Brookfield’s new car rental business expected to gross R$3.3bn

New company operates under brand Unidas, bought with divestiture package

10/04/2022

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Under the Unidas brand, Brookfield’s new car rental business is expected to gross over R$3.3 billion this year, in addition to an EBITDA of over R$1.2 billion, said Cláudio Zattar, the chief executive of Unidas.

The new company was created by the merger of Ouro Verde – which was controlled by the fund – and some assets of the company formerly known as Unidas. Mr. Zattar, who was Ouro Verde’s CEO, took over the new business, which started to operate in an integrated way on Monday.

“Our shareholders are excited about the acquisition and there are good expectations of what this combined business will generate,” said Mr. Zattar. The financial perspectives for the year are basically the minimum of what Ouro Verde and Unidas’s slice that was bought last year posted – a scenario expected to repeat itself this year, since the synergies of the two companies together only start to happen in fact now.

The new Unidas arose from a pragmatic need: the demand from antitrust regulator CADE for a competitor in the sector to then approve Localiza’s plan to incorporate Unidas – the two were Brazil’s first and second-largest car rental companies. Localiza’s move was approved by CADE in the middle of this year. For the divestiture, Brookfield paid around R$3.5 billion

Before, Ouro Verde had a business focused on the B2B operation and planned to approach individual customers through the expansion of its car subscription branch. With the acquisition, the new company took a large step forward and now has good representation in the market. In total, there are 90,000 assets (trucks, cars, machinery, and equipment), of which 77,000 are light vehicles. Localiza, the leader, has about 440,000 cars (after incorporating the former Unidas) and Movida has 190,000 cars.

The divestiture package purchased by Brookfield took nearly 49,000 cars and 182 car rental stores (Unidas had closed the second quarter with 245, considering its own network and franchises). Ouro Verde, focused on B2B, had no stores and focused on representatives across the country.

The sale of used car stores was not within the obligations pointed out by CADE, but the regulator gave Localiza freedom to negotiate the conditions with the company interested in the asset. This way, the group got 22 second-hand vehicle stores, said Mr. Zattar. Until then, neither Ouro Verde nor Localiza had disclosed details about the divestiture package – the only thing known for sure was the volume of the fleet, which had been previously rumored in the market.

The Unidas brand and sub-brands – such as Unidas Frotas and Unidas Livre – were also acquired. The Unidas brand was recognized as one of the 50 most valuable in Brazil according to the Brand Finance Brazil ranking.

“It’s hard to get into a rent a car business from scratch. The barriers are big, the scales are big. You would have to undergo a period of maturity. And now we are among the three largest in the country and with high potential that the market is providing us,” said Mr. Zattar, who before taking over Ouro Verde was Localiza’s head of logistics and car purchases.

Companies also saw the need to have cash on hand and decided to have fewer assets – thus looking at fleet management and outsourcing options.

“The rent-a-car market is a segment that continues to grow. And it doesn’t grow more for lack of cars,” he said, in reference to the semiconductor crisis. Even with the difficulties of buying a car, the scenario is expected to be much better than last year.

“We get availability from automakers. We are already treated as a major rental company,” he said. Even so, the executive said he does not expect a total normalization of vehicle production next year, with problems still in place in the delivery of semiconductors and chips – equipment required not only by the automotive industry.

One change in the market today is that rental companies have been forced to operate with older vehicles. In 2019, the average age of Localiza’s operating fleet in the rent-a-car segment was 7 months. In the second quarter of this year, the age was 17.4 months – the scenario was similar at Unidas. According to Mr. Zattar, the fleet purchased is in line with the average portfolio of the two rental companies.

Mr. Zattar pondered that the older fleet has its pros and cons. On the one hand, the company tends to have higher maintenance costs. On the other, the high price of cars helps companies to sell the vehicle well, and this has been a positive reinforcement in the earning reports. In addition, the strong demand has kept the average daily rates at record levels.

One movement adopted by Localiza and Movida has been internationalization. Recently, Movida bought a small business in Europe, its first step in the region. Mr. Zattar said that the new Unidas, on the contrary, has a strategy designed to be a rental company focused on Brazil. “Our strategy is here. We will continue doing the best for the Brazilian consumer,” he said.

The new Unidas will continue to disclose its results to the market and plans to maintain fundraising through debt issuance. Mr. Zattar was asked if there is a scenario to have shares traded on the stock exchange and if Brookfield would be interested in seeking partners, but he defended that, for now, there are no talks along these lines. “It is still very early … In the future, a larger capital structure aimed at accelerating the need for capital expenditure and growth [would make sense] … But it is a strategy of the controlling shareholder. We haven’t discussed [the topic],” he said.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Industrial cost slows down but inflation will still be high

Central Bank’s median projections for industrial goods inflation are 9.2% for 2022 and 3.8% next year

10/04/2022

Fábio Romão — Foto: Silvia Costanti/Valor

Fábio Romão — Foto: Silvia Costanti/Valor

Inflation of industrial goods, especially those linked to the economic cycle, accelerated again recently, reinforcing the perception among economists that the cooling of industry costs will help bring the country’s official inflation (IPCA) down this year. This will still be a gradual process, though, and industrial prices are still expected to remain historically high in 2022.

With the disorganization of the global production chains after the pandemic shock, the cost of the local industry ranged from 1.46% in the year to May 2020 to 36.37% in May 2021, a record acceleration since records began in 2006, a study by Bradesco shows. Based on a methodology suggested by the Central Bank, the bank’s economists have built an index of the cost of inputs in the Brazilian manufacturing industry.

According to the Brazilian Institute of Geography and Statistics (IBGE), a little more than 80% of the costs with inputs are local goods, but even in these cases, several of them have a defined price in the global market, notes Bradesco. This is the case of oil and its products, whose weight is almost 15% of the total cost of industry inputs, notes the bank. “In this period, from May 2020 to May last year, the price of oil, its products, fuels in general and semi-finished products, rolled products and steel pipes were the main causes for the rise in costs,” Bradesco economists Marcelo Gazzano and Myriã Bast wrote.

In August 2022, the industry’s cost still varied by almost 21%, they calculate. “We are seeing a normalization, but coming from a very high base,” said Mr. Gazzano. “At the point it is, it’s not enough. It must keep improving, it should not stagnate now,” said Ms. Bast.

September data from Bradesco’s proprietary survey of 3,000 companies indicate that this improvement continued last month, said Ms. Bast. In another metric for the industry cost index, considering a six-month period and a year, the variation in August is already lower, at 15%, said Mr. Gazzano.

In the September forecast, industrial goods inflation accelerated again to 0.32%, against 0.28% in the August IPCA-15, according to MCM Consultores. Underlying industrial goods, which do not include items with more volatile prices such as ethanol and cigarettes, went to 1.02% from 0.91%. In 12 months, the general inflation of industrial goods even decreased to 11.88% in September from 12.77% in the August preview, but the underlying inflation went to 13.83% from 13.48%.

In the Focus bulletin, the Central Bank’s survey with market analysts, the median projections for industrial goods inflation are 9.2% at the end of this year and 3.8% next year.

Bradesco projects industrial goods inflation at 9.2% this year, from 12% in 2021, but believes it could be just under 3% in 2023. “If nothing changes and it follows a trajectory like we are seeing in the fiscal year, we could have the industrial IPCA settling around 5% next year. But in our scenario, this will continue to adjust, so this is not our official projection,” said Mr. Gazzano.

The “stress indicator” of global chains drawn up by UBS’s global research team and Evidence Lab was 1.2 standard deviations from normal in August this year, the Swiss bank said in a report. By October 2021, this indicator had reached 5 standard deviations. The UBS BB team that follows Brazil highlights that August was the fifth consecutive month of improvement of the global indicator, signaling future normalization of goods inflation also in the country.

According to UBS BB’s calculations, the deceleration of goods prices accounts for more than 1 percentage point of the expected deceleration of the IPCA until the end of the year. UBS BB projects IPCA at 5.7% in 2022 and 4% in 2023, with industrial goods at 8.4% and 0.7%, respectively.

“Everything that happened in the pandemic and also because of the war between Ukraine and Russia is hindering a clearer deceleration of industrial goods. More recently, in the second half of the year, we are seeing partial rearrangement of the production chains and commodity prices losing strength. This contributes to a less arid formation of industrial prices,” said Fábio Romão, an economist from the consulting company.

He projects 9.8% for industrial inflation in 2022 and 5.4% in 2023. “There is the prospect that global economic activity will lose strength next year, which signals that industrials will slow down. We may have from 2023 onwards a rate of evolution of industrial prices that is not so different from the index,” he said.

In the September Inflation Report (IR), released last week, however, the Central Bank estimated that the normalization of production chains in Brazil was slower than the global average as of May this year, even though it maintains the rebalancing trend. In addition, the monetary authority warned that new shocks, especially lockdowns to combat the transmission of Covid-19 in China or problems arising from the war between Russia and Ukraine, may interrupt the normalization trajectory in the world and Brazil.

*By Anaïs Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Battle between Oi, mobile business buyers heats up

Telco obtained injunction ordering Telefónica, TIM, Claro to deposit R$1.5bn in court; trio sought B3 arbitration chamber

10/04/2022

The battle between Oi and the buyers of its mobile business – Telefónica, Telecom Italia’s TIM and América Móvil’s Claro – over the value and agreements on the transaction intensified on Monday. Oi obtained an injunction ordering the three companies to deposit in court R$1.5 billion within 48 hours for services provided to them.

On the other hand, the three telcos also filed for an arbitration proceeding in the Market Arbitration Chamber of B3 on Monday. The companies ask for a R$1.73 billion correction in the value of the asset purchase by revenue metrics that should be met by Oi, but claim that the company has not proven to have achieved them.

In the case of the injunction, the determination for Telefónica (owner of Vivo), TIM and Claro to deposit the amount was granted Monday by Judge Fernando Viana, from the 7th Business Court in Rio de Janeiro.

The amount refers to about R$600 million that would be paid by the three telcos as part of a contract for services to be provided by Oi in the agreement to buy the mobile business, in a judicial sale in 2020, for R$16.5 billion.

On September 19, Telefônica, TIM and Claro charged Oi for a correction of the purchase contract worth R$3.18 billion. Of this total, the three operators retained R$1.44 billion as collateral when closing the deal. The R$1.73 billion difference is what they are asking Oi.

Oi did not reply to requests for comment. B3 said that every process in the arbitration chamber is secret and does not comment on the subject. Telefónica, TIM and Claro published a statement to the market on Monday about the decision to appeal to B3, but declined to comment further.

*By Ivone Santana, Rodrigo Carro — São Paulo, Rio de Janeiro

(Felipe Laurence contributed to this story.)

Source: Valor International

https://valorinternational.globo.com/
/by

Brazil imports more from China driven by solar power, agricultural inputs

Growth of 35.1% between January and August exceeds average rise of foreign purchases

10/03/2022

Taking advantage of the expansion of solar power in Brazil and the demand for agricultural inputs, Chinese imports this year have advanced more than the average of Brazil’s total imports. From January to August this year, imports of products made in China totaled $39.74 billion, up 35.1% compared to last year and 63.8% compared to 2019, the pre-pandemic period. The average of total Brazilian foreign purchases grew 32.3% and 44.3%, respectively.

Data from the Foreign Trade Secretariat (Secex/ME) show that imports of Chinese products were driven by solar panels and equipment and agricultural inputs. These two groups totaled $8 billion in foreign purchases from January to August, or 20% of Chinese products that arrived in the period. That means $5.12 billion more in imports of these Chinese products, nearly half of the growth of $10.3 billion in purchases from the Asian country this year compared with the same period last year.

The first in the ranking of Chinese items most imported by the country are electrical and electronic equipment and devices that total $3.55 billion, of which 95% are solar or photovoltaic modules or panels. The amount represents 8.9% of the total bought from China in the first eight months of this year. It is also more than double the $1.43 billion imported in the same period last year, and five times the $700 million of 2019, always considering the January-August period.

More than increasing exports, China is virtually the only foreign supplier of these items for now. It sold Brazil 95% of what the country imported from January to August in photovoltaic modules and panels.

Chinese suppliers take advantage of a moment of expansion of renewable power sources in Brazil at the same time that the Asian country has sought to diversify its own power generation mix, said José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB). With the plan of becoming carbon neutral by 2060, China bets in solar power within a plan to foster the development of technologies in this field and the diversification in exports of products linked to renewable sources, Mr. Castro said.

Data from the Brazilian Electricity Regulatory Agency (ANEEL) and the Brazilian Photovoltaic Solar Energy Association (Absolar) show the advance of solar power in Brazil. The country’s installed capacity in this source jumped to 18.65 GW in August from 13.82 GW in 2021. Photovoltaic energy currently accounts for 9.1% of Brazil’s power generation mix. According to ANEEL, Brazil surpassed 185 GW in power generation capacity in August. Of the 650.14 MW of power increase this month, 57% came from solar plants.

Rafael Cagnin — Foto: Silvia Costanti/Valor

Rafael Cagnin — Foto: Silvia Costanti/Valor

Rafael Cagnin, an economist at the Institute for Industrial Development Studies (Iedi), also recalled the so-called taxation of the sun should come into effect as of 2023, bringing taxation that does not exist today for those who install solar panels at home. This may have accelerated the installation of the photovoltaic system in 2022, not only because of the tax benefit foreseen for those who adopt the source until January of next year, but also stimulated by the high cost of energy in Brazil. “We must remember that China has an almost unbeatable competitiveness in the production of solar panels in the world.”

Another group that draws attention in Chinese imports this year is insecticides, fungicides, herbicides, fertilizers, and their raw materials. Imports of these agricultural inputs totaled at least $4.46 billion between January and August, three times the amount seen last year ($1.45 billion) and more than four times the amount seen in 2019 ($1 billion) in the same period.

Mr. Castro considers surprising that China, a major destination for Brazilian soybeans, now stands out in the supply of agricultural inputs to Brazil. The picture, said Mr. Cagnin, is explained by the shortage of these products in the world, intensified by the war between Ukraine and Russia, and by Brazil’s great dependence on these items. According to government data, cited by the economist from Iedi, 85% of the internal demand for fertilizers is met by imports.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Effects of health crisis will challenge next president

Brazil’s public healthcare system needs more funds to meet pent-up demand generated during pandemic; country also must increase vaccination coverage against diseases that are again seen as threats

10/03/2022

The worst phase of the pandemic was left behind last year, but whoever takes over the presidency in January will still have to face several effects of the crisis that still persist in the health area.

Experts say that Brazil’s public healthcare system, Unified Health System (SUS), will need a budget reinforcement in order to meet the pent-up demand from the most acute years of the pandemic – which have not been completely solved so far.

The agenda seen as a priority also includes the universalization of basic health care, more funds for science, technology, and innovation, and a nationwide effort to recover vaccination coverage for diseases that are once again seen as threats to Brazilians.

In relation to the SUS and the pent-up demand for care, these refer to elective surgeries, appointments with doctors, exams, and treatments that were not carried out between 2020 and 2021, when health care was congested with cases of Covid-19 patients.

Due to lack of beds and schedules, or due to many people’s fears of being exposed to the coronavirus in crowded health care units and hospitals during the worst moments of the pandemic, a substantial slice of patients across the country who would have needed to undergo these exams, appointments, and surgeries in the two critical years of the pandemic chose to postpone the procedures.

Until the beginning of this year, the number of health care visits at SUS was still at a lower level than in 2019.

“The pandemic produced an extremely delicate situation for health, an increase in demands that were not met in that period and that have not yet been treated,” said Adriano Massuda, a public health physician and a professor at the think tank Fundação Getulio Vargas.

The National Council of Health Secretaries (Conass) estimated that an additional budget of R$8 billion would be needed in the health area to meet the demand that was not met during the pandemic. And also to solve pending accreditations of ICU beds, family health teams and even ambulances of the Mobile Emergency Care Service, known as SAMU.

Increasing the salaries of doctors and nurses and also the value of the transfers to hospitals is also a point considered important to improve health services nationwide.

The secretaries say that an agenda of urgent measures must be put in place or, at least, addressed in the first 100 days of government.

Besides an emergency agenda, Conass defends the creation of a nationwide public health plan. And also a 10-year plan, as already exists in education.

“During the pandemic, SUS started to be perceived as an extremely relevant system. Both the right and the left started to defend the system. And we need an agenda to modernize the SUS,” said Nesio Fernandes, head of Conass and state health secretary of Espírito Santo.

This modernization agenda involves setting aside more public funds for the system, Mr. Fernandes said. He cites that public spending on health in Brazil is currently 3.8% of GDP. The Pan-American Health Organization (PAHO) indicates that the appropriate level of spending on public health is 6% of GDP.

The Oswaldo Cruz Foundation (Fiocruz), an agency linked to the Ministry of Health, also insists on the need to increase public funding for SUS. The institution defends spending 7% of GDP in the system.

Among the points that Fiocruz listed in a letter to the presidential candidates is the universalization of basic health care coverage, mainly through the expansion of the family health program.

This measure, according to calculations made by Fiocruz, could quickly generate 2 million jobs for health professionals. Plus, it would have a direct effect on the country’s health indicators.

Another point in the letter is the defense of increased funds for science, technology and innovation – which would open doors for reducing the country’s dependence on foreign manufacturers of medicines, inputs, and medical equipment, for example.

Brazil spent about $20 billion on importing medicines and medical equipment last year and $15 billion in 2020, according to data compiled by Fiocruz.

Carlos Gadelha — Foto: Leo Pinheiro/Valor

Carlos Gadelha — Foto: Leo Pinheiro/Valor

Carlos Gadelha, coordinator of Fiocruz’s Center for Strategic Studies, advocates a tax overhaul that includes taxing the super-rich and the reduction of inefficient tax breaks. Mr. Gadelha, a trained economist, said that the government could collect extra R$40 billion with both measures and, as a result, fatten funds for healthcare.

That would be an antidote to a practice that has been established in recent years of parliamentary amendments for several fields, including health. One risk in the healthcare field is that these amendments end up financing fragmented actions, said Mr. Gadelha.

In addition to setting aside more public funds for SUS, science, and technology and addressing the pent-up demand generated by the pandemic, the next president also has the challenge of recovering the vaccination coverage against diseases that are again seen as threats.

Carla Domingues, an epidemiologist and coordinator of the national immunization program of the federal government between 2011 and 2019, says this should be priority zero of the next administration in the health area.

If one were to do a prioritization ranking, vaccination, she said, would be the most important item for the next administration.

“The country faces the risk of reintroduction of diseases that were already eradicated,” she said, reiterating a warning that is a consensus in the medical profession and that refers to the risk of reappearance of poliomyelitis, measles, diphtheria, pertussis, and meningitis outbreaks, among other diseases.

*By Marcos de Moura e Souza — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by