Page 85 - Minerva Foods | Annual Report 2017
P. 85

Risk management
Market aspect
Description of impacts, risks, and opportunities 102-15
    Health
Cost of raw material Customers
Exports
Credit
Hedge policy Environmental standards
Management of liabilities
Mitigation measure
All cattle acquired are inspected by veterinarians and physicians from Brazil’s Federal Inspection Service (Serviço de Inspeção Federal – SIF), an agency under the Ministry of Agriculture. In Paraguay, Uruguay, Argentina and Colombia, cattle acquisitions are also subject to supervision by the respective health authorities.
Operating margins are defined by the ratio between the cost of acquiring raw materials and the sale price of products. To balance out this equation, units are maintained at strategic points, with adoption of tools such as the Beef Desk.
Growth in the customer portfolio, with on-site service starting, and a higher number of items per order have added a higher margin to the operation. There was also an increase in credit and payment terms. The Company works with the one-stop-shop concept, where the customer’s purchases are concentrated in a single supplier that is responsible for delivering all products within 24 hours.
Minerva is exposed to impacts as a result of exchange rate variations and changes in the international economy; imposition or increases of tariffs; health and non-health barriers; demand for exchange rate controls and restrictions on exchange rate operations; and strikes and other events. These risks are minimized by distributing exports to 100 countries, located in Europe, the Middle East, Africa, Asia and the Americas.
The credit portfolio is continually monitored to limit the Company’s exposure. Credit risk is therefore diluted through a detailed analysis of customers’ financial statements, an internal customer risk classification system and consultations of credit score agencies.
The hedge policy takes into account the Company’s two main risk factors: the exchange rate and live cattle. Based on identification of these exposures, the Treasury works to neutralize and/or mitigate risks, following limits determined by the Board of Directors.
To avoid administrative and criminal sanctions, as well as liability for damages, Minerva Foods adopts
a strict procedure for cattle acquisitions. The Company complies with legal requirements and maintains certifications that guarantee the standard of quality established by the Brazilian and international markets.
The Company’s consolidated financial indebtedness makes it necessary for a substantial portion of its cash flow to be used to make payments on principal and related interest. The Company ended 2017 with a cash position of R$3.8 billion, a sufficient amount to amortize debt up to 2026. On December 31, 2017, approximately 80% of all debt was exposed to exchange rate variation. Leverage measured using the net debt to EBITDA ratio for the last twelve months reached 4.6x at the end of December 2017, with a debt duration of 5.4 years. Another important step in management of liabilities was completed in December 2017, with the issuance of 2028 Bonds at an annual coupon rate of 5.875%.
                Operational performance
Percentage and total of animals raised and/or processed, by type FP9
Percentage and total of animals raised and/ or processed, by raising method FP9
Total
  Total
Percentage
Percentage
  Heifers
Steers
Total
231,201 15
1,293,493 85
1,524,694 100
Feedlot 656,160 43
Drylot 143,665 9
Pasture-raised 425,398 28
Modified confinement 299,471 20
Total 1,524,694 100
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