Open insurance to start in December in Brazil

The so-called open insurance already has a date to start in Brazil. The first stage of the project, which aims to create a data-sharing system for the insurance industry, will begin on December 15. The forecast is that the three stages will be put in place by June 2023. But consumers will not have to wait until then to see changes in the market.

The rules of the insurance project were published this Wednesday and define conditions to allow consumers to securely and rapidly tap and share their data whenever they wish with other insurers or third parties. And, through integration with Central Bank’s open banking system – aimed at sharing data and financial services by institutions – it creates the “open finance” system, as it has been called.

The Central Bank’s project already foresaw, in its phase 4, the entrance of segments such as insurance, pension plans and investments managed by financial firms. Brazil’s largest insurance companies are part of banking conglomerates but not all of them. Since not all of them distribute their products through banks, the Superintendence of Private Insurance (Susep) regulates the sector.

Eduardo Fraga — Foto: Leo Pinheiro/Valor

Eduardo Fraga — Foto: Leo Pinheiro/Valor

“Open finance makes it possible for people who do not have a bank account today to tap the services. Fintechs can give access to unbanked people and will be the gateway for insurance products to reach these people,” Eduardo Fraga, director of Susep, told Valor. For him, the possibility of using a payment method like Pix, the Central Bank’s instant payment system, opens a great opportunity for insurance and pension plans. Today, the use of banking bar-coded bills known as boletos – which costs R$3 for companies – makes it unfeasible to offer insurance priced at R$5.

In the first phase of open insurance, all public data from insurers will be shared, such as service channels and available products, in the same way as occurred with open banking. The inclusion of this information will also be in stages, with completion scheduled for June 2022. Susep’s plan is to start with those products most sensitive to individuals. This is the case with auto, home, personal and pension insurance.

“Already in the first phase, solutions for comparing products can be developed,” Mr. Fraga said. Today, the consumer who asks for information about certain insurance needs to contact all the companies. “Open finance makes banks and insurance companies open their information in a standardized way. Application and solution developers, technology companies and even a person at home will be able to program applications that consume insurance information and show it in a consumer-friendly way,” he added.

The second stage is planned for September 2022, when people’s insurance and pension data will be shared. Initially, personal registration data will be included for all the insurance lines that are already part of the System of Registration of Operations (SRO). “There is a very large integration with the SRO. After all, the data is already being recorded by the insurance companies. When that happens, the data is ready. We will follow the SRO schedule for inclusion of the data.”

This phase depends on the consumer’s consent to share the information, and it can be revoked at any time. In this phase, it will be possible to share the history of insurance or banking use with other insurers. With information such as how often the customer refuels the car or pays rent, it will be possible to offer tailored products.

The services will be shared within the ecosystem in the third phase of open insurance, scheduled for December 2022. The “insurance service initiator” figure will be created – fintechs or insurtechs, and even large retailers, which will be accredited to participate in the ecosystem. Through them, it will be possible to make connections with the insurer’s data and transfer contracts, for example.

The postponement of the second phase of open banking has no impact on the insurance project, according to Mr. Fraga: “We are very integrated with the Central Bank and are still talking about deadlines and implementation. At this point, there will be no problem because the two agencies are working in a coordinated way,” the director of Susep said.

Source: Valor international

Brazilians’ financial health on the edge, survey says

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On a scale of 0 to 100 points, the average financial health of the Brazilian population is 57 points, says the Financial Health Index of Brazilians (I-SFB), released Monday by the Central Bank (BC) and the Brazilian Federation of Banks (Febraban). The higher the indicator, the better the financial health is considered. The current score puts the financial health of the Brazilian population at the “OK” level, in which balance is “on the edge, with little room for mistakes.”

“[On average] the citizen has balanced accounts, but little margin for error. This is what we found,” Febraban’s director of financial citizenship, Amaury Oliva, said in a press conference.

The indicator was built with a little more than 5,000 people from all regions of the country, over 18 years old and with some kind of relationship with the National Financial System (SFN).

Febraban and the Central Bank found out in the survey that 69.4% of Brazilians spend all they earn, or even more; 65.7% “think a lot” before spending money; 21.9% could handle a large and unexpected expense; 58.4% say that somehow finances reflect on family life; 53.5% say that financial commitments have reduced their standard of living; 34.1% feel able to recognize a good investment; 37.9% realize they need to seek guidance; 64.7% are unsure about their financial future; 60% consider that the way they handle finances does not allow them to enjoy their lives.

The expectation is that a new survey will be conducted next year. “We expect it [the indicator] to oscillate, always upwards,” said the head of the BC’s department for the protection of financial citizenship, Luís Mansur.

For Febraban’s president, Isaac Sidney, the tool gains importance at a time of advancing vaccination and economic recovery.

Central’s Bank Mr. Mansur also emphasized the importance of financial education in a phase of major changes in the SFN, with the implementation of open banking, for example. He also revealed at the event that the monetary authority and financial institutions will hold a new debt renegotiation meeting in November, similar to the one that took place in 2019.

Source: Valor international

High-end corporate office leases reach pre-pandemic levels

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The advance of vaccination against Covid-19 and the growth of GDP above expected made the segment of high-end corporate offices reach, in the second quarter, its turning point in the São Paulo market. It was the first time since the beginning of the pandemic in which the difference between the total areas contracted and returned — what is called net absorption in the industry jargon — was positive in the main regions of the city of São Paulo, according to consulting firm SiiLA, reaching 10,168 square meters.

“We always thought that vaccination would be the key to change, as it has been happening in the rest of the world,” says SiiLA CEO Giancarlo Nicastro. Many tenants have evaluated the best time to resume office occupancy. “The expectation of vaccination has already brought a positive feeling to companies. With the process taking place, effectively, we noticed even more intense movement,” says JLL office leasing manager Yara Matsuyama.

In Newmark’s calculations, gross absorption — total office leases — reached 70,833 square meters, the highest since the fourth quarter of 2019. In practice, the pre-pandemic level has been reached. “There was recovery in the new leases. There is a certain optimism in the market. In 2020, rental activity was not paralyzed, but occurred slowly,” says Mariana Hanania, director of research and market intelligence at Newmark in Brazil.

In the quarter, the main market movements were the occupation of 9,900 square meters in the WT Torre Nações Unidas building by Dasa, a medicine laboratories chain. Retailer Via (ex-Via Varejo) signed a contract of 7,000 square meters in Eldorado Business Park. “The trend is that occupations continue to occur, unless there is something off the radar, such as some variant that makes it necessary to return to lockdown,” says Mr. Nicastro.

On the other hand, points out Ms. Hananias, returns continue and totaled 115,000 square meters, in the second quarter, with the service sector accounting for 61% of the total. “The remodeling of the offices continues to happen,” she says. An example of area reduction was the migration of companies from the Novonor conglomerate (formerly Odebrecht) from Pinheiros One to the Aroeira tower, in Parque da Cidade. According to Newmark’s estimates, there was negative net absorption of 46,034 square meters in the market.

“We expect that soon the net absorption will be positive. The second half will be more intense in leases,” says Ms. Matsuyama, with JLL. According to the consultancy, the difference between contracted and returned areas was negative at 41,888 square meters.

The tendency is that the return of the occupation of the offices by the tenants occurs, mostly, in the hybrid format, with more or less frequency of the employees, according to the need for interaction required by the function. “Going to the office will be to interact with other people, not to isolate yourself,” says Ms. Matsuyama.

According to Sequoia Properties CEO Joaquim Rocha Azevedo, on average, offices used to have 70% of the area directed to individual jobs and 30% to collaborative spaces. From now, the proportion of areas that enable interaction tends to grow.

The vacancy rate continues to rise due to the substantial volume of corporate buildings coming to the market. Newmark estimates that the indicator has increased to 25.09% from 22.9%, including also non-priority regions such as Barra Funda and Alphaville. “Considering the planned new stock, there will be an increase of at least two percentage points in the vacancy. From 2022, the indicator will start to fall,” says Ms. Hananias. The new inventory delivered in the second quarter was 79,675 square meters.

At the end of June, the vacancy was 24.9%, according to JLL, which projects 28% for the indicator at the end of the year. “A little return of areas” will also contribute for the increase in vacancy, according to Ms. Matsuyama. The reduction in the number of employees due to the crisis, the search for efficiency in the occupation of spaces and working-from-home policies are the main reasons for companies to decrease the rented spaces.

As the buildings that are coming to the market have, on average, higher quality than those available, the average asking price per square meter in the premium regions was R$115.84, above the R$109.33 of the first quarter, according to Newmark. Including all regions, the JLL survey indicates an increase in the amount requested per square meter from R$85 to R$92.16. In the quarter, Faria Lima Plaza, with a price of R$170 per square meter, and River One, with an order value of R$130 per square meter, were delivered.

Although she considers that the office segment is experiencing its turning point, the manager of JLL ponders that there is still more caution than before the pandemic in the decision-making of potential occupants regarding the hiring of new areas. Questions and bureaucratic demands regarding contracts that used to be made only by multinationals, adds Ms. Matsuyama, have become common concerns of companies.

In the assessment of Mr. Nicastro, the demand for offices has grown because potential occupants have realized that this is the “best time” to rent real estate, considering that there are still real estate options with attractive rental prices, in priority regions, such as Paulista Avenue.

For him, the bullish cycle of prices tends to occur after the vacancy falls to the level of 15%, which is expected by him for a year from now. The focus of office owners should now be “optimization of occupancy,” according Mr. Nicastro, and not price. “A property rented for a low price is better than an empty property,” he says. Contracts of at least five years go through revision every three years, to conform to market values.

Last year, to keep tenants, Sequoia Properties renegotiated prices, grace periods and made agreements for late rental collections. Ms. Hananias, with Newmark, points out that, in current contracts, tenants have sought readjustment by an average of indicators, and not by the General Market Price Index – IGP-M. “Owners are more flexible in not practicing full IGP-M,” she says.

Source: Valor international

Central Bank must be truly independent, former chief says

Economist Ilan Goldfajn says that, after becoming formally independent, the Central Bank should seek to ensure the maintenance of its de facto independence from the federal government, sometimes saying no to invitations for talks and meetings with the president of the Republic.

“Discipline has to be great,” said Mr. Goldfajn, who was president of the Central Bank in the Temer administration, in an interview with the Casa das Garças podcast, which will be released on Thursday. “It’s hard to say no, but you have to, because with these changes on a day-to-day basis you gain de facto autonomy.”

Mr. Goldfajn also says there are limits on transparency in the Central Bank’s monetary policy communication to avoid misunderstanding; says Brazil and other emerging markets are not yet ripe to benefit from forward guidance; and recommends that interest rate decisions be made with “caution,” without going either way abruptly.

He addresses all these topics from the standpoint of his own experience as head of the Central Bank, without mentioning the current central banker, Roberto Campos Neto, although he tries to draw general prescriptions of conduct for issues that remain current.

“How many times was I called to cabinet meetings that were not appropriate at the time?” says Mr. Goldfajn, who is now chair of Credit Suisse in Brazil. “Many times it was important not to participate in the government in something that was not a matter of the Central Bank or of state.”

For him, the rule of silence of the Central Bank’s Monetary Policy Committee (Copom) should apply not only to interviews with the press or conversations with the market, but also in the relationship with the government itself. Mr. Goldfajn says that, at times, he was called by the president of the Republic: “Come talk here.” And he often replied: “President, right on the eve of the Copom meeting! We can talk, I know how important it is, but let the Copom meeting pass.”

Mr. Goldfajn also discusses the limits to the Central Bank’s transparency. “[It’s] very good for the Central Bank to be transparent, to communicate as much as possible, but there is a limit to transparency,” he said. “[The limit to transparency] is when you communicate what you don’t know, the uncertainty.”

He said that at the head of the Central Bank, he had a learning experience when he conditionally signaled a 25 basis points decrease in the Selic for the May 2018 Copom meeting, but had to change his mind because the environment became more difficult after the U.S. Federal Reserve started raising its basic interest rate.

“This case made us think: forward guidance is very limited,” Mr. Goldfajn said. “Things happen fast, changes are very abrupt. It seems to me that Brazil and other emerging countries still don’t have this tool at their disposal.” According to him, on that occasion the Copom had made a conditional signal, but that was not fully understood by the markets. “Markets can’t put all the conditions, they tend to simplify, and that limits the ability to communicate the future.”

In August last year, the Copom employed forward guidance, saying it would not raise interest rates until its baseline scenario for inflation projections met the target, but had to drop it a few months later. More recently, the Copom has been criticized by analysts for signaling a partial normalization of interest rates – in other words, for maintaining a degree of stimulus at the end of the year. The committee has already revised this signal and is now talking about fully removing the stimulus.

When asked what recommendations he would give in a letter to the Central Bank presidents, Mr. Goldfajn repeated a motto he used when he headed the monetary authority: “Caution, persistence and perseverance.” “Cautiousness because it is neither good to go one way or the other in a very abrupt way,” Mr. Goldfajn said. “The market moves faster than the real economy.” But he says that, to keep inflation in check, the Central Bank must act with persistence and perseverance.

At the time when Mr. Goldfajn headed the Central Bank, he was pressured by the market to react quickly and accelerate the pace both when reducing the interest rate and when facing negative events. Lately, some market players have also demanded an even more active attitude, defending a faster pace of interest rate hikes, of 100 basis points instead of the current 75 bp.

Source: Valor international

Duratex to invest R$2.5bn in 3 years

Duratex is starting a new growth cycle, marked by the adoption of a new name — Dexco —, investments of R$2.5 billion for the next three years and the search for being closer to the end customer.

There will be R$500 million for the wood division, the company’s main business; R$1.1 billion for sanitary ware maker Deca; R$600 million for a new ceramic coatings factory; R$100 million for the acquisition of a minority stake in chain ABC da Construção; R$100 million for a venture capital fund; and R$100 million for one-off injections. In addition to increasing capacity, investments will enable improved margins.

Antonio Joaquim de Oliveira — Foto: Carol Carquejeiro/Valor

Antonio Joaquim de Oliveira — Foto: Carol Carquejeiro/Valor

“We are optimistic about the construction market for at least the next three years. Of our total sales, 70% is for renovations. We are not yet capturing the sales of the cycle of real estate launches that occurred from 2019,” Dexco CEO Antonio Joaquim de Oliveira said, highlighting the expectation of GDP expansion in the coming years and Brazil’s large housing deficit.

Currently, all Dexco units operate at full capacity. With the exception of the ceramic coatings factory projected for Botucatu, São Paulo, the remaining investments in capacity increase will be made in existing units, taking advantage of maintenance shutdowns. The new capacities will gradually come into operation by 2024.

The new expansion cycle will be financed with funds from the company’s cash generation. “The investments will be diluted in three years. We will still keep the debt levels very low,” Mr. Oliveira said. At the end of the first quarter, the net debt-to-EBITDA ratio for the last 12 months was 1.19 times. On August 19, Dexco shares will start being traded under the ticker DXCO3.

In the wood division, the company will invest R$90 million to boost production, which will allow an increase of 10% in the installed capacity of panels, that is, of 300,000 square meters. “The return we will have from this investment is fantastic,” Mr. Oliveira said. If Dexco opted for a new panel production line, with 400,000 to 500,000-square-meters capacity, it would have to pay R$1 billion.

The company will allocate R$180 million for three new lines of panel coatings, which will go into operation from this year until 2023. “We will expand our coating capacity by 45%,” the executive said. Together with Usina Caeté, the company will make contributions of R$240 million to triple the forest base of the Caetex joint venture, in the Northeast region. In the future, this wood can be used as raw material for a possible new panel factory or for the expansion of the soluble cellulose unit.

The wood division will continue to be Dexco’s main one, but by the end of 2023, it is expected to account for about half of the company’s sales. This proportion was two-thirds in the past.

The company will also increase Deca’s metals and sanitary ware operations by, respectively, 35% and 30%. In both cases, Dexco studied making acquisitions, but concluded that, due to the market shares it already has, it could not buy any relevant competitors. In metals, the contributions will add up to R$600 million, enabling an increase of 35% of the productive capacity and improvement of the mix. Investments in sanitary ware total R$550 million, with R$300 million of the total going to factory automation.

According to Mr. Oliveira, the integration of the Deca and ceramic coatings teams, carried out in the first half, will enable synergies of R$150 million over four years.

As for ceramic coatings, Dexco will build a factory in Botucatu, São Paulo, with scheduled start for 2023. The unit will have a capacity of 10 million square meters a year, increasing the company’s capacity in the segment by 35%. “It will be Brazil’s most modern coating factory, with two lines of large porcelain slabs,” says Mr. Oliveira. He points out Botucatu’s proximity to suppliers of raw materials and natural gas. In addition to the R$600 million for the new plant, Dexco will invest R$20 million in line automation of the coating plants it owns in Santa Catarina.

Another bet of the company is the purchase of a minority stake in the ABC da Construção chain, based in Juiz de Fora, Minas Gerais. With operations in Minas Gerais, São Paulo and Rio de Janeiro, the network has 93 physical stores and “very strong” e-commerce and logistics operations, according to Mr. Oliveira. It is, according to him, a company with “many possibilities for growth” and that will contribute to Dexco being able to better understand “how customers work.”

At the end of June, the company announced a venture capital fund worth R$100 million to support startups and scale-ups (startups that have already evolved to a slightly larger scale of growth). The intention, according to the executive, is to invest in businesses that may be incorporated by Duratex or bring innovations to the company’s operations.

With several brands in its portfolio — including Duratex, Durafloor, Hydra, Ceusa and Portinari — the company assessed that, as the areas of activity grew, there was a “discomfort” with the name of the company being the same as one of the product brands. That’s when it hired consultancy Interbrand and Africa advertising agency in search of change. Dexco is related, according to Mr. Oliveira, to the previous name, Duratex, and to the idea of a company. “We are creating a company that is already born at 70 years old, hitting the gas and opening a new cycle,” he says.

Source: Valor international

Tax cut has doubtful effect on growth

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The tax cut for business entities, as negotiated by the Bolsonaro government with the rapporteur of the tax reform bill, may not reap the desired lasting results in increasing business investments and expanding growth, according to economists heard by Valor.

Economy minister Paulo Guedes stressed that the tax on the profit of large companies may fall to 21.5% from 34%, a competitive percentage compared to rich countries. With this, the country would become more attractive in the dispute for international investments and more money would be left for the companies to fund new projects.

But in the proposal negotiated by the government with the tax reform bill rapporteur, deputy Celso Sabino (Brazilian Social Democratic Party/PSDB-Paraná), there was no fall in the tax burden. On the one hand, the rate charged directly on companies falls to 21.5% from 34%, but on the other hand, a 15% rate on the distribution of dividends is created. In the end, the tax burden rises to 37% from 34%. The increase was smaller than the original government proposal, which raised the total rate to 43%, but there was still a rise.

“It is not clear that there is, in net terms, a tax cut in the taxation of corporate profit, ” says Mario Mesquita, former director of the Central Bank and current chief economist of Itaú Unibanco. “So far, what has been done is to avoid the increase in taxes provided for in the original proposal”, he says.

Empirical research comes to contradictory conclusions about the effects of corporate tax cuts on the increase of investment and economic activity. Some say they help, hinder or have no effect. In a paper published in May by the German study center The Macroeconomic Policy Institute, economists Sebastian Gechert and Philipp Heimberger reworked 42 previous studies on the subject, using more modern and robust analysis tools, and concluded that tax cuts have zero effect on economic growth.

In general, however, experts recognize that changes in the composition of taxation, with a lower burden on the company’s profit and taxes on the distribution of dividends, can encourage the retention of results to expand investment.

Still, this factor is far less important in business decisions. The existence of investment opportunities, the growth of demand, and the level of political and economic uncertainty in the country have more weight. What worries economists is that, overall, the proposal will lead to a structural loss of revenue of R$30 billion, aggravating fiscal fragility. That is to say: the investment incentive created by the greater retention of profits may be emptied by the feeling of uncertainty, which leads companies to hold new projects.

Mr. Mesquita recognizes that, in theory, the new composition in the taxation of profits can enlarge investments, but this is not guaranteed. “In thesis, of course, taxing dividends stimulates profit retention and reinvestment,” he says. “But there are other initiatives that can be adopted, such as share repurchases. That is, it is not certain that there will be an increase in investment, although it is a plausible outcome.”

Mr. Guedes has been stating that the tax cut account, of R$30 billion, including the reduction of individual income tax, is already being paid with the increase in revenue caused by the recovery of the economy. Several economists heard by Valor, however, question his explanation. According to them, the cut in tax rates causes a structural drop in revenue, while Mr. Guedes counts on cyclical — that is, transitory — revenue gains to cover the hole.

“Revenue has risen with the help of high commodity prices, but things may turn around when this favorable period ends,” says Manoel Pires, director of the Fiscal Policy Observatory at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV).

In the 1980s, some economists argued that cutting taxes would increase the economy’s ability to grow, increasing revenue structurally and balance the account. The thesis was adopted in the United States, by Ronald Reagan, but resulted in large public deficits.

Mr. Mesquita, with Itaú Unibanco, makes a quick calculation: with a tax burden of 33% of GDP, to compensate for an estimated collection loss of 0.3% of GDP (R$30 billion), the economy would have to grow 1% more on account of the tax reform to balance the account. However, he says, it is not possible to identify a clear effect of the measure on increasing investments. And the forecasts for the growth of the economy for 2022 are weaker than this year.

The coordinator of the Center for Capital Markets Studies (Cemec) at the Economic Research Institute Foundation (Fipe), Carlos Antonio Rocca, says that taxation is one of the factors that determine the level of investment of companies, but is not at the top of them. “It is very difficult to reverse the economic logic of investing by altering only the taxation, ” he says. “That it is an extra component, of course, but it is not in the first positions among the factors in investment decisions.”

On a scale of importance, before comes the return expectation of the project in the future, which is compared with the average cost of capital. Another relevant factor is the expectation for the growth of the demand for the goods and services that are intended to be produced with the investment. A third prominent component is an uncertainty, that is, the risk that the project scenario will not materialize.

This is not to say that taxation has zero influence, says Mr. Rocca. It can make a difference especially if there are extreme variations in tax rates, for example to 60% from 34%. ” Such a variation kills the company,” says Mr. Rocca. “But we are talking about marginal variations in rates, which do not dramatically affect investment decisions.” Very high tax rates can affect the attractiveness of companies in Brazil for investors seeking the best return opportunities for their capital worldwide.

For the same total tax rate, on the other hand, higher taxation on dividends can make some difference. “It gives a certain incentive for a slightly greater use of equity by the company,” says Mr. Rocca. But he argues this does not produce a radical change in the companies’ investment policies.

Mr. Pires, with IbreFGV, reached similar conclusions in a research on the relationship between the tax burden and investments in Brazil. The research shows that the expectation of demand comes before the decisions of companies. “During Dilma Rousseff’s government, Brazil tried to do a little bit of that. It reduced the tax burden of some companies, in the taxation on employment, ” says Mr. Pires. “Studies on this measure are very mixed, some say it had effects on increasing employment, others do not.”

For Mr. Pires, the original version of the project presented by the government could be more beneficial than the current one. The proposal, he says, created an incentive for consumption relieving the lower middle class by increasing the income tax exemption range; and encouraged investment, by stimulating the retention of profits, by taxation of dividends; and increased the tax burden, ensuring a fiscally sustainable program with resources to improve income distribution.

“There were distortions. It could reduce the taxation of companies a little more, but overall it brought a set of good things to the country,” says Mr. Pires. “But now the project has reduced too much the rate of companies.” According to him, it encourages the hiring of workers as firms rather than individuals, a subterfuge to avoid labor costs by trimming workers’ rights. Mr. Pires made simulations that show that in some situations, companies will pay for the real profit regime fewer taxes than they pay today, even with the taxation of profits and dividends. “The positive impact on investment became less obvious.”

There is also the fiscal risk, with a cost of R$30 billion not covered in the proposal negotiated with the rapporteur, which may increase in a parliamentary discussion that is just beginning. “The project may have some positive effect on growth in the short term, but it is doubtful that there will be a more sustained gain.”

Source: Valor international

Earnings season likely to show recovery

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The market expects a positive earnings season – suggesting that the economy is recovering normal levels – before companies start releasing second-quarter results on Tuesday, with Neoenergia and Indústrias Romi.

Earnings per share of companies that make up Brazil’s benchmark stock index Ibovespa will grow on average 255% compared with the second quarter of last year, a period in which the economy was hard-hit by the pandemic, a survey by XP Investimento shows.

“The annual comparison of results should be very strong. The consensus is that revenues will rise 42%, Ebitda will be up 70% and profit will increase by 250%,” Fernando Ferreira, chief strategist and head of research at XP, said. “It is a lot. The figures require attention.” In any case, since this is an expected growth, the effect on the market should be small. “We have already seen some results abroad and stocks have not changed so much because they are taking into account the 2020 [low] base of comparison.”

Yet earnings of this group of companies are likely to come relatively stable compared with the first quarter of this year. XP has not yet finished the aggregated projection in this base of comparison, but individual analyses of the companies show that the earnings per share should change little and remain strong.

Jennie Li, XP’s stock strategist, said the earnings season is likely to be marked by the normalization of the companies’ performance. That is, the effect of the pandemic should be less evident in the results. She recalls that when the country entered a firmer path of recovery in the fourth quarter, the earnings per share of Ibovespa companies grew about 100% in relation to the immediately preceding period. This strong base of comparison and the second wave of Covid-19 helped explain the 50% drop in profit in the first quarter. Now, mass vaccination and the easing of mobility restriction measures contribute to a still strong performance, but in line with that already seen last season.

The comparison with the second quarter of 2020, which marked the valley of the recession caused by the pandemic, embeds many distortions, therefore. Still, it is worth noting that differences between industries will still emerge. Earnings per share growth for commodity-related companies is likely to be 697%, the XP report suggests; for technology companies, it should be up 157%; for electricity companies, 149%; for industrial companies, 141%; and for financial firms, 79%. But it may still fall among companies linked to basic consumption and drop 11% among telecom companies.

Gabriela Joubert, executive manager of equity research at Inter, says that the quarter should have a sequential improvement in the numbers that the companies presented in the first three months of the year. “If in the first quarter we already saw good results even with restrictive measures and uncertainties, now in the second, with companies already with much more cemented demands and the opening of the economy with the advance of vaccination, we will see robust results.”

Companies linked with commodities are expected to stand out in the earnings season, just as in the first quarter. Strong demand for inputs and high prices in the domestic and international markets are likely to prop up margins.

“Steel prices, for instance, rose more than 100% in the last 12 months. The recovery of the sector was very fast and now we will see a quarter with many companies taking advantage of high commodity prices, in addition to a stronger real,” Fernando Barbará, head of equities at Andbank Brasil, said.

Pedro Serra, head of equity research at Ativa Investimentos, agrees that the results of commodity companies should be high and that the market is already expecting that. As a result, any assessment depends on what these companies see from the market, if price levels are sustainable and how they will use extra cash generated in the period. “The important thing will be to look forward.”

Shopping mall operators, traditional retailers, and road operators, which are heavily dependent on the flow of people, should also stand out. “The base of comparison was very weak, and many of these companies already signal that they had an exceptional second quarter. The results should confirm this,” Mr. Ferreira said. “The market is keeping an eye on e-commerce companies as well to see if there is going to be a strong slowdown. We may have positive surprises in this segment.”

Mr. Barbará, with Andbank Brasil, added that companies in the service industry are also likely to report strong second-quarter results. “It is the most lagging sector because of the persistence of the pandemic, and it has come on a strong recovery in the last three months. They should see a solid expansion in numbers.”

No sector is singled out as a potential disappointment in the earnings season, but there are questions about several of them, as market players will want to see signals of their future performance – and the results will point that out. Construction, power generation, and health insurance companies are among those being closely monitored.

The water crisis in Brazil is likely to put pressure on expenditures of power generation companies, which are unable to pass everything on to final customers, Ms. Joubert, with Inter, said. This should impact their margins since thermal plants have very high operating costs. “What companies dealing with hydrological risk say will be very important for us to know if there is a risk of a power outage this year,” Mr. Serra, with Ativa, said.

The construction industry is one of the few expected to be affected by a macroeconomic indicator – inflation. The cost of construction materials has been rising since the beginning of the year, and the market wants to see what the impact of this will be on companies.

The healthcare industry – especially health insurance companies, which benefited from the pandemic with the drop in the number of claims – now see the opposite movement. “Providers should have better results with the return of people to hospitals for elective procedures, which puts pressure on health insurance companies,” Mr. Barbará said.

Source: Valor international

Two groups take over 22 airports in São Paulo

Mid-sized airports have their day in the sun | ACI World Blog

In an auction almost without competition, the government of São Paulo transferred the 22 regional airports that remained under state control to the private sector. Two blocks were offered in a bid Thursday at the B3 exchange. The winners were the Voa MW e Voa SE consortium, which already operates five other airports in the state, and the Aeroportos Paulista consortium, led by Socicam.

The Socicam group even made an offer for the two lots but gave priority to the Northwest Block, whose main airport is São José do Rio Preto. The consortium was the only one interested in this lot and won the 30-year contract with a proposal of R$7.6 million for a fixed concession payment, which represented a premium of 11.14% in relation to the minimum price defined in the notice.

In total, there are investments of R$181.2 million planned throughout the concession, of which R$62.3 million will be invested in the first four years.

With the victory, Socicam will operate a total of 25 regional airports across the country and consolidates itself as the main group in the category of smaller airports. The company already operates airports in Ceará, Bahia, Minas Gerais, Santa Catarina, and Mato Grosso — the latter two won in a federal government auction, held in 2019.

The group now manages airports in the following cities in São Paulo State: São José do Rio Preto, Presidente Prudente, Araçatuba, Barretos, Assis, Dracena, Votuporanga, Penápolis, Tupã, Andradina and Presidente Epitácio.

The company, controlled by the Lima de Freitas family, is one of the main operators of bus road and urban passenger terminals — it manages, for example, the terminals of Barra Funda, Jabaquara, and Tietê, in São Paulo.

At the auction, the group also made a bid for the Southeast Block, whose main airport is Riberão Preto. However, the proposal was low — the minimum amount required in the notice, with 0% premium — and was surpassed by the competing consortium, Voa MW and Voa SE, which offered R$14.7 million in grants, which represents a premium of 11.5%.

With the victory, the group will take over the operation of 11 airports for 30 years in the cities of Bauru, Marília, Araraquara, São Carlos, Sorocaba, Franca, Guaratinguetá, Avaré, Registro and São Manuel, in addition to Ribeirão Preto. In total, R$266.5 million in investments are planned — R$75.5 million in the first four years of the contract.

The consortium, which is made up of medium-sized engineering companies, had, since 2017, the concession of another five airports in the state — Bragança Paulista, Campinas, Itanhaém, Jundiaí, and Ubatuba.

After the victory, the group is also evaluating other regional airport auctions across the country, according to Fernando Evanyr, director of Terracom Construções, one of the members of the consortium.

“We are interested in other airports, such as Pampulha (Minas Gerais), where there may be a hub with Ribeirão Preto. We are evaluating. Now, we have 16 airports, and we plan to grow outside of São Paulo”, he said.

Asked about future projects in the sector, Socicam also claims that it has been following the various ongoing initiatives. “If they are as well structured as the one in São Paulo, we will certainly analyze and participate,” stated the company’s director, Wanderley Galhiego.

With the auction, the government of São Paulo managed to transfer to the private sector all the airports that were still under its control. Now, the plan is to extinguish the Airways Department of the State of São Paulo (Daesp), which is currently responsible for the operation. Part of the team will be relocated to the São Paulo State Transportation Agency (Artesp), which will become the regulatory agency for airport contracts.

Despite the low competition, the vice-governor of São Paulo, Rodrigo Garcia, celebrated the result. “The government considers the concession of all airports a success. We had an average premium of 11%, so we are happy with the result”, he said.

Source: Valor international

Magazine Luiza, Renner acquisitions heat up retail market

What is Retail Marketing?

Magazine Luiza agreed to buy KaBuM!, the largest deal ever in the Brazilian e-commerce market and a move likely to increase local competition and start a battle for mature assets in the industry.

If the deal is successful, the current – and incipient – consolidation of the Brazilian digital retail market is likely to speed up. Sources say that Magalu, as the company is known in the country, has been studying purchases of established operations in other fields.

Mergers and acquisitions in the retail market from January to July exceeded the figures for 2019 and 2020, data by consultancy TTR show. Valor also calculated that, since January 2020, Magazine Luiza, B2W and Via acquired 32 companies – 21 of them by Magalu alone. Only Magalu reports figures to the market: they added up to R$4.62 billion, including KaBuM! and depending on the targets set.

For the first time, Magalu closed an acquisition together with a primary offering of shares with restricted placement – a deal reported on Wednesday by Pipeline, Valor’s business website – and the market liked it. Magalu common shares closed up 3.45% on Thursday, at R$23.72. “For the first time, we synchronized an offering and a purchase, but still with room to use the proceeds for logistics expansion, store openings and new acquisitions,” CEO Frederico Trajano said.

“The plan is to more than double our current area, reaching 2 million square meters in 2023, and, in the same year, 1,683 stores [from current 1,300],” he said.

After a nine-month-long negotiation kept by the parts off the market’s radar, the agreement was closed with payment of R$1 billion in cash to KaBuM! partners and 125 million shares. There will be 75 million shares in three tranches (until 2023), plus 50 million in January 2024 dependent on the business plan.

For Leonardo Dell’Oso, with consultancy PwC, liquidity in the market and the low interest rates favors strategic moves. “We will increase investments substantially,” Mr. Trajano, with Magazine Luiza, said.

Another retailer, Lojas Renner, also announced an acquisition: of online thrift shop Repassa. “It’s the first one. We surely can make another move,” Renner CEO Fabio Faccio said.

With the move, Renner enters the second-hand clothing market, which is expected to grow 4.4 times in Brazil and reach R$31 billion by 2025, the company said.

Source: Valor international

Brazil’s steel more vulnerable to EU carbon tax

Carbon taxes could make significant dent in climate change, study finds |  MIT News | Massachusetts Institute of Technology

Brazil’s steel and iron exports are the most vulnerable to the new European Union (EU) carbon tax announced Wednesday that will impact global trade. The tax is expected to take effect in 2023 against foreign competitors that are not subject to the same environmental standards.

The Carbon Border Adjustment Mechanism (CBAM) will initially target imports of steel, cement, aluminum, fertilizers, and electricity and will later be expanded to other sectors. It is part of a broad green package by which the European bloc hopes to achieve its goals of reducing greenhouse gas emissions by at least 55% by 2030.

Brazil is pointed out as the eighth most vulnerable country to the tax in almost $2 billion of exports to the European market, basically on steel, by the United Nations Conference for Trade and Development (Unctad).

Some experts calculate that steel exports could be impacted. In 2019, shipments to the EU amounted to $524.8 million, 10.4% of Brazil’s exports of those goods.

In some cases, few products sales to the EU (such as flat-rolled steel, iron or unalloyed steel of a certain width) reach more than 90% of the country’s overseas shipments – meaning they are more vulnerable to taxation.

Overall, the EU does not represent an important market for the other Brazilian products that the carbon tax will target. In the case of aluminum, Brazil’s exports to the EU represented no more than 0.34% of its sales of that product; cement, only 0.02% of its total exports; as for fertilizers, the percentage is the same.

Brazilian government sources told Valor yesterday afternoon that they were still analyzing the measure. A statement by the Ministry of Foreign Affairs will not take place before its real impact on Brazilian exports is understood.

The initial impression is that the measure will not have immediate application. The restrictions are expected to take effect in 2023.

A source familiar with the topic defines the measure as “climate anti-dumping”, in which Europeans intend to “surcharge products they think are produced in a supposedly less sustainable way than theirs”.

The measure was classified as “controversial”. Many countries have expressed concern that it becomes a discriminatory measure, the source said. “Everything is political. It is basically an attempt by the Europeans to export their carbon emissions market model”, says the government source. “They have a European carbon market, they understand that there is carbon pricing that affects the competitiveness of European companies. They want to use this as a lever, an instrument of pressure for other countries.”

Unctad shows, however, the dimension of the impact of the European measure on trade after 2023. Considering the price of $44 per tonne of CO2 emitted in production, Brazilian steel exports would be subject to this “ad valorem” tax (tariff as a percentage of the price) of $3.3/tonne. In the case of aluminum exports, $4.4/tonne. For cement, $7/tonne.

“Brazilian products [targeted by the carbon tax] would become more expensive and less competitive and would stop earning an important income,” economist Carlos Razo, main author of the Unctad study, said.

According to the UN agency, the potential loss for Brazil in exports would be, in this case, $444 million per year with the price of $44/tonne. If the price doubles to $88/tonne, the Brazilian loss would be $786 million annually.

The tax will increase or fall depending on the carbon intensity of production. According to Unctad’s estimate, while Brazilian steel could be subjected to a tax of $3.3 per tonne, in the case of India it would be $12 and of Kazakhstan around $17.

Overall, the impact of the carbon tax on Brazil seems limited compared to the weight of the measure on partners such as Russia, China, Turkey, Ukraine, Korea and India.

For the EU, the carbon tax has become necessary to curb “a strong risk” of the so-called “carbon leakage” – when industries transfer polluting production to other countries with less strict climate policies, or when EU products are replaced by more carbon-intensive imports.

That is why, the EU says, the mechanism will put a “fair price” on the carbon emitted during the production of the imported goods. Through it, it also hopes to encourage cleaner industries in countries outside the European bloc.

In real terms, the carbon tax will work with the purchase of emission certificates by importers. The price of these bonds will be calculated by the price of carbon in Europe expressed in euros per tonne of CO2 emitted.

Importers will need to declare by May 31 of each year products bought abroad and the emissions embedded in them in the previous year.

If the importer can prove, based on verified information in the producing country, that the carbon price has already been paid during the production of the goods, the corresponding amount will be deducted from the carbon tax when entering Europe.

For the specialist Fabio Marques, director of the consulting firm Plantar Carbono, if the European carbon tax has a certain legitimacy, on the other hand there is always the risk of becoming a non-tariff barrier depending on the technical details and political dynamics.

In his view, these challenges may be more relevant in the case of Brazil because, first of all, he considers that a good part of exported products is already based on a power generation mix much cleaner than the world average and, second, the country is a major exporter of products based on renewable forest biomass.

“This is also true for part of the Brazilian steel industry, based on charcoal from planted forests, a renewable input that prevents carbon emissions in the industry and even sequesters and stores carbon,” Mr. Marques said.

The criteria released by CBAM so far seem to leave no margin for these benefits to be properly accounted for. Not counting carbon sequestration from the atmosphere would even be a nonsense, since several countries and regions of the world, including Europe, aim for carbon neutrality by 2050. Without removal of carbon from the atmosphere, which can be done by various segments, the world will hardly be carbon neutral by 2050.

Source: Valor international