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RISK MANAGEMENT
103-2 | 103-3: Economic Performance
201-2
The Company has adopted a unique risk management system for all of its units, guided by the best practices in the market. Its production platforms feature modern facilities and are located in low health-risk countries in South America. The operations are monitored in order to mitigate climate change related risks and to promote a continuous improvement in its management of eco efficiency.
In addition, teams made up of representatives from different areas come together to work in a coordinated effort, using various internal and external resources and data, as well as the use of artificial intelligence to make day-to-day decision-making more effective. The practice encompasses the purchase of raw materials to the closing and receipt of sales under conditions that contribute to the mitigation of risks. That is a task that involves the following resources:
Beef Desk – Is a platform that uses technological resources to provide managers with the information needed for joint and consistent analysis in order to make assertive strategic decisions. A meeting that is based on the reading of the market forces and potential reflexes in the price curves of the inputs and final products, defining the strategy of operation over the short and medium terms. Various resources are used to mitigate the risk of price volatility and maximize margins. The meeting occurs daily and is coordinated by the Business Intelligence area, bringing together managers from various divisions and departments, such as the heads of the areas of Commercial, Planning and Production, Livestock purchasing, Treasury, Trading and Market risk.

Pricing – Pricing operates through price management based on the analysis of a number of conjunctural and structural factors. To define pricing, factors such as product and logistics costs, taxation, as well as market variables for the best positioning of products and brands, such as consumer demand, seasonality and competition in sales, are analyzed on a daily basis.

Choice – Meetings on Choice are held on a weekly basis in order to make decisions related to the most efficient disassembly and allocation based on the type of raw material and the profile of the portfolio to be handled.

There was a strong demand for all these resources in 2019 due to the sudden and substantial increase in foreign sales as a result of Chinese demand, in addition to the entry of new markets. The results obtained by the Company demonstrate the effectiveness of these resources in decision making.

Key manageable risks
102-15
Financial – The Company acts to reduce the ratio between net debt and Adjusted EBITDA by use of the following: (i) obtaining higher revenues, especially from the operations of its industrial park and other businesses, such as its tradings, and (ii) using resources from the increase in its capital stock and issuance of debt in the international market to pay off outstanding indebtedness. The risks are monitored daily. In addition, the Board of Directors has the power to establish the level of protection (hedge) of the long-term debt.

Operational – The Company has operations in South American countries under Athena Foods, whose gross revenues in 2019 represented 41% of the total revenues. Therefore, a negative impact on the subsidiary’s operations may adversely interfere with the distribution of dividends. To mitigate these risks, the Company maintains a formal structure for the management of commodity risks, the Beef Desk.

Suppliers – As a consequence of the occupation of vast amounts of land, ranching is considered one of the main drivers of deforestation in regions undergoing expansion, for example, the Amazon and the Paraguayan Chaco. In addition, it is also monitored due to the presence of slave and child labor. Against this backdrop, the Company has firmed a public commitment of only acquiring cattle from farms that are in conformity with the requirements in these agreements.

Clients – Consolidations in recent years have resulted in customers of considerable size, sophisticated, and with a greater purchasing power, therefore more able to operate with reduced inventories, opposing price increases and demanding lower prices, as well as more promotional programs and specifically customized products. Likewise, they may use the space set aside for the Company’s product display to present their own label products, which may adversely affect the financial results. To mitigate these risks, the Company maintains a diversified client portfolio, and its exports are distributed in approximately 100 countries, in addition to having sales offices located in 15 regions around the world.

Sanitation barriers – Concern about the possibility of occurrence and spread of diseases affecting cattle may mean restrictions or suspension from the market. Therefore, the Company frequently monitors the sanitary conditions of the countries where it has production units. In Argentina, which is supervised by the Ministry of Livestock, Agriculture and Fisheries, the Patagonian region has achieved FMD-free status without vaccination and the rest of the country is free through vaccination. In Colombia, where an outbreak of F&M disease was identified in late 2018, the Ministry of Agriculture and Rural Development (MADR) has been responsible for its control. In Paraguay, the Servicio Nacional de Calidad y Salud Animal (SENACSA) is responsible for controlling F&M disease through a system of scheduling and on-site verification of herd vaccinations by its accredited technicians. In Uruguay, supervised by the Ministry of Livestock, Agriculture and Fisheries (MGAP), the country has been declared free of foot-and-mouth disease through vaccination. Another disease that can affect cattle is Bovine Spongiform Encephalopathy (BSE). However, a resolution by the World Organization for Animal Health (OIE) recognizes Brazil, Argentina, Colombia, Paraguay, and Uruguay, areas where the Company has operations, as countries of negligible risk for the disease. FP12

Socio-environmental issues – Failure to comply with environmental standards may result in administrative, civil, and criminal sanctions and liability for damages. Moreover, the inability to meet the requirements of the labor legislation may expose the health and safety of employees and service providers to risks, resulting in administrative and criminal penalties. In order to mitigate these risks, the Company has consistently invested in improving its facilities in order to reduce potential damage to the environment and provide its employees with a safer working environment. The Company ensures to meet applicable environmental requirements, performing periodic monitoring to verify the efficiency of the effluent and water treatment systems, control of GHG emissions, water, and energy consumption and waste management, as well as other environmental indicators.

In addition, it has adopted social and environmental responsibility criteria for the operations located in Paraguay in relation to the registration of cattle suppliers in compliance with labor legislation.

Throughout 2019, there was an effort made to strengthen the relationship with local communities and several projects were carried out to foster stronger proximity. Particularly noteworthy is the annual Open House event, which welcomes neighboring communities to visit the facilities, their processes and environmental controls, products, and services. Another example is the project Revive, which aims to promote environmental preservation for the communities around the Paraguayan Athena Foods’s units.

PRIME RIB
The Prime Rib is a cut that comes from the sixth and tenth rib. It is considered the softest and most premium part of the rib and is known by various names. In Italy it is called Constata and in Spain Chuletón and in some places it is referred to as the ribeye cowboy steak. It is best prepared on a gridiron or on the barbecue, always starting with the bone side down, in order to enhance the flavor.