We currently have 16 facilities, two of which are protein-processing plants located in Rosario and Pilar, Argentina and 14 of which are deboning and slaughtering plants strategically located in the following South America cities: Asunción, San Antonio and Belén in Paraguay; Rosario, Berazategui, Colonia Caroya, Pilar and Venado Tuerto in Argentina; Melo, Canelones and Montevideo in Uruguay; and Ciénaga de Oro in Colombia. In addition, we currently have five distribution centers that are located in the following cities: Santiago and Concepción in Chile, Pilar in Argentina, Asunción in Paraguay and Bogotá in Colombia. Our facilities are geographically positioned in close proximity to the ports from which we transport our products. Our existing footprint enables us to export our products to a wide range of markets, including the United States, China and Hong Kong, among others.
This geographic diversification is an essential aspect of our strategy, which we believe allows us to:
(1)benefit from abundant pastures that reduce our dependence on agricultural commodities for cattle feed, therefore reducing our exposure to variations in fuel and grain prices (mainly corn and soy);
(2)minimize our raw material acquisition costs; and
(3)minimize the risk and spread of illness among our cattle.
In addition, our diversified footprint in the region allows us to properly use risk management instruments to further mitigate the risks inherent to our business.
These factors, in conjunction with the work of our research and development department, allow us to produce customized and high-value-added products to meet the needs of our customers in the food-service industry, which has experienced increased growth rates in our markets in South America and Asia in recent years.
We believe we manage an efficient logistics network using various distribution channels that allow us to reach a wide spectrum of customers in domestic and export markets. Our focus is on reaching small- and medium-sized retailers and food services clients, which we believe allows us to obtain higher margins. We believe that our diversified logistics infrastructure provides us with the flexibility required to benefit from fluctuations in demand and prices, contributing to our strategy of maximizing our margins.
In South America, we offer a “one-stop shop” concept, with several types of frozen or chilled perishable products produced and sold by us or supplied by third parties (including, but not limited to, poultry, pork, fish, french fries and frozen vegetables). We focus on small- and medium-sized retailers and food services clients throughout our distribution networks in Paraguay, Argentina, Chile and Colombia through our extensive sales network of over 60,000 points of sales. We believe that this strategy results in increased loyalty from our customers and extends the reach of our products.
Efficient Risk Management
We make investments in accordance with a defined strategic plan that focuses on production platforms in South American countries with low sanitary risk. Our processing facilities are strategically located in Paraguay, Argentina, Uruguay and Colombia. Geographic diversification is an important tool for mitigating sanitary risks and reducing the concentration of our supply base.
Over the years, we have adhered to a conservative risk management policy, which is set by our “Beef Desk,” a group of executive officers, operational managers and analysts who meet daily to make material operational and commercial decisions. In such daily meetings, the Beef Desk considers our short- and long-term risks and opportunities in order to maximize our margins based on market conditions.
product sales and the international distribution network; (ii) our strategy to mitigate financial impacts from exposure to different risk factors in the protein industry; (iii) our goal of maximizing returns on sales; and (iv) our strategies to sharpen reduction in the cash conversion cycle. Members of the following departments attend these weekly meetings: cattle purchase, logistics, domestic commercial, commercial exports, and market research. The weekly Choice Meetings consider several key variables to local sales and international distribution, including logistical costs, exchange variations, demand, differences in pricing between cuts in the domestic and international markets, tax and direct labor, among others. Decisions made at Choice Meetings address the business impact to our cattle strategy, inventory management, foreign exchange risk management, commodities management, commercial strategy and cash flow management, among others.
We have highly diversified operations
We are the most diversified player in the beef and cattle byproducts industry in Latin America in terms of geographic diversity. Our 16 facilities, two of which are protein-processing plants located in Argentina and 14 of which are deboning and slaughtering plants located in Paraguay, Argentina, Uruguay and Colombia, are geographically dispersed and located in close proximity to the ports from which we transport our products. This geographic dispersion helps us manage sanitary risks and extend our supply network, composed of a base of approximately 17,000 ranchers, which focuses on serving small- and medium-sized producers. Our processing facilities are also located near our cattle suppliers (within an average distance of 300 kilometers).
Efficient and Integrated Distribution Logistics
We believe our efficient and integrated distribution logistics system allows us to target the most attractive markets and provides us with flexibility to take advantage of changes in product demand and cattle prices by focusing on increasing our sales of higher-margin products.
We believe our logistics network for exports—which includes third-party private storage, transportation services and insurance—and our strong relationships with ship owners give us the necessary operating efficiency to ensure that we deliver our high-quality products on a timely basis. We export most of our products on a cost, insurance and freight, or CIF, basis, utilizing chartered break-bulk vessels and containers that enable us to obtain economies of scale in negotiating freight, storage and insurance for our products. We export our products directly to our end customers at the final destination points to avoid incurring fees and other costs payable to trading companies and other intermediaries. In addition, we believe our efficient and flexible logistics network allows us to sell our frozen and chilled beef products to several export markets around the world, including in Europe, the Middle East, Africa and Asia. We focus primarily on developing countries through our sales offices located in Algeria, Australia, Chile, China, Egypt, Hong Kong, Italy, Lebanon, New Zealand, Russia, Singapore, the United Kingdom and the United States. In addition, our logistics network for exports is capable of adjusting to capitalize on changing demands in the as a result of recent developments, including the African swine fever outbreak in China and flash floods in Australia, have created opportunities to increase our exports to these markets.
Efficiency and Return on Capital
Our production platform, financial discipline and careful planning of investments for expansion have enabled us to maintain our high capacity utilization rates, including during periods of significant capacity expansion. We believe we are among the most efficient companies in our industry in terms of utilization rates due to our: (1) increased operating margins; (2) high utilization of our production capacity, which is typically between 70% and 80%; and (3) working capital management. We believe our operating efficiency, coupled with our risk management strategy—as exemplified by our “Beef Desk” and “Choice Meetings”— could result in an increased generation of operating cash and net cash per share.
Diversification of Consumer Countries
We export our products to over 100 countries, including countries in Europe, the Middle East, Africa and Asia. Our sales in those countries are focused on three types of customers: (1) companies in the food processing industry; (2) companies in the food service industry, such as catering services, fast-food chains, restaurants and hotels; and (3) retail customers (small-and medium-sized retailers as well as large retail chains). In emerging markets, we diversify our coverage in terms of geography and ethnicity.
Highly Experienced Management Team
Our management team has a long-standing track record in the industry, with several experienced leaders to promote growth and maximize efficiency and return over invested capital while maintaining adequate risk policies. Iain Mars, our chief executive officer, has 35 years of experience in the protein industry in several countries, including Australia, Russia, and Brazil, among others. Mr. Eduardo Puzzielo, our chief financial officer, has over 20 years of experience working with investors and financial analysts. In addition, each country has a “country manager” that oversees daily operations to manage local product demand and prices and to assess the optimal strategy.
Expand Our Production Capacity in a Financially Disciplined Manner
Over the past several years, we have invested in the expansion of our production capacity and the diversification of our product mix through selective acquisitions, increasing our production capacity and modernizing all of our plants. Our growth strategy has focused on maximizing sourcing of raw materials in South America to meet growing global demand. For example, our acquisition of the Mercosur New Assets increased our installed slaughtering capacity to 14,500 heads per day, as compared to our pre-acquisition capacity of 5,400. We have flexibility to adjust our capacity utilization based on shifting demand in the domestic and export markets for beef in the coming years. We have undertaken strategic investments to mitigate risks and diversify our portfolio, while maintaining high standards of productivity, quality and food safety.
We will continue to focus on efficiently managing our working capital, managing risks and generating free cash flow. We also intend to leverage our experience in acquisitions to continue participating in the consolidation of the South American beef market without compromising our financial stability or profitability.
Expand Our Domestic and International Customer Base
We seek to continue to strengthen our domestic and international customer base through superior service and quality and by adding value to our domestic distribution process through increased offerings of our own products and third-party products.
We believe there are considerable opportunities to increase our market share, both in the markets in which we currently operate and in several markets with higher levels of beef consumption, given our ability to increase beef production capacity and the favorable outlook for global beef consumption.
We also expect to increase our presence in domestic markets in South America by opening new food-service channels and distribution centers, which would allow us to increase our sales of fresh beef and processed products.
Enhance Operating Efficiencies and Lower Operating Costs
We are committed to maintaining our position as a low-cost producer of beef and beef byproducts. We have implemented internal controls and state-of-the-art software systems in all of our facilities in order to increase our overall operating efficiency. We offer variable employee compensation based on higher productivity and capacity utilization rates. We believe that our average slaughtering capacity utilization of 77.8% for the year ended December 31, 2018 is among the highest in our sector. We intend to continue to focus on maintaining our operating efficiencies, modernizing our plants, reducing our operating costs, increasing our economies of scale and integrating our logistics network.