slaughter: 800 head/ day Colatina Unit Slaughter: 500 head/ day Heads/day Brazil 13,580 Paraguay 2,300 Uruguay 2,300 Colombia 850 Acquisition of 3 slaughtering facilities (MG/ES/BA) Distribution Center and head-office in Niterói (RJ) Acquisition cost - R$205 million + working capital adjusts: R$80 million on demand (after approval by Brazil s antitrust authority and at an ESM) R$25 million in 12 months R$50 million in 24 months R$50 million in 36 months Estimated revenue for 2016: R$1,050 million / EBITDA R$52 million / Export: 33% Pre-acquisition EV/LTM EBITDA ratio: 3.9x Estimated synergy gains in the EBITDA margin: G&A: +120 bps Commercial, plant and purchase of cattle: +250 bps Estimated EBITDA margin after synergy gains: ~8.5% EV/LTM EBITDA ratio expected after synergy gains: lower than 2.5x

24 OPENING OF NEW MARKETS IMPACT OF THE SUPPLY RESTRICTION IN AUSTRALIA BEEF GLOBAL SUPPLY AND DEMAND IAIN MARS CCO

25 Overview of Global Beef Market Reduction in Supply from Australia A World of Opportunities Minerva Focus

26 OVERVIEW OF GLOBAL BEEF MARKET

27 GLOBAL BEEF MARKET ( OOO tons carcass weight equivalent) 3 European Union 2016E Production 7,680 7 Russia 2016E Production 1,310 Import 360 Import 625 Export 320 Export 10 2 USA 2016E Production 11,328 Import 1,315 5 India 2016E Production 4,300 4 Asia (2) 2016E Production 7,581 Import 2,540 Export 27 Export 1,114 Import - Export 1,950 Global Herd USA 9% EU 9% 1 South America (1) 2016E 6 Production 14,885 Import 512 Oceania (3) 2016E Production 2,839 Import 36 (4) India 31% China 10% Others 18% Brazil 23% Export 2,865 Export 2,109 Source: USDA Production: (1) South America: Argentina (2,680), Brazil (9,620), Chile (210), Colombia (855), Paraguay (590), Peru (210), Uruguay (575), Venezuela (145) (2) Asia: China (6,785), Japan (475), Hong Kong (6), Taiwan (7), South Korea (308) (3) Oceania: Australia (2,180) and New Zealand (659) (4) 35% of India s herd is comprised of buffalo 27

28 Million heads REDUCTION IN SUPPLY FROM AUSTRALIA AUSTRALIA POSITION Australia cattle supplies at their lowest level in 20 years. Due back to back record adult cattle turnoff 2014/2015 in Herd dropped in 3 years from 29.3 million to 26.2 million (going lower) 2016 kill down 21% (7,1 million ) 2017 a further drop to 6.9 million 2016 exports decreased 22%. October decreased 29% 2017 move from largest exporter to 4 th largest behind Brazil, India and USA ANNUAL ADULT CATTLE SLAUGHTER million head Source: ABS, MLA forecasts 28

29 A WORLD OF OPPORTUNITIES

30 A WORLD OF OPPORTUNITIES OPPORTUNITIES FOR SOUTH AMERICA USA Brazil USA Access Uruguay (niche) BREXIT UK new quota sytem CHINA Uruguay Brazil KOREA? NEXT 1 Japan (+9,35) Korea for Brazil (5%) Uruguay access TAIWAN Paraguay? NEXT 2 Indonesia(+2%) 30

31 BRAZILIAN ACCESS TO INTERNATIONAL MARKET GROWING PENETRATION MAIN BEEF IMPORTERS BRAZIL PENETRATION RANK COUNTRY 2015* % of global beef import E 1 USA 1, % 2 Japan % 3 China % 4 Russia % 5 South Korea % 6 European Union % 7 Egypt % 8 Hong Kong % 9 Canada % 10 Chile % 11 Malaysia % 12 Mexico 175 2,3% 13 Venezuela % 14 Saudi Arabia % 15 Iran % Rest of the world 1, % TOTAL 7, % 47% 56% 58% 78% Source: USDA * Miillion tonnes combining fresh, frozen and chilled beef ** Formal certification to be approved by September

32 MINERVA FOCUS

33 EXPORTS: FOCUS ON EMERGING COUNTRIES MARKET SHARE (% OF REVENUE BY COUNTRY) 3Q16 BRAZIL PARAGUAY URUGUAY Minerva 22% Minerva 20% Minerva 16% MINERVA EXPORTS BY DESTINATION (% REVENUE) NAFTA 5% EU 12% LTM3Q15 Africa 19% NAFTA 4% EU 14% LTM3Q16 Africa 15% Middle East 19% CIS 11% Asia 22% Americas 12% Middle East 20% CIS 5% Asia 28% Americas 14% Source: Minerva 33

34 MINERVA FOCUS COMMERCIAL MAP Russia Europe USA Algeria Lebanon Egypt Iran KSA China Colombia Brazil Chile Australia Chile Paraguay New Zealand International offices Distribution New IO New Dist. Production Base Source: Minerva 34

35 MINERVA FOCUS STRUCTURE Supply Demand Beef BR Beef UY Int. Offices Beef PY Beef CO Distribution Beef AR Trading Trading 35

36 MINERVA OPERATING AND FINANCIAL RESULTS EDISON TICLE CFO

37 OPERATING AND FINANCIAL RESULTS NET REVENUE (R$ MILLION) EBITDA (R$ MILLION) AND EBITDA MARGIN (%) 9,9% 10,7% 11,2% 11,4% 10,9% LTM3Q15 LTM4Q15 LTM1Q16 LTM2Q16 LTM3Q16 LTM3Q15 LTM4Q15 LTM1Q16 LTM2Q16 LTM3Q16 ROIC (%) 1 NET DEBT / LTM EBITDA (x) -1.6x 22.2% 25.1% 27.7% 28.9% 24.8% Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 37

38 OPERATING AND FINANCIAL RESULTS OPERATING CASH FLOW R$ Million 2016 LTM3Q16 Net Income (Loss) (+) Adjustments to Net Income ,8 (+) Variation in Working Capital Needs Operating Cash Flow ADJUSTED NET RESULT R$ Million 2016 LTM3Q16 Net Income (Loss) (+) Impairment (+) FX Variation (+) FX Hedge Result (+) Income Tax and Social Contribution Adjusted Net Income (Loss) Source: Minerva 38

39 FREE CASH FLOW 2015 (R$ MILLION) (234.2) (461.4) 1,020.0 (112.6) EBITDA 2015 Capex (cash) Financial Result (cash) Working Capital Variation Free Cash Flow 2015 LTM3Q16 (R$ MILLION) 1,076.4 (202.5) (1,015.6) (277.6) (419.3) EBITDA Capex (cash) Financial result (cash) Working capital variation Free cash flow 1 Working capital excludes equity valuation and cumulative translation adjustments and the impact of FIDC s reclassification in the 4Q15 39

40 CAPITAL STRUCTURE HIGHLIGHTS Net Debt/LTM EBITDA: 3.2x Cash Position: R$ 3.2 billion At the end of 3Q16, approximately 76% of total debt was exposed to the dollar variation Debt Duration: 6.1 years Liability management: Exercising of the call of the 2019 Bonds (annual coupon of %) in September 2016 (US$55 million) Issue of US$1.0 billion in 2026 Bonds (annual coupon of 6.50%) which were/will be allocated to: Tender of the 2023 Bonds (face value of US$618 million / annual coupon of 7.75%) Annual savings of US$4.3 million in financial expenses Exercising of the Call of the 2022 Bonds in 1Q17 (US$106 million / annual coupon of 12.25%) Redemption upon maturity (Jan/17) of the 2017 Bonds (US$23 million / annual coupon of 9.50%) DEBT AMORTIZATION SCHEDULE (R$ MILLION) SEP/16 3,238.6 Debt Duration = 6.1 years 2, Cash 4Q16 1Q17 2Q17 3Q

41 Q&A