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OPERATIONAL PERFORMANCE
The surprising increase for the demand of beef from China mobilized the global market and boosted Athena Foods’ operating performance in 2019. The asian continent was the main destination of its exportations, corresponding to 46% of the total, of which, 42% was directed to China from the units located in Argentina and Uruguay.

This market shift has also benefited the performance of Athena Foods in Paraguay. This was a result of customers from countries that have redirected their sales to China, for example: Brazil, Argentina and Uruguay, have increased their purchases of beef from Paraguay.

The increase in exports reveals the ability of the Company to adapt to market changes at the speed in which they occur. It was the most significant event in 2019, however the year brought many other challenges and advances in the area of operations.

Highlights
Rosário – Argentina
The unit in Rosario illustrates Athena’s ability to respond quickly to the challenges of increasing production with speed and quality. When China began to accelerate beef purchases, the facility was operating well below its daily capacity and possessed the physical space to expand its production lines. To achieve efficiency and yield gains based on these conditions, new jobs were created and with the dedication and commitment of its employees, Athena Foods was able to significantly increase the number of slaughters without requiring Capex investment.
Sustainability
One of the strategic pillars of Athena Foods, sustainability is becoming increasingly important in the global market. This is mainly due to the problems that have occurred in the Amazon and in the paraguayan Chaco (fires and deforestation). It has become the subject of major discussions, arousing great interest in international events, which has given the Company the opportunity to present all the work it has been doing in the Amazon biome over the last few years and also in the Chaco Biome in Paraguay, where the Company is a pioneer in geospatial monitoring.

It privately monitors more than 9,000 suppliers in the Amazon, covering a territory of more than 9 million hectares. This monitoring is based on strict environmental, land, and labor criteria. The list of areas embargoed by Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis (IBAMA) (Brazilian Institute of Environment and Natural Resources) and the list of suppliers condemned for using slave labor are verified for 100% of raw material that is purchased. In addition to the previously stated criteria, zero deforestation and overlaps with conservation units, protected areas and indigenous lands are also analyzed for the Amazon biome. Thus, 100% mapping is conducted for the suppliers of this biome.

Restructuring creates a new work culture
The operations in the four producing countries were subject to the organisational structure of Minerva Foods. That is until 2019, when Athena Foods began full management of its operations. With the change, the new management initially dedicated itself to thoroughly learning about each of the markets, observing local habits and culture, operational conditions of the units, the processes of production and working methods. It became clear that there are different ways to achieve the same level of efficiency and results, and it was up to the management to tap into the strengths of each location and identify external practices considered effective for their operations.

With this focus, the Senior Management fostered a renewed way of working, with the development of a corporate culture, aligned with a more independent and strategic vision to achieve the desired goals. It was within this context that the integration with Minerva Foods took place. This was a process in which one company contributes and learns from the other to identify common aspects for improvement.

The year was also one marked by system standardization and the establishment of procedures adjusted to the needs of each country, observing all performance indicators with solid metrics.

In synergy with the processes undertaken in Brazil and the Supply Chain Framework agreement established with the International Finance Corporation (IFC), a member of the World Bank, the social and environmental responsibility criteria for cattle sourcing were adopted in the operations of Paraguay. Accordingly, in 2015 a mapping study was conducted throughout the country, identifying potential social and environmental risks related to the beef production chain, as well as the limitations of jurisdiction and transparency of public data. The work served as a basis to review the procedures and to create subsystems for verifying cattle suppliers. Between 2015 and 2018, the Company developed the necessary systems to operate the traceability of the purchase and, in June 2018, it began the monitoring of its cattle suppliers, in order to halt the trading with those that were in conflict with the criteria adopted by the Company.

The work in the Paraguayan Chaco biome entails the mapping of illegal deforestation along the production chain and the monitoring of cattle suppliers through the analysis of rural property coordinates, carried out in partnership with a third-party company. The following criteria are observed in the territorial analysis: overlapping of illegal deforestation polygons from 2018 onwards, the overlapping of protected areas officially recognized and designated by the Paraguayan government, and the overlapping of indigenous lands also officially designated by the local government. In 2018, 289 properties were registered and analyzed, corresponding to an area of more than 360,000 hectares. In 2019, 270 properties were registered and analyzed on an area of more than 339,000 hectares, totaling more than 699,000 hectares monitored. Thus, Athena Foods monitored more than 50% of its registered base of suppliers, a percentage considered very positive for an operation started in just over a year.

For all other countries, the Corporate Sustainability team’s strategy includes the mapping and the implementation of geospatial monitoring in accordance with local legislation, supplying official information to define the socio-environmental criteria to be established.

Current management of cattle suppliers in other countries is based on the guidelines defined in the policy for the purchase of these animals through the established registration criteria, with 100% of these suppliers complying with the procedure adopted. It starts with the pre-registration process by the cattle purchase team, responsible for gathering the information from suppliers and the property and sending all the necessary documentation for analysis. Then, in each country there is a professional responsible for enrollment evaluation and inputting the information in the Company’s enrollment system. 102-9 | 308-1

Also in 2019, the company BDO RCS Auditores Independentes conducted the first audit of the monitoring system for cattle purchases in Paraguay for the period between September 2018 and November 2019, in which 100% compliance of the purchases made with the social and environmental criteria adopted by the Company was confirmed.

Thus, the Company reinforces its commitment to monitoring its supply chain against deforestation in a safe and transparent manner, contributing to the fight against climate change through the mitigation of Greenhouse Gas emissions caused by land use change.

The Company is the only one in the sector currently financed by IFC, the World Bank Group, which supports its commitment to sustainability and its leadership in managing the socio-environmental issues of its production chain. Therefore, the criteria for social and environmental responsibility in the other units that make up Athena Foods are based on the IFC standards, a benchmark and leader on the subject.

Furthermore, in December 2019, the Company signed a new partnership with IFC via a project in Paraguay, whose scope encompassed the development of a certification protocol for producers based on social and environmental criteria and animal welfare; development of a seal with the concept of Sustainable Meat, using market demand as guidance; training for producers; and the assessment of the impact of implementing this certification protocol upon the industry.

Efficiency
Athena Foods has been structuring efficiency programs according to the needs of each country and adapted to the company’s global culture. The projects focus on increasing yield, productivity and the quality of the product.

One of these is the Actitud de un Campion, which began in 2019 in the units in Paraguay. This program is designed to promote integration, the exchange of best practices, and employee engagement in a continuous improvement of the processes, with the aim to increase operational efficiency and growth of the company and its employees. Actitud de un Campion engages all of the employees from different departments in all Paraguayan operations in a healthy competition in which several production indicators are evaluated, according to the best practices in the meat packing sector. The best departments are then awarded according to monthly results and consolidated results for the year. In addition to increasing operational efficiency, it is a resource that motivates employees to advance in their professional practices and develop an awareness of their role in achieving results. Athena Foods also analyzes the possibility of expanding the Actitud de un Campion to the other countries where it operates.

Economic financial results

Sector overview
Exports to China boosted the beef sector’s performance in Argentina and Uruguay. The volume of shipments out of Argentina was higher than in 2018. In Colombia and Paraguay, performance indicators declined. See how the market performed in each country:

Argentina – Exports out of Argentina totaled 569,000 tons, a volume 56% higher than the previous year, raising annual revenues from foreign sales by 61% to US$ 3,102 million, the highest level ever recorded in the country. The performance reflects a 22% increase in acquisitions from China, the destination of 70% of the country’s beef shipments.

Slaughter rate in Argentina increased by 4% between 2018 and 2019, totaling 13.9 million head, with the performance in the domestic market, again impacted by the economic crisis, affecting the purchasing power of the local population and consequently restricting beef consumption. It was a year marked by a sharp increase in the price of Argentine cattle, in local currency: the average price rose 61% in the year, reaching 117.0 Argentine pesos per kg, due to the effect of inflation.

On the other hand, affected by the currency devaluation of approximately 60% in the year, the average price of cattle was US$ 2.4/kg in 2019, a decrease of 11% compared to 2018. Nonetheless, due to its efficient cost structure, Argentina remains one of the most competitive global producers of beef.

Uruguay – The country has increased its export volume by 4% from 2018 to 2019, shipping 339,000 tons, a move that consolidated China as its main destination. The Asian country increased its purchases by 16%, compared to the previous year, making up 61% of the total exported by the country.

In the cattle market, there was a strong increase in prices. The average price of cattle reached US$ 3.8/kg, an increase of 12% compared to the previous year as a result of the increase in exports, combined with a drop in slaughter: 2.2 million head, 5% lower than in 2018.

Paraguay – The beef sector in Paraguay experienced a downturn in 2019. Slaughter fell by 7% from 2018 to 1.8 million heads, primarily because the country faced adverse weather conditions in the first half of the year that prevented the animals from being transported to the slaughter plants.

In the domestic market, the average price of cattle closed the year at US$ 2.7/kg, 16% lower than in 2018. In exports by the Company, the volume of shipments fell 4% annually and revenues of US$ 1,034 million were 6% lower than the previous year. Chile continues to be the main destination for Paraguay’s exports, with 36% of the total amount.

Colombia – The colombian market faced issues after cases of foot-and-mouth disease were detected in 2017. This situation caused the sector to close the year of 2019 with a 4% reduction in relation to 2018, totaling 17,300 tons of beef exported. Export revenues totaled US$59.0 million in 2019, a 17% decrease in annual comparison.

Russia has remained the main destination for Colombian exports, with 36% of the share, followed by Libya and Jordan, both with 15% of the exports. In fourth, responsible for 14%, exports to Egypt.

Colombia has a tremendous growth potential with a quality herd of approximately 24 million head, several free trade agreements with important markets and access to the Pacific and Atlantic oceans, which facilitates the flow of production. The strong momentum in the sector is reflected in the recent export certification achieved, such as to Saudi Arabia, one of the main halal meat consuming markets in the world, which opened its market for Colombian beef in November 2019.

Performance
The gross revenue of the Athena Foods Division, that includes the operations of the units located in Argentina, Colombia, Paraguay and Uruguay totaled US$ 1.9 billion in 2019, 6.7% more than in 2018. Adjusted EBITDA was US$ 163.7 million, with an adjusted EBITDA margin of 9.0%.

Breakdown of exports by region – Athena Foods
Exports accounted for 76.1% of the volume, providing an annual increase of 12.3%, reaching US$ 1.45 billion, while in the internal markets in which the Company operates, the amount totaled US$ 446 million, contributing 23.9% to the global volume. The net revenue of Athena Foods for the 2019 year reached US$ 1,825.9 millions.

The Chinese market accounted for most of the shipments that originated out of Argentina and Uruguay. In addition, Paraguay showed strong performance in its foreign sales, driven by demand from countries such as Chile, Russia, Brazil and some parts of the Middle East. Colombia had Russia as its main destination for exports.

Note the participation of each region in exports.

Integrated Management System
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The Company has standardized internal processes in the areas of occupational health and safety, food safety, environmental and social responsibility, through its Integrated Management System (IMS). In addition to providing greater efficiency in production processes, the procedures reduce exposure to risks and enable a global view of business opportunities and market demands.

The areas encompassed IMS work collaboratively, focusing on the continuous improvement of production processes and the sharing of good practices. One of the projects, held annually, is Jornada SGI (IMS Journey), which encourages the participation of all employees. In 2019, the event included training and awareness-raising activities on topics relevant to the areas that make up IMS and to the Company’s governance, such as Anti-Bribery, Anti-Corruption, and Conflict of Interest Prevention.

This event also included the annual Open House, which organized social activities for more than 5,000 people that visited the Company’s units. Among the events were basic medical check-ups such as eye exams, blood pressure and glucose measurement, and guidelines on breast and prostate cancer prevention. Children’s Day was also celebrated during the Open House event, with the participation of the families of employees and of the surrounding communities.

Additionally, cleaning of the Arroyo Mburicao springs and the banks of the Paraguay River were carried out, with the participation of employees from Paraguay, resulting in the impressive removal of more than 42 tons of recyclable waste.

The IMS also focuses on handling risk and impacts through the management of indicators and formalizing the processes in company documents and having a formalized policy, establishing the following guidelines:

  • To promote and protect the health and safety of the people who work at Minerva;
  • Respect the environment through the prevention of pollution and nature conservation;
  • Promote handling practices aimed at animal welfare;
  • To offer safe and quality food products all while working towards continuous improvement;
  • Respect its employees;
  • Promote the participation and development of the Company with the local communities;
  • Comply with legislation;
  • Strive to meet the needs and expectations of its customers.
Food quality and safety
The Company applies the most rigorous procedures that have allowed it to add to the brand the highest standards of quality and safety of its food. For this, the Company runs in all of its units auto-control programs that are monitored on a daily basis, among which we highlight the following:
  • Hazard Analysis and Critical Control Point (HACCP), which ensures that all hazards considered significant in the production process are kept under control, ensuring the safety of the products marketed by the Company at all stages of the production chain, from the receipt of animals and/or raw materials and inputs to the shipment of the product.
  • Standard Operating Hygiene Procedure (PPHO), which defines sanitation and hygiene procedures adopted in the production environment.
  • Operational Sanitary Procedures (OPS), which determine and standardize the sanitary guidelines to ensure that products are free from any contamination.
  • Bem-Estar Animal (BEA), animal welfare guidelines that establish and standardize humane methods of animal handling at all stages of the production chain.
  • Boas Práticas de Fabricação (BPF), The Good Manufacturing Practices which are standard operating procedures, aimed at protecting the health of the consumer, the employee, and preservation of the environment.
The impacts related to food safety are assessed throughout the production in order to ensure sanitary control in the units and comply with the applicable regulations, legislation and standards. In addition, the units are inspected by the responsible agencies of Argentina, Colombia, Paraguay, and Uruguay, which operate under a continuous inspection schedule.
All of the industrial plants of the Company in Paraguay, Uruguay as well as the Rosario and Pilar units, in Argentina, are certified under the BRCGS standard, recognized by the Global Food Safety Initiative (GFSI), a private organization whose focus is the guarantee and standardization of Food Quality and Safety criteria. All the industrial units undergo secondary audits performed by customers such as McDonald’s and Burger King, thereby guaranteeing compliance with legal and customer requirements.

Additionally, there are international certifications for exporting organic meat in all the units in Paraguay and Uruguay. This production, subject to annual audit, takes place in certified units that maintain a rigorous traceability system, guaranteeing the consumption of a quality and safe product. The Colombian unit has HACCP certification, which attests to the conformity of the food safety and sanitary self-control system.

In 2019, the industrial units received Missões Sanitárias Internacionais, international health representatives from countries such as the United States, China, Chile, the Philippines, Russia, the European Union, Thailand, and Peru with the objective of evaluating the Inspection Systems in each country of operation, on top of meeting specific requirements from the private sector for the production and shipment of safe and quality food.

By focusing on compliance with good practices that ensure the production of safe food, the Company is able to maintain strict control over chemical hazards. The control of chemical hazards at the units of Athena Foods follows the established National Waste Plans of Argentina, Colombia, Paraguay, and Uruguay.Each of these plans includes laboratory testing, based on a collection schedule for samples, issued by the government inspection services in order to determine the presence of residues of drugs, antibiotics, and other chemicals.

The Company instructs its suppliers that all lots must comply with the legislation and, upon receipt of the animals, requires a declaration from the owner of the lot stating that no hormones, anabolic substances, antibiotics or other growth-promoting substances have been used. In this declaration, the producer also confirms that he has complied with the grace period determined by the competent authority in cases where veterinary medicinal products have been administered.

Animal welfare
Athena Foods maintains an Animal Welfare Program based on a strict policy of zero tolerance towards acts of abuse, negligence or mistreatment of animals, always striving to apply the best handling practices, training for those involved and continuous verification processes at all stages of production. For this purpose, specific internal auto-control procedures have been adopted in all units. They describe the animal welfare management system, using as a reference national and international regulations, as well as customer specific requirements.

Innovative projects based on scientific and technical fundamentals that optimize the resources available for the benefit of animal welfare can be found throughout the units. In Uruguay, cameras have been installed ranging from the cattle reception area, the unloading area, holding corrals, to the stun box and the bleeding area in order to monitor the indicators of animal welfare.

The Five Freedoms of Animals
All animal welfare guidelines followed by the units of Athena Foods are aligned with the essential principles of the five animal freedoms.
  • Hunger and thirst: Easy access to water suitable for consumption and healthy diet;
  • Discomfort: Suitable environment, under cover, including a resting area;
  • Pain, harm, or disease: Early detection, prevention and/or rapid diagnostics, combined with intervention by veterinary treatments;
  • Behavior: Expression of natural behaviors and interactions inside suitable facilities and the company of animals of their kind;
  • Fear and anguish: Guaranteeing conditions and care that avoid the states of fear, anguish and suffering to the animals.
Indicators such as the number of falls, slips, vocalization, use of the cattle rod, the stun efficiency, transport mortality, severity of bruises and others are considered. These assessments are used as a continuous diagnostic tool and management of animal welfare, ensuring the implementation of best practices and to identify the need for corrective actions in the processes.
Training
With the objective of increasing the good practices of animal welfare, Athena Foods promotes frequent training of both its internal staff and suppliers to guarantee the efficient execution of its Animal Welfare Program. It also ensures that employees who deal with live animals have the essential skills needed to handle them in routine management procedures. For this purpose, it provides specific theoretical and practical animal welfare training in the workplace: in 2019, about 396 employees and 266 drivers were trained.

All units of Argentina, Paraguay and Uruguay have employees exclusively dedicated to animal welfare, responsible for the supervision and application of the program, which includes the evaluation of the facilities, equipment, training of the employees that work with live cattle and continuous monitoring of indicators and procedures. In Colombia, this function is managed by the area of Quality Insurance. The Company believes that this structure results in a stronger discipline in carrying out the actions and a constant improvement in the welfare of the animals under its care.

Certifications
The beef processing operations of the units in Argentina and Paraguay are certified by the Professional Animal Auditor Certification Organization (PAACO), assessed by internationally recognized institutions. The units located in Uruguay undergo third party audits based on the American Meat Institute (AMI) protocol, respecting the european standard 1099/2009, which contains rigorous criteria of animal welfare.

The units located in Paraguay and Uruguay also have organic certifications, complying with regulations 834/2007 and 889/2008 of the European Community and the National Organic Program (NOP) of the United States. These animals are guaranteed to be free from antibiotics, growth hormones and animal feed supplemented with animal by-products, as well as meeting the highest standards for animal welfare. In the units of Paraguay, 11.36% of all animals slaughtered are certified organic. In Uruguay, the Melo, Carrasco and Canelones units account for 37%, 24% and 15%, respectively, of organic certified beef.

Animals
All cattle purchased by Athena Foods are raised with the freedom of movement, with gregarious behavior being maintained and respected at all stages of the chain: throughout the breeding, rearing, fattening, and pre-slaughter process. In 2019, the majority of the animals bought were raised only on pasture, as demonstrates the chart below:

Athena Foods does not rely on genetic engineering, cloning or the use of growth hormones in its production. In Uruguay there is an official responsibility plan from the Ministerio de Ganadería, Agricultura y Pesca (MGAP) in which all those who supply cattle to the Company, sign an annual commitment regarding the use of veterinary drugs, growth promoters and waiting period in the event of medication use. In addition, periodic audits are carried out on their ranches to evaluate quality aspects, compliance with legislation and cattle hygiene before the cattle are sent to the units. In Paraguay, all producers sign a letter of commitment in agreement with the Servicio Nacional de Calidad y Salud Animal (SENACSA), confirming that the raw material does not come from genetically modified sources. In Argentina and Colombia, there is no official registration, but the principles are respected.

Furthermore, the Company does not encourage prophylactic use of antibiotics in the breeding of animals, in line with global trends of awareness on the matter. Before the animals are received, producers must undergo a check for the presence of residues of antibiotics and other veterinary medicines, with proof issued by the health authorities of the country. In Argentina, the agency responsible for this control is the Coordinadoración General de Vigilancia y Alerta de Residuos y Contaminantes (CREHA); in Colombia the Instituto Colombiano Agropecuario (ICA); in Paraguay the Servicio Nacional de Calidad y Salud Animal (SENACSA); and in Uruguay the Ministerio de Ganaderia, Agricultura y Pesca (MGAP).

All animals are rendered unconscious and checked for signs of consciousness before the bleeding procedure is carried out, with the exception of those destined for specific markets with religious observances.

Transport
In order to ensure the adoption of animal welfare practices, procedures for routine transport have been adopted along with indicators for control. All drivers are specialized and trained to perform the function and receive yearly training on good animal handling practices and defensive driving to avoid bruising and minimize the stress of the animals transported along the journey. Under Athena Foods Animal Welfare guidelines, the transportation of cattle to slaughter for over eight hours is avoided.

In Colombia, when transportation is scheduled to go beyond this period of time, the animals receive special care during the trip, which involves resting in the truck itself, providing 16% more space and supply of water (45 liters/day/animal). It is not permitted to transport animals with horns together with those without horns, and of different sexes or sizes in the same truck. These recommendations are negotiated at the time of purchase. The Quality team also provides training to truck drivers, using teaching materials. In 2019, 42.6% of the animals slaughtered were transported within the eight-hour travel limit.

In Argentina there are internal guidelines expressed in the animal welfare procedure, which also includes recommendations for transportation of less than eight hours. During the arrival of cattle, drivers are provided with handouts as a way to raise awareness of the best practices for transporting live cattle, with information on defensive driving. All drivers sign an acknowledgement of receipt of this material. In Uruguay, the cattle transport procedure stipulates that after every 30 kilometers on very curvy, steep roads or with large potholes, the load must be checked, it also states that abrupt stops and sudden gear changes must be avoided. The average distance traveled, from the farm to the unit, is 200 kilometers and the journey time is four hours on average. In 2019, about 20% of the animals were transported with above average journey time.

In Paraguay, the animal welfare procedure includes transportation, with mandatory driver training.