Cimed gears up to grow above market in 2022

Leader in sales volume of over-the-counter drugs expanded more than 20% in 2021

11/03/2022

Jose Roberto Lettiere — Foto: Silvia Zamboni/Valor

Jose Roberto Lettiere — Foto: Silvia Zamboni/Valor

Cimed, Brazil’s leader in OTC drugs in sales volume, grew twice as much as the country’s market for drugs last year and intends to repeat this performance in 2022. “There are still many open variables, but the plan is to grow stronger,” Chief Financial Officer José Roberto Lettiere said.

In 2021, while the Brazilian market grew 11%, according to data from the consultancy IQVIA, which audits retail pharmaceuticals, Cimed’s net revenue grew more than 20%.

According to Mr. Lettiere, heated demand for medicines and vitamins amid the Covid-19 pandemic and its sales mix allowed the pharmaceutical company to advance in revenue and return on capital employed, despite the challenges in the global supply chain, the impact of currency devaluation in costs and greater global competition for raw materials — the active pharmaceutical ingredients (APIs) used in the country are mostly imported, from China and India.

“We realized that Europe was starting to face logistical problems at the end of 2020 and we moved up the purchase of raw materials to avoid disruption,” the executive said. The challenges remained in 2021. But the vertical operating model, the focus on operating costs and agile management helped to protect the financial statement, he adds.

In the year, while the company’s net revenue grew 20.3% to R$1.58 billion, the cost of goods sold (COGS) advanced 27.6% to R$773.8 million. Recurring EBITDA rose 30.7% to R$403 million, with a margin of 25.5%, compared to 23.4% in 2020.

Net income for the year fell 15.1%, to R$242.8 million, pressured by the financial result and expenses related to the implementation of the new plant in Pouso Alegre (Minas Gerais) and the simplification of the company’s corporate structure. On the other hand, recurring net income rose 16.4% to R$255.1 million and ROCE increased five percentage points to 47.2%.

According to Mr. Lettiere, there are no IPO plans on the table right now. But Cimed could tap the capital market to finance an eventual more aggressive growth project. “Cimed wants to be the largest pharmaceutical company in Brazil. If it is necessary to go to the market for this, it will be studied,” the executive said.

At the beginning of the year, logistical challenges persist and the demand for medicines grew even faster, particularly anti-flu and anti-allergic drugs, given the advance of the omicron variant and the circulation of a new influenza virus, H3N2, in the country. But there were no problems in accessing raw materials to meet the demand, according to Mr. Lettieri.

Cimed has already obtained approval from health regulator Anvisa to transfer the production of medicines to the new factory in Pouso Alegre, in a process likely to be completed by the third quarter. With the unit, which has already received investments of R$300 million, Cimed doubles its solid production capacity, to 240 million units (boxes) per year.

In addition, R$300 million are set aside for the manufacturing complex over the next five years, increasing production capacity in other product lines.

Source: Valor International

https://valorinternational.globo.com
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Agriculture minister to meet fertilizer exporters in Canadá

Tereza Cristina will say in Ottawa that guaranteeing supply to Brazil is strategic for planet’s food security

11/03/2022

Tereza Cristina — Foto: Denio Simoes/Valor

Tereza Cristina — Foto: Denio Simoes/Valor

Agriculture minister Tereza Cristina embarks on Friday for a new round of negotiations with fertilizer exporters. This time, the destination is Canada, the main supplier of potassium chloride to Brazilian producers. She will meet with Canadian executives in Ottawa and is expected to convey the message that guaranteeing the supply of fertilizers to Brazil at this time is strategic for the planet’s food security.

The trip a few days after leaving the position at the head of the ministry is seen by people close to the minister as an extra and personal effort by Tereza Cristina to try and secure the supply of inputs for Brazilian farmers and strengthen the partnership with Canada.

Since last year, she has been in contact with Canadian potash companies and has tried to make them expand exports to Brazil by at least 500,000 tonnes.

On Sunday, the minister will meet with executives from Brazil Potash, a company controlled by the Canadian investor group Forbes & Manhattan. The subsidiary has the concession for the Autazes deposit, in Amazonas, whose exploration remains blocked by environmental questions. In full operation, the project can supply 25% of the national demand for potash, according to the National Fertilizer Plan.

On Monday, the meeting will be at Canpotex, a joint venture between Nutrien and Mosaic. The fertilizer giants exported 3.7 million tonnes of potassium chloride to Brazil in 2021 and make 85% of the product in Canada.

The mission, however, will not be easy. The fertilizer agenda is basically of the private sector, and the government has no power to regulate purchases or enter into trade agreements. The minister’s role will be to strengthen partnership ties. It will place Brazil as a reliable customer that can increase potash purchases.

Main customer of the product that leads the Canadian trade balance, Brazil supports the expansion plans of Canadian potash exporters. This does not mean, however, that the offer will be broadly expanded to the point of filling possible deficiencies with the closing of the supply channels from Russia and Belarus. Production growth capacity is limited.

These are multi-billion dollar investments that do not take immediate effect. The Canadian private sector will also assess the risk of making high investments considering the possibility of the market “turning around” again. An eventual normalization of the geopolitical scenario in Eastern Europe in the short or medium term could flatten potash prices, which are currently rising sharply, and put countries competing in exports back into play.

Meanwhile, the federal government launches this Friday the National Fertilizer Plan with the purpose of reducing Brazil’s 85% dependence on other countries, mainly Eastern Europe. This is not the first attempt and three other programs with the same purpose have existed in the past.

The plan is a “modern mapping,” in the words of a senior executive in the industry. “The work has been well conducted. But there is no miracle that can be done. One has to look at whether exploration is feasible,” he said. Although Brazil has enough minerals for local production, there are issues such as the quality of the mines and sensitive points such as their location.

The availability of natural gas – the raw material for nitrogen products – at a viable cost is also challenging.

Structural issues such as logistics, as well as taxes, are mentioned by sources consulted by Valor – and addressed in the government’s plan. The document mentions the need for convergence with the National Logistics Plan and other public policies such as the New Legal Framework and the New Gas Market Program (in the chapter that mentions feasibility strategies for nitrogen plants).

Source: Valor International

https://valorinternational.globo.com
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Brazilians face trial by fire after international diversification

Portfolios have suffered losses as the real appreciated and benchmark indexes declined

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11/03/2022

Giuliano De Marchi — Foto: Silvia Zamboni/Valor

Giuliano De Marchi — Foto: Silvia Zamboni/Valor

Brazilians embraced international diversification and allocated part of their assets to strategies unrelated with the country in recent years. Now they face a trial by fire. With the appreciation of the real and benchmark indexes like S&P 500 going south, some portfolios have suffered double-digit losses in 2022, especially those without currency hedging. The international scenario, already concerning due to the change of monetary policy in the United States, now includes a war in the European backyard with Russia’s military invasion in Ukraine. And withstanding the exchange rate and external volatility seems to be even harder at a time of rising interest rates here – the Selic, Brazil’s benchmark interest rate, went to 10.75% per year from the ultra-low level of 2% at the beginning of 2021, and there are new hikes ahead.

With such a combination, the assets of foreign asset-management firms that distribute shares through local vehicles shrank to about R$63 billion at the beginning of March from R$81.7 billion at the end of 2021, while the number of investors fell to 360,000 from 480,000, data compiled by J.P. Morgan Asset show. The reduction comes after years of strong expansion. The segment totaled R$16.5 billion at the end of 2017, with around 50,500 shareholders. Last year alone, it doubled in size after having closed 2020 with almost R$44 billion and 212.500 investors.

The movements of the Brazilian exchange rate and the S&P 500 in the first months of 2022 alone would mean a 20% drop for global funds without hedging, said Giuliano De Marchi, head of Latin America at J.P. Morgan Asset. He sees a generalized sale of risk assets driven by the Russia-Ukraine conflict, but says that the diversification of currencies and geographies continues to make sense in the long run. With the foreign exchange rate at R$5 to the dollar in Brazil and foreign assets at a discount, the moment is, in theory, more favorable than when the currency was at R$5.70 and global equities at their peak. The prevailing assessment is that the dollar will remain as a safe-haven currency, especially when the Federal Reserve sets in motion its roadmap to increase interest rates.

“There is no basis for Brazil to continue at this speed of appreciation,” Mr. De Marchi said, referring to the real and the local benchmark index Ibovespa, which have been driven by foreign capital. “There are other markets, not only the United States, with opportunities to perform as well or better than Brazil. The goal is to have diversified returns, because putting 10% to 20% in other markets helps in moments of volatility.”

Although there is no predictable outcome to the Russia-Ukraine conflict, J.P. Morgan’s thesis is that it will not fundamentally affect the growth of the global economy in the post-pandemic era. The Federal Reserve may slow the pace of interest rate increases, but the direction was given to contain inflationary pressures that tend to be potentiated by a war coupled with rising commodity prices. “China is going to continue to grow strongly. It’s a one-in-a-lifetime transformation, which is shifting the relevance of Western companies to those of East Asia,” Mr. De Marchi said. “But assets are going to face volatility. You need to have a minimum investment horizon of two years.”

The executive says that Brazilians currently prefer portfolios with currency hedging, which cushions the swings of the exchange rate. But those who buy Brazilian Depositary Receipts (BDR) on the stock exchange have pure international exposure, although they make the allocation in reais. “For the next few months, the big question mark is whether the investor will hold out. We expect withdrawals, people go through this. But the most important time to buy is during the crises of market volatility, when the assets are at a discount.”

The natural reaction of investors who made international investments for the first time is to rethink the strategy, said Marcus Vinicius Gonçalves, CEO of Franklin Templeton in Brazil. “With high interest rates, appreciation of the real, falling stock markets abroad and all the geopolitical tension, they may not understand why it makes sense to diversify. It’s a huge financial education exercise,” he said.

The executive added that despite being a difficult exercise, Brazilians cannot lose sight of the foreign market, which is a thriving one. “The opportunities are not going to disappear because of what the world is experiencing this year. The companies are not going to stop presenting good results. The perception of risk has changed, but it’s not because the return here has improved that the investor should bring his money back and leave [foreign funds].”

Although the war was something unthinkable about two months ago, Mr. Gonçalves recalled that the conflict highlights how useful is being exposed to diverse markets. “Just think about a Russian investor who had savings in the country, based on a currency that had $600 billion in reserves that were embargoed, and can’t withdraw the money.”

In this shorter period, virtually all portfolios suffered, including stocks, currencies, global fixed income and technology-related funds, the executive said. Companies based in Europe that operate in Asia had their prices revalued due to expectations of reduced consumption, such as the luxury market. Long-short funds, for instance, faced losses of 4% to 5% instead of 15% because they can short certain assets.

For those who do not have any exposure abroad, maybe it is time to set up operations without currency hedging, under the premise that the global economy will not go into recession in 2022 and that the Fed may even be less aggressive in the monetary correction process at the beginning, but will have to face inflation because of energy prices. “The global liquidity scenario can be impacted. It can have transmission mechanisms to the financial system, it has to be closely monitored not only because of Swift [the international payments chamber, from which some Russian banks were banned], but also because of banks in countries like Italy and Germany exposed to Eastern Europe.”

As much as Brazilians have made a move toward international assets, the total represented little more than 1.2% of the fund industry at the end of last year, said Daniel Celano, who leads third-party asset management at Schroders Brasil. For the investor who feels like he is missing out on the foreign capital party in the local stock market, he recalled that in order to really enter the ranks of long-term foreign investors, the country needs to start growing again. In the short term there are presidential elections and a poorly solved fiscal situation. For now, the local market is also benefiting, along with other emerging economies, from the capital flight from Russia.

With higher interest rates in Brazil, Mr. Celano says he sees demand for funds with currency hedging, but some institutional clients who had protection have fully or partially dismantled it now that the exchange rate is closer to R$5. Foundations that had not yet taken the international step, but approved the investments in committee, however, are adopting a wait-and-see approach.

Source: Valor International

https://valorinternational.globo.com

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Senate passes bill that changes sales tax collection

In reaction to fuel hike, senators also approved change in Petrobras pricing policy

11/03/2022

Rodrigo Pacheco — Foto: Claudio Belli/Valor

Rodrigo Pacheco — Foto: Claudio Belli/Valor

The Brazilian Senate Thursday passed by 56 votes to 8 the final text of the draft supplementary bill 11, 2020, which changes the sales tax ICMS receipts in the states. The Senate, therefore, concluded the appreciation of the so-called “fuel package” — which also includes bill 1472, aimed at changing Petrobras’s pricing policy. Now, both bills will be analyzed by the Chamber of Deputies.

Also passed on Thursday by 61 to 8 votes, the bill 1,472 amends and creates a tariff stabilization mechanism. The proposal is criticized by the economic team, but it was considered as part of an agreement built between the leaders of the Chamber and the Minister of Economy, Paulo Guedes. The text creates a kind of “gasoline voucher,” at a cost of approximately R$3 billion, intended for recipients of the cash transfer program Auxílio Brasil.

The approval of the two bills took place on the same day that Petrobras announced a new fuel price hike, which generated annoyance among both ruling and opposition senators. “The announcement of the Petrobras price increase imposes on the Senate the consideration [of the fuel package] still today,” Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Rondônia) said earlier in the afternoon.

In addition to allowing changes in ICMS levied on fuels, the bill establishes the exemption of the social taxes PIS and Cofins rates, both in the domestic market and in imports, for diesel, biodiesel, LPG (petroleum and natural gas) and aviation kerosene, until December 31, 2022. Initially, the text did not consider the possibility of also exempting the import tax rates, but this was adjusted in the last opinion of the rapporteur, Senator Jean Paul Prates (Workers Party, PT, of Rio Grande do Norte).

The bill 11 considers final details to the single-phase receipts of ICMS on fuels in the states, which will be pending regulation by the governors to be enforced — through the National Council of Finance Policy (Confaz). This regulation is necessary especially for the adoption of a uniform national rate. In addition, the text proposes an emergency transition rule for diesel, in a gesture to please truckers, who are the electoral base of President Jair Bolsonaro.

According to the project, until the diesel tax single-phase receipt is adopted — and the corresponding unification of the rate — the reference value for stipulating the tax will be the moving average of the average prices collected from the final consumer in the five years prior to its fixing.

In a scenario of ICMS unification, the governors may opt for an ad rem rate, when the ICMS is charged from a fixed amount per liter. Currently, the states practice the ad valorem model, which uses a percentage of the price value.

Finally, bill 11 brings a trigger for the possible variation of the ad rem rate. Mr. Prates’s text says that whenever the weight of the ad rem rate is higher or lower by 5% than the moving six-month average of the national average price, the states and the Federal District (Brasília) must necessarily raise the tax. This proposal was suggested by Senator Oriovisto Guimarães (Podemos, of Paraná) and accepted by the rapporteur.

The rapporteur’s text also guarantees the so-called “gas voucher,” which aims to put in place a subsidy for low-income families when purchasing LPG (liquefied petroleum gas) cylinders. Senator Prates proposes expanding the service to 11 million families by 2022. This number is double the target in relation to the values originally approved in the Annual Budget Law. In the rapporteur’s estimates, to serve this additional public, it will be necessary to increase the program’s budget to R$1.9 billion.

As for the “gasoline voucher,” the article says that payments will be made monthly as follows: R$300 for self-employed drivers of individual transport, including taxi drivers and app drivers, drivers or pilots of small boats with engines of up to 16 HP and app motorcycle pilots, provided they have a monthly family income of up to three minimum wages (a little more than R$3,600).

Source: Valor International

https://valorinternational.globo.com

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Rising fuel prices mean strong impact on inflation

Increases announced Thursday for gasoline (18.7%), diesel (24.9%) and gas (16%) is expected to raise Brazil’s official index by 1.52%

03/11/2022

Petrobras raised fuel prices as oil escalates — Foto: Divulgação/Petrobras

Petrobras raised fuel prices as oil escalates — Foto: Divulgação/Petrobras

The adjustment announced Thursday by Petrobras in the prices of gasoline, diesel and gas (LPG) did not surprise the market, but came higher and faster than the vast majority of economists expected, which caused immediate revisions in inflation expectations. The adjustment came after 57 days without hikes and was influenced by the Russia-Ukraine war, which caused the price of oil on the international market to skyrocket.

The hikes announced Thursday by Petrobras for gasoline (18.7%) diesel (24.9%) and LPG (16%) will probably lead to an impact of 0.4 percentage points (p.p.) on the official inflation, as measured by Brazil’s benchmark inflation index IPCA for March, and to a rise of 0.35 p.p. in the IPCA for April. In other words: a total impact of 0.75 p.p. on the rates of March and April’s indicators. These calculations were made by André Braz, the economist at the think tank Fundação Getúlio Vargas (FGV) who oversees the General Price Indexes (IGPs). Before the company’s announcement, the economist expected an annual IPCA around 6% to 6.5% by the end of the year.

It means that in the event that no other product but fuel saw prices increase, the official inflation rates for March and April would already swell by at least 0.75% in both months. In the case of the IGPs, the specialist reckons hikes of 0.75 p.p. on the IGP-DI for March, and 0.35 p.p. on the IGP-DI for April, caused by increases after 57 days on the prices of the three fuels made by Petrobras and affected by the war in Ukraine, which induced the price of oil to skyrocket.

Soon after the announcement, LCA Consultores raised IPCA expectations for the end of 2022 to 6.5% from 6.01%. “The direct impact of these diesel and gasoline increases on the IPCA is 0.5962 percentage points,” economist Fábio Romão said.

LCA now projects a 10.58% inflation for the transportation group at the end of the year – the previous forecast was 8.72%. The projection for the food and beverage group varied less, to 7.16% from 7.02%. “Specifically on food, I have very recently incorporated the effects of commodity hikes via the war. Hence the modest change in this update. In fact, before all this adjustment caused by the Russia-Ukraine [war], we had +5.8% for food and beverages and now it is at +7.16%,” Mr. Romão said.

J.P. Morgan also raised its projection for IPCA in 2022 to 6.5% from 6%, also incorporating the prospect of even higher prices for other commodities.

“Petrobras announced increases of 19.2% and 24.9% in gasoline and diesel prices, respectively. This is higher and earlier than our assumption of two 8% increases between March and April,” economists Vinicius Moreira and Cassiana Fernandez wrote in a report. In their estimates, the larger-than-expected hikes adds about 0.15 percentage point to the bank’s IPCA forecast. “As it came earlier than expected, it increases our inflation estimates for March and April, but has a downward effect in May, as we do not expect another increase in mid-April,” they say. The February IPCA, which will be released on Friday, will be important to adjust short-term expectations, they added.

Santander has also signaled that it will update its inflation estimate. “We were already considering a 10% adjustment in our scenario. Therefore, the surprise in relation to our projection for the gasoline increase was lower, by 9 points, which should add 0.17 p.p. to the annual inflation,” said Daniel Karp, an economist at the Spanish bank in Brazil, pointing out that the IPCA increase in the current month is expected to be raised to around 0.95% from 0.81%. “For 2022, our official forecast is 6%, but after the recent commodity shocks and the gasoline adjustment, the tendency is for the number to go to around 6.7%,” he added.

Mr. Braz, with FGV, says that, as the conflict in Eastern Europe shows no signs of ending in the short term, there is no way to know for sure if oil prices will continue to soar. Brent crude trades above $100 since the war started, he recalled, and there is no way to know if there will be other adjustments in fuels.

The first preview of the General Price Index (IGP-M) for March, unveiled on Thursday by FGV, showed stability, compared to a high of 1.38% in the same preview in February, favored by a drop of 11.77% in the price of wholesale iron ore. “But with the hike [of fuels], this first preview [prepared before Petrobras’s announcement of more expensive fuels] no longer represents the reality of inflation,” he said, adding that the first preview is outdated.

Another warning sign mentioned by him, besides possible new fuel price increases due to the war, is the fact that indirectly higher fuel prices make other non-oil related products more expensive. “It’s going to increase freight costs, production cost,” he said, noting that the country’s item transportation logistics are dependent on trucks, which run on diesel.

“Those hikes will spill over to other sectors,” he said. Mr. Braz also recalled that there are other products that take petroleum in their preparation, such as PVC pipes, for example, which are expected to become more expensive because of the rising barrel — putting pressure on inflationary indicators.

Outside the oil sector, the specialist also reiterated the warning of a rise in prices abroad of commodities from the agricultural sector, also because of the war. This is because the conflict region is a producer of wheat, rye and oats, items that have a long chain of products in Brazilian retail.

“The war is far from over” he said. “And even if it ends, sanctions on Russia are expected to remain,” he said, noting that this will restrict access to products from Russia, such as wheat for example, in the global supply, which raises prices in the domestic market.

He made one warning, though. It is not impossible that oil prices to go down just as they skyrocketed when the conflict started, depending on the resolution of the war. “We have to take into account that oil is still fluctuating,” he said. “We have to wait and see how the post-war will be and how the relationship of other countries with Russia will be,” he said.

Source: Valor International

https://valorinternational.globo.com

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Surging oil prices put pressure on Petrobras

Possible government interference is seen as “acceptable” amid volatility caused by war in Ukraine

10/03/2022

The strong rise in oil prices in the international market in recent days as a consequence of the Russia-Ukraine war has put pressure back on the pricing policy of Petrobras. As a result, the discussion about how government interference drives stocks down has re-emerged as the state-owned oil company’s share prices are traded at levels very distant from those of its main international peers.

Even as Petrobras has surged around 13% in 2022 and almost 100% in 12 months, the multiples most used by the market, such as the price-earnings ratio, are still quite lagging when compared to the major U.S.-based and European oil companies. Taking into account Petrobras’s price in dollar terms, the P/E is around 4.4 times, while peers like TotalEnergies (8.3 times), Shell (10.4 times) and Chevron (19.9 times) boast higher multiples.

Petrobras’s stocks are historically traded at a discount compared with its peers due to the uncertainty caused by potential government interference. However, the new possibility of a potential price freeze or subsidy is seen as acceptable by the market, given the exceptional moment.

Since 2016, Petrobras has adopted the international parity method to sell fuels, matching prices with what it pays to import the oil used in production as a way of not taking losses. Since January 11, the state-owned company has not made any adjustments and the disparity between the sale price at refineries and the import price has widened to around 30%. Nicolas Borsoi, the chief economist of Nova Futura Investimentos, recalled that the lack of clarity of the mechanism is even more evident in a moment of crisis like the current one.

“Since the policy was put in place, there has always been controversy about the intervals between adjustments and whether it should include currency hedging. The market has always seen it as a cushion, despite being a reasonable one, and now controversies are in the spotlight because of the international market volatility,” he said.

Ilan Albertman — Foto: Leo Pinheiro/Valor

Ilan Albertman — Foto: Leo Pinheiro/Valor

Petrobras investors price in factors that have already been overcome by foreign peers, such as the fact that it is a semi-public company, the political risk and the lack of a real sustainability agenda, which justifies the divergence, said Ilan Arbertman, an analyst at Ativa Investimentos.

“Everyone involved needs to calm down, understand that we are in an exceptional moment, that oil prices that high are not a normal thing but a consequence of what is happening between Russia and Ukraine,” said Pedro Galdi, an analyst at Mirae Asset. There is no way Petrobras can pass on surging oil prices all at once, he added.

“They will have to pass on part of it and create some escape valve for prices, especially if the conflict continues. Petrobras’s refining unit can’t take such a big loss if oil remains at these levels for the next few months,” he said. “Everyone needs to work together.”

Mr. Arbertman believes that any solution that does not substantially change Petrobras’s economic and pricing policy fundamentals would be well accepted by the market. “Petrobras must be more transparent to the market, show how far it can handle this difference, and reiterate its support for parity.”

The analyst points out that a freeze on fuel prices, as has been suggested by the federal government, would generate destruction of Petrobras’s market cap, which would cause discomfort to investors, who would remember what happened in the last crisis involving the company.

“Some solutions discussed, such as using dividends owed to the government to subsidize fuel or creating a reserve fund as a way to ease the pressure on the pricing policy, without changing it, would be ideal,” he said. Avoiding an impact on the finances of Petrobras, he said, which have improved in recent years, would help investor confidence.

Goldman Sachs says that the creation of a new fuel subsidy program tends to be positive for Petrobras because it reduces risks to the profitability of the company’s operations in the short term. For the U.S.-based bank, the state-owned company would be reimbursed for the difference between domestic and international prices.

The government is discussing the recreation of a subsidy program similar to the one put in place in 2018 after the truckers’ strike. The topic emerged after the rise in the price of a barrel of oil in the international market with the crisis between Russia and Ukraine in recent weeks.

In a report, BTG Pactual points out that even in a situation of price controls, the good momentum of the Petrobras’s upstream business, which benefits from the rise in oil prices, would mitigate the effects of the deterioration of margins in refining.

Analysts Pedro Soares, Thiago Duarte and Daniel Guardiola wrote that Petrobras is today a much more structured, less leveraged company with lower production costs, which reduces the pressure for an immediate price adjustment.

Mr. Arbetman acknowledged that Petrobras is more structured now, but recalled that the company would not reap benefits with upstream is doing well and refining is not. “The market analyzes Petrobras as a whole. There is no point in looking at the segments separately because invariably, in terms of valuation, the asset ends up losing value.”

Mr. Borsoi, with Nova Futura Investimentos, recalled that besides the current volatility, Petrobras’s investors are also already considering the presidential elections, in October, which may mean a turning point in Petrobras’s pricing policy. “It remains to be seen whether the commitment will be maintained,” he said.

He believes that if the market considers that the government seeks solutions in order to solve social problems with the company, as was done in 2016, shares may drop as a result. “Today, the market still sees it as an exceptional situation, of war, but it is wary because of Petrobras’s history.”

Source: Valor International

https://valorinternational.globo.com
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Citrosuco sets ESG targets for 2030

World’s largest exporter of orange juice vows to have 100% of its supply chain sustainable

10/03/2022

Mario Bavaresco — Foto: Divulgação

Mario Bavaresco — Foto: Divulgação

Citrosuco, the world’s largest exporter of orange juice, has just defined its commitments in the environmental, social and governance (ESG) fields by 2030.

The Matão-based company controlled by the Fischer and Votorantim groups confirmed that, by the end of the decade, 100% of its supply chain will have to adopt measurable and certified sustainable socio-environmental practices, and now projects that, with efforts in this and other fronts, it will reduce its gas emissions by almost 30% in scopes 1 (related to the direct operations of the company itself) and 2 (involving the consumption of electric power).

CEO Mario Bavaresco said that the commitments unveiled now are in line with practices already in place for more than a decade.

Currently, 100% of the company’s own orange production follows the necessary sustainable agriculture parameters, and the same happens with about 65% of the independent fruit suppliers. There are about a thousand suppliers in total, and those that have not yet reached the required standards (usually the smaller ones) are moving in this direction with the company’s guidance.

With revenues estimated by the market at between R$3 billion and R$4 billion per year, Citrosuco has already certified 1.9 million hectares of its own orange production, spread over 25 farms in São Paulo and Minas Gerais states.

The company estimates that its orchards already capture more than 500,000 tonnes of carbon dioxide. With the goal of reducing emissions in scopes 1 and 2 by 28% by 2030, the volume removed could reach 1.6 million tonnes by 2030. For the reduction of scope 3 emissions, for which the company’s responsibility is indirect, the international criteria are still being refined and the targets, likewise.

Besides pursuing 100% socio-environmental compliance in its orange supply chain, with a focus on legal reserves, permanent protection areas, soil erosion, waste management, use and disposal of agrochemical packaging, and agronomic and labor issues in the agricultural areas under its influence, Citrosuco also wants to foster biodiversity.

Clauber Andrade, the company’s head of sustainability, points out that more than 19,000 hectares of conservation areas are already being managed. Besides, advances will continue to be made with increased production of bees and honey, expansion of native seedling nurseries, and monitoring of fauna and flora. As it uses irrigation on several farms, the company invests in the management of water resources.

With about 400 employees, besides those hired during harvests, the world’s largest exporter of orange juice also states that it has among its pledges the promotion of diversity, equality and inclusion. “We want to provide greater representation of women and blacks in our leadership. By 2030, we have committed to expand opportunities and access to leadership positions by women and blacks, reaching at least 30% representation,” Citrosuco said.

“All the commitments we have established represent a great challenge, and when we manage to achieve them, we will have others. But we will have a 100% sustainable production, more efficient and with higher productivity,” Mr. Bavaresco said. Over the past four years, Citrosuco has invested more than $400 million in the development of new projects, technologies, innovation, modernization and increasing capacity and productivity.

Source: Valor International

https://valorinternational.globo.com
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Tension mounts as fertilizer prices surge

The weight of fertilizers in production costs continues to rise and already accounts for 35% to 40% of a crop

10/03/2022

Although negotiations have been slow in the Brazilian fertilizer market since the Russian invasion in Ukraine and many uncertainties are still on the radar, one thing is for sure: the price increase has made nutrients more expensive – they had already been rising sharply last year –, will raise the cost of agricultural production in the country, will help put more pressure on inflation and may affect crop yields, although the areas planted with crops such as grains and sugarcane are not expected to decrease.

In a scenario of “prices oscillating at every phone call,” according to one buyer, tension grew this week after a new package of sanctions on Russia was released on Tuesday by the U.S. and the European Union, and which involved everything from a reduction to a ban on the consumption of Russian natural gas. The move brought more turbulence to the nitrogen fertilizer segment, which has natural gas as a raw material. Brazil’s dependence on international suppliers exceeds 96% in nitrogen and potash fertilizers.

With moves related to natural gas, and amid so much disconnected information, the atmosphere is of restlessness. But private-sector agents and market specialists stresses that the crisis does not put the 2022/23 harvest at stake. Mosaic Fertilizer CEO Corrine Ricards told Valor recently that many Brazilian farmers moved up purchases in February. “I saw a good movement of early purchases. With this, farmers are able to guarantee stocks.”

The biggest problem, sources agree, is still potash, since two of the three largest global suppliers, Russia and Belarus, are entangled in the disorder — but not to the point of jeopardizing the sowing of crops. There will be an effect on costs, however. Fertilizers account for 30% of the cost of grain producers, according to consulting firm StoneX. With last year’s increases, the percentage is already around 35% to 40%. This way, the less capitalized may choose to reduce the use of fertilizer on crops, even if the shortage does not deepen.

With the recent sanctions on Russian gas, the behavior of urea prices has been like that of a prancing horse, compared Marcelo Mello, head of fertilizers at StoneX. In less than two weeks, since February 24 — when Russia invaded Ukraine — the macronutrient has risen 50%. On March 8, it was close to the historical ceiling of $900 per tonne, points out the consultancy. This level has been reached before on two occasions: at the end of last year and, before that, in 2008. According to the analyst, strong movements (the high of 50%, as well as the low of more than 40% seen in January), are rare oscillations for the product.

Brazil imports annually between 8 million and 11 million tonnes of urea alone, a volume that is almost the entire consumption. The local production does not reach 2 million tonnes. Unigel, which leased two factories from Petrobras in 2020, has a capacity for 1.15 million tonnes a year — equivalent to a third of the urea production in Latin America, according to the company itself.

Mr. Mello also says that he perceives a resumption of business in the fertilizer market happening “little by little” this week. At this moment, despite the high prices, the nitrogen segment is more active than the potash and phosphate segments, he said.

In potash, the restriction is greater due to the clear picture of shortage that is building up. Russia and Belarus deliver about 24 million tonnes to the world, and Canada, among the three key players in the segment, does not cover this absence — not even adding the new projects, which will not offer minerals overnight.

StoneX points each tonne of potash at $803 and a constrained market. A source familiar with the industry says that some deals have been closed at $1,000 — and prices are expected to increase. “There is not much supply [of potash] and [Brazilian] farmers are aware that there will be a shortage and want to buy,” the executive said.

Last week, the companies that operate in Brazil, among them the three largest – Mosaic, Yara and Fertipar – held back reference price lists from the domestic market. But “a good part” of the companies released lists again. The industry informed last week through its association, Anda, that there is stock for three months, not counting ships on the way.

Meanwhile, in Congress, the rural caucus wants to approve a new general law for environmental licensing in Senate still in the first half of this year. According to the them, with the changes, the intention is to speed up licenses to exploit mineral deposits in the country, which would contribute to the advancement of the National Fertilizer Plan, to be launched by the federal government on Friday.

Sergio Souza — Foto: Billy Boss/Câmara dos Deputados

Sergio Souza — Foto: Billy Boss/Câmara dos Deputados

Deputy Sérgio Souza (Brazilian Democratic Movement, MDB, of Paraná), who chairs the Parliamentary Agricultural Front (FPA), said that Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais), vowed to put the proposal to a vote by the middle of the year. On Wednesday, in a press conference, Mr. Pacheco argued that Brazil must take care of the potential potassium reserves, but “without attacking forests and indigenous areas.” The senator said that the licensing project will go through the commissions and will be taken to the plenary after this stage, following an agreement with leaders in Congress.

“We are not going to make anything more flexible, but to give agility. Either you release it or you don’t. Either the deposit is explored or we will have expensive food, and the Brazilian and the world will pay for it,” Mr. Souza told Valor on Tuesday.

(Rafael Walendorff contributed to this story.)

Source: Valor International

https://valorinternational.globo.com
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AES Brasil bets on diversification to return to profit

Power generation company sees better landscape after reducing losses thanks to improvement in reservoir levels

03/09/2022

AES Brasil, a subsidiary of U.S.-based AES Corp., managed to reduce losses in the fourth quarter of 2021 thanks to a substantial improvement in reservoir levels due to a more favorable rainfall regime. Now the power generation company sees a better landscape.

The company’s earnings continued to be impacted in 2021 due to the hydrological risk and the purchase of power due to the unfavorable scenario that affects the portfolio of hydroelectric assets. To move away definitively from this water exposure, AES Brasil has accelerated investments in the diversification of the power generation mix.

By 2026, R$3.8 billion are planned, considering the construction of the Tucano (322 MW) and Cajuína (1.3 GW) wind farms, in addition to the modernization and maintenance of assets in operation. The focus for now is on wind operations, since the solar source has been losing competitiveness in the face of pressure from production chains.

The company has 4.7 GW of operational installed capacity and the goal is to reach 6 GW when all greenfield projects – those built from scratch – are finished. Today AES has 57% of its portfolio in hydroelectric plants and this balance is likely to avoid new exposures. Chief Financial Officer Alessandro Gregori told Valor that the margins were affected by the water risk factor, but he is already feeling the compensation among the sources.

“As a strategy, we are diversifying the portfolio. Last year, we signed almost 900 MW of new PPAs [contracts] and created new business fronts with almost 30 MW of PPAs in dollars that we signed in 2021,” Mr. Gregori said.

This bet by the company in new PPAs in foreign currency can pave the way for new deals and serves as a hedge against exchange rate volatilities. This is expected to be made available to the customers of the power generation company since many of them have revenue in dollars and are also interested in having costs in the foreign currency.

“Despite the worst year ever, in which we brought forward the portfolio management, we managed to profit R$516.5 million, clearly lower than in 2020, when we profited R$848 million, but a reasonable and important volume in view of the worst year of hydrology,” the executive said.

According to him, the “lean times” are over and the dynamics of diversification has added important wind power projects. Considering the contracts delivered, wind and solar now account for most of the portfolio mix.

“The diversification has this result at a time. When we have sources with worse results, other sources compensate.”

Source: Valor International

https://valorinternational.globo.com
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Samarco’s creditors rejects new plan on eve of meeting

Bondholders say that “in practice” the discount on the debt is 96.8%.

03/09/2022

On the eve of the general meeting of creditors, scheduled for Thursday, Samarco’s bondholders reacted against the new version of the judicial recovery plan, indicating that the result may be a bit further from what the mining company expected. In a document to the judicial recovery’s judge, funds such as Moneda, Golden Tree, Silver Point and Solus claim that the proposal brings “even more beneficial” conditions to parent companies BHP and Vale than the previous plan, which they had already questioned.

Eight months and 14 days have passed between the first and second draft of the plan, a period that the creditors argue was not used for effective negotiation. Instead, it was used only by Samarco in the drafting of the proposal. The company, in turn, has already indicated at previous times that there was resistance from creditors in negotiating the terms, in an attempt to impose a strategy on the company.

The company’s latest proposal says that unsecured credits will be paid in a single installment in 2041, taking into account a discount of 75% on face value and interest of 1% per year — inflation-adjusted only on credits in the Brazilian currency. In the creditors’ account (considering the almost 20-year grace period, the haircut, inflation and interests), what the company is proposing is that they accept the payment of the credits with a total discount, implicit and explicit, of 96.8%.

“The alternative to debt forgiveness is to force the creditors to become Samarco’s shareholders, without any political rights,” wrote the lawyers from the four law firms representing the bondholders. They also insist on maintaining the shareholders’ claims on the judicial recovery.

The group that objects the plan proposed by the company represents 82.5% of the judicial recovery claims, when excluding Samarco’s debt to BHP and Vale.

People close to the company argue that the extension of the debate on the judicial recovery case makes it difficult for Samarco to resume its focus on its operations and, consequently, its future ability to pay. The company’s legal administrators had scheduled the meeting to deliberate on the plan for February 23rd and, due to lack of quorum, rescheduled it for March 10.

Source: Valor International

https://valorinternational.globo.com
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