Minerva Plans Debt Cut and Output Expansion Amid Cheap Cattle

Minerva SA, Brazil’s third-largest beef producer, will invest 400 million reais ($201 million) in the next three years to expand output as it bets cheap cattle will help it cut debt to a record low.

Minerva is “looking into opportunities” to buy or lease beef plants in South America, especially Brazil, Chief Executive Officer Fernando Galletti de Queiroz told reporters today in Sao Paulo. The Barretos, Brazil-based company also seeks to add six distribution centers and double output at its food processing unit by 2015, he said.

“The positive cattle cycle in Brazil will allow us to expand and at the same time generate free cash flow to help us reduce debt,” he said. “We are strongly committed to invest with discipline.” Galletti declined to say by how much he seeks to increase beef output capacity.

Minerva will use proceeds from a November share sale and cash generation amid cheap cattle to pay for the investments, he said. Cattle prices in Brazil, the world’s second-largest beef producer after the U.S., have dropped 15 percent since a November 2010 peak, as ranchers that expanded herds over the profitable 2007-2011 period are sending the adult animals to be slaughtered, increasing supplies.

The meatpacker plans to cut net debt to 2 times earnings before interest, taxes, depreciation and amortization in the first half of 2015, from 2.8 times now, Chief Financial Officer Edison Ticle said. The company generated free cash flow for a fifth straight quarter, of 63.9 million reais in the three months ended Dec. 31.

The company is increasing usage at its plants amid cheap cattle prices, Galletti said. Minerva used 71.2 percent of its capacity in the fourth quarter, up from 69.8 percent in the third quarter. The meatpacker plans to increase usage to about 80 percent by year-end, he said.

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