CBMM plans new niobium oxide plant

According to company’s plan for 2030, use of products in electric batteries for cars and other vehicles will represent 35% of revenue

06/08/2022

Ricardo Lima, Eduardo Ribeiro — Foto: Carol Carquejeiro/Valor

Ricardo Lima, Eduardo Ribeiro — Foto: Carol Carquejeiro/Valor

CBMM’s main business today continues to be the use of niobium in the steel industry. But in eight years, in its plan for 2030, the use in electric batteries for cars and other vehicles will represent 35% of the revenue of the Brazilian company, which is a world leader in the market of niobium products and its alloys.

An important step, within the strategy of the company controlled by the Moreira Salles family, one of the owners of Itaú Unibanco, is expected to be taken by the end of this year, said Eduardo Ayrosa Ribeiro, CEO of CBMM until the end of this month, when Ricardo Mendonça Lima, currently vice president, takes office.

Mr. Ribeiro told Valor that the company’s board of directors, chaired by Pedro Moreira Salles, will evaluate the proposal to build a niobium oxide plant capable of producing 20,000 tonnes per year. The plant is initially estimated at R$1.2 billion, Mr. Lima said.

It is from the ferroniobium alloy, Mr. Ribeiro explains, that products are produced for use in various noble applications, such as electric batteries.

So far, 90% of sales of niobium products leaving the company’s mine and metallurgy facilities in Araxá, Minas Gerais, go to the steel industry as ferroniobium. The remaining 10% are alloys and special oxides with various applications, such as in semiconductors.

Currently, CBMM has an oxides unit for 10,000 tonnes per year. And it has already made some sales of oxides for batteries, the executive said. There were 50 tonnes in 2021, and the company expects to sell 1,000 tonnes this year – destined for automobiles, commercial vehicles, motorcycles and electronic equipment. The company is already developing the product even for robots in logistics centers.

The focus is many years, or decades, ahead. The main niobium consumption trends, says Mr. Ribeiro, will be in the mobility industry, electrification, urbanization, digital transformation and sustainability, “where the material can add value. Our focus is on niobium products, using the company’s long-term reserves.” The niobium reserves in Araxá, at the current rate of production, are sufficient for more than 100 years.

“In the new scenario, we could have two to three more oxide plants of 20,000 tonnes each,” the CEO said. This is what is designed to meet the future demands for niobium in the new global consumption grid.

The production of electric batteries is advancing at a fast pace, with lithium as the base mineral for all of them. Other elements make up the parts of the batteries (cathode, anode, electrolyte and separator). These are niobium, nickel, cobalt, manganese, iron and carbon-based materials, such as natural and synthetic graphite, and hence graphene.

CBMM’s most advanced project is a partnership with Toshiba to manufacture electric batteries with a niobium anode. It is already in an advanced stage of testing with automotive customers in Japan. In Brazil, it will start with electric buses made by VW Caminhões, Mr. Ribeiro says. “In this partnership, we are in talks with customers, and production on a commercial scale will be accelerated from 2025 onwards,” he said.

In addition to Toshiba, CBMM is working on the development of applications for niobium alloy and oxides with universities, research centers and several other partners worldwide. “Many important companies are in this race,” the executive said.

At the same time, the company is shaping its production base in Araxá – today it has a production capacity of 150,000 tonnes of ferroniobium per year. It is enough to the level of 100,000 tonnes foreseen for this year – 90,000 tonnes of ferroniobium and 10,000 tonnes of other products.

The 2030 plan, however, considers one more expansion cycle, to be defined at 50,000 or 70,000 tonnes. If the market goes according to the projections, it will be around 210,000 tonnes of capacity, 35% of which, or 70,000 tonnes, will be for transformation into oxides. For steel tempering, there would be around 130,000 tonnes. “No growth is expected in the volume of steel produced, but there is room for greater use of niobium with an increase in steel for high-end applications with the decarbonization wave,” he said.

The new units, two or three of oxides, and one of ferroniobium are greenfield facilities, on their own sites, says Mr. Ribeiro. The company has space available in its 8,000-hectare area.

The new ferroniobium metallurgy will only be needed around 2028, with construction starting between 2025 and 2026. All in all, says the CEO, it is an investment package of R$9 billion until the end of the decade in the region – a prominent project is a new structure (dam) for the deposition of tailings called “n 9,” which will cost about R$2 billion.

“It’s been five years of studies, including studies in France and the U.S., to see with specialists the best technology for this structure,” says Mr. Ribeiro. The company is investing such a high amount of funds to have maximum security, the executive said, as the structure will be key in the company’s growth project.

*Ivo Ribeiro — São Paulo

Source: Valor International

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Companies gauge interest in stock offering again

Eletrobras’s capital increase encourages capital market

08/06/2022

Companies are slowly beginning to evaluate the possibility of resorting to the capital markets to finance their expansion. In the last two weeks, sanitation companies Corsan (Rio Grande do Sul) and BRK Ambiental (São Paulo) announced that they intend to go public after some months marked by a few IPOs.

Stimulated by the secondary offering of power giant Eletrobras, oil companies listed on the Brazilian stock exchange have also started to sound out investment banks to take the same path. PetroRecôncavo informed the market that it intends to raise up to R$2 billion. Sources told Valor that 3R Petroleum and PetroRio are considering doing the same, as well as power generation company Eneva.

If expectations are confirmed, sanitation companies BRK Ambiental and Corsan could launch the first IPOs of the year. China Tree Gorges (CTG) and oil company SeaCrest are also starting to sound out investors and may make initial stock offerings after the elections, sources say.

So far, there have been nine secondary offerings this year, raising R$13 billion. With the scenario of high interest rates and inflation both abroad and in the domestic market — compounded by uncertainties brought by the presidential elections in October — companies had given up on the capital markets. With Eletrobras’s capital increase, which could raise about R$30 billion, companies have begun to check and see if there is room for a restart. Eletrobras’s offering is expected to be priced Thursday.

But the atmosphere is not for euphoria. Gustavo Miranda, head of investment bank at Santander, sees the scenario as more favorable for secondary offerings than for IPOs. “Brazil, compared to other emerging countries, is even more attractive because of commodities.” He observes, however, that this factor is not enough for initial stock offerings to resume the pace of the last two years. Turbulence in the economy and strong market volatility continue to drive companies away from the market.

This is happening abroad as well. In the United States, the volume of stock offerings plummeted, Mr. Miranda said. From January to May, 157 companies debuted, raising $17.9 billion. In the same period last year, 628 companies went public, raising $192 billion, according to Dealogic.

According to him, the next windows for offerings are narrow. There is room for pricing until July. Then, with the summer holidays in the Northern Hemisphere, the opportunities for those seeking to go public after the elections will be between the end of November and December.

Last year, there were 76 IPOs and secondary offerings, which raised almost R$130 billion, compared to 51 in 2020, with R$117 billion raised. For 2022, preliminary estimates by investment banks show that the amount could reach a third of that negotiated in the past if Eletrobras manages to conclude its secondary offering.

In the financial market, there is still a lot of skepticism about the IPO plans of BRK and Corsan. According to a source, the two sanitation companies do not have a price reference for shares of competitors in the domestic market. Corsan’s offering would be the first privatization of a state-owned company in the sector. BRK would be the first private-sector company in the segment to go public — Iguá Saneamento has already tried, but did not reach an agreement on the price of the shares.

The situation is different for CTG and oil company SeaCrest, which have rivals in the exchange. Even so, if the political and economic turbulence persists, the offerings may be postponed until 2023.

A source familiar with Corsan says that the biggest difficulty will not be the market, but the setting up of the operation. One major obstacle is public spending watchdog TCE, a state agency, whose questionings were determinant for the postponement of the offering, in January. Since then, the company has been making adjustments to meet the agency’s demands. For example, in May, it disclosed new rules of governance applicable after the offering.

There is still no approval by the TCE, but an agreement is expected for the end of next week. Unlike the Federal Court of Accounts (TCU), which can bar privatizations, the state court would not have this power, but an unfavorable position would bring great risk to the offering.

Besides the TCE, there are dozens of requests for canceling the process, but, according to the source, about 80% of the requests have already failed, which shows that the process has been robust, he said.

In January, before opting for postponing, Corsan almost closed an anchor agreement with Aegea and Perfin for its IPO. Today, the perception is that “there should be no formal anchoring” for the offering, according to the source.

BRK’s offering, announced last week, was not so well seen at Corsan: on the one hand, it strengthens the idea that the basic sanitation industry stands out; on the other, the IPOs are seen as competing for the same investors.

According to a person familiar with the matter, BRK has already started sounding out investors to test the pricing of its shares. There is a consensus that state-owned bank Caixa, one of the company’s shareholders, wants to reduce its position. Brookfield, another shareholder, is not in such a hurry, sources say. The prospectus draft sent to the Securities and Exchange Commission of Brazil (CVM) foresees a primary offering, aiming to raise funds for auctions.

Bernardo Parnes — Foto: Ana Paula Paiva/Valor

Bernardo Parnes — Foto: Ana Paula Paiva/Valor

For Bernardo Parnes, founding partner of the financial advisory firm Investment One Partners, the privatization of Eletrobras is positive for the capital market. “Just look at the examples of Vale and the Telebras system. In the case of Eletrobras, the offering will help unlock value in the company.”

Mr. Parnes does not see, however, a capital market recovery in the short term. “About 80% of the companies that carried out an IPO between 2020 and 2021 have undervalued shares now.”

According to him, several factors contribute to this diagnosis, such as high interest rates in Brazil and abroad, the Russia-Ukraine war, which affects logistics, and rising oil prices. Mr. Parnes sees a recovery of the global economy between the end of 2023 and the first half of 2024.

PetroRio said that the secondary offering is one possibility for funding, should it decide to go ahead with the operation. Eneva said it is considering some alternatives to finance recent acquisitions of the company, “always striving for the best allocation of funds and strong capital discipline. One possibility analyzed is a secondary offering, which is still under study.”

CTG and 3R Petroleum said they would not comment on market rumors. Caixa declined to comment, citing a quiet period. BRK, Brookfield, Corsan, Aegea and Perfin declined to comment. SeaCrest did not immediately reply to a request for comment.

*By Mônica Scaramuzzo, Taís Hirata — São Paulo

Fonte: Valor International

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OECD to analyze Brazil’s practices, policies

Deforestation, trust in institutions among issues to be examined before admission

06/07/2022

OECD’s building in Paris — Foto: Hervé Cortinat/OECD

OECD’s building in Paris — Foto: Hervé Cortinat/OECD

The Organization for Economic Cooperation and Development (OECD) will examine from now Brazilian practices and policies in negotiations to evaluate the country’s admission to the organization. The assessment will range from trust in institutions to deforestation.

Valor found that the roadmap with the terms, conditions and process for Brazil’s ingress, has already received the green light from the OECD Council of Representatives, and will now be formally approved by the ministers of the 38 member countries on Thursday in Paris.

The way in is identical for the five membership candidates — Peru, Bulgaria, Croatia and Romania besides Brazil. Argentina had its invitation frozen as Alberto Fernández’s government did not commit to the organization’s values under the conditions the current members demand.

The list of core principles for technical evaluation in the different OECD committees is long and includes new recommendations approved recently by the entity.

A new subject for which Brazil and the other four candidates will be evaluated, in the field of governance, is people’s trust in their institutions. For the OECD, trust is the basis of the legitimacy of public institutions and of a functioning democratic system, and is crucial to maintaining political participation and social cohesion.

Trust is important for the success of a wide range of public policies that depend on behavioral responses from the public, such as respect for regulations and the tax system. In the long run, trust is considered necessary to address social challenges such as climate change, an aging population, and the automation of labor.

In the field of governance, the evaluation will also focus on issues such as the structure of governments, including separation of powers, and the integrity of the public sector, including the application of principles of high standards of behavior in public institutions.

Unsurprisingly, the environmental issue takes up more space on the roadmap for Brazil and the other candidates. Its policies and practices will be compared to OECD best practices. In fact, the environmental policy and chemicals committees have 40% of the OECD recommendations. The candidates will be examined based on at least 20 items on the environmental front, proportionally the largest number.

In the case of Brazil, the issue takes on a greater dimension because of the distrust with which the Bolsonaro administration is viewed on the environmental front. The map mentions the issue of deforestation in relation to the environment and agricultural production, according to a source.

The OECD wants to know what happens in the candidate country in line with the commitment made in Glasgow last year to “working collectively to halt and reverse forest loss and land degradation by 2030.”

The Environmental Policy Committee will also check how Brazil applies the principle that the polluter, rather than government subsidy, pays for prevention and control measures against pollution. It will also assess whether sectoral policies take into account the need to internalize environmental improvement. In the Agriculture Committee, one question is whether sectoral policies contribute to sustainability and improved environmental performance, and “green growth.”

In the discussion about the roadmap for Brazil, France was particularly active on environmental and agricultural issues, but without blocking the negotiation.

In the Fiscal Affairs Committee, the elimination of double taxation on income and capital will be examined, adopting the OECD convention model. On the financial front, the blockchain issue will also enter the evaluation, for example.

Economy Minister Paulo Guedes and Chief of Staff Ciro Nogueira will be at the OECD on Thursday for the approval of the roadmap.

From the 20th to the 24th of this month, a mission from the OECD, called the kick-off mission, will take part in the OECD/Brazil Forum with representatives from the Brazilian government, for the negotiations for the country to fit into the OECD standards.

Mathias Cormann, Secretary-General of the OECD, will be received by President Jair Bolsonaro on the 22nd in Brasília, symbolically launching the country’s admission process to the organization.

Source: Valor International

https://valorinternational.globo.com/
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Revenue from extractive industries to double by 2030

Oil, natural gas and iron ore will generate higher-than-expected collection, according to calculations by think tank Ibre/FGV

06/07/2022

Braulio Borges — Foto: Ana Paula Paiva/Valor

Braulio Borges — Foto: Ana Paula Paiva/Valor

The federal gross collection of revenues related to extractive industries – especially oil, natural gas and iron ore – is seen as reaching an annual average of 2.11% of GDP between 2022 and 2030, more than double the average rate of 0.92% of GDP per year seen from 2011 to 2020. The calculation by economist Braulio Borges, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre), conservatively considers a barrel of oil traded at $65. The additional collection would total R$1.03 trillion at constant values from this year through 2030 compared to the previous decade.

Mr. Borges ponders that the scenario involves volatility and contingencies, such as those related to oil prices and the production curve. He also highlighted that these additional revenues have not yet been considered in the longer-term fiscal projections, whether internal or produced by international organizations.

According to his analysis, in 2021 the extractive industries will expand gross federal revenues by around 1% of the GDP. With that help, that federal revenue reached 22.3% of GDP, up from 21% on average from 2014 to 2019. In the 12 months through March 2022, he said, the total federal collection reached 23.2%, which indicates a new increase this year. The recent movement was driven by the high international prices of these commodities impacted by cyclical factors.

Even as prices expected for the next two years are adjusted, these items are expected to continue increasing tax collection until 2030, Mr. Borges said. In this longer term, the revenues from extractive industries will be based on the increase in production volume and driven by already defined taxes, which is expected to gain ground due to the increase in the share of oil and gas extraction under the sharing regime.

Experts warn that the high volume of revenue coming from this temporary change, although lasting and based on finite resources, should not be seen as a panacea. This additional revenue, they point out, requires careful allocation by the federal government.

According to Mr. Borges, even in a scenario of a lower oil price, of $45 a barrel of Brent, the federal gross revenue from the same activities would yield an annual average of 1.68% of GDP from 2022 to 2030, still more than 0.7 percentage points above the average annual rate seen between 2011 and 2020. Considering a barrel at $85, the federal revenue would be 2.6% of GDP on average annually.

Mr. Borges’s calculation shows that in 2021 the total revenue from royalties, special participations, dividends paid by Petrobras to the state and taxes paid by the extractive industries, except social security contributions, totaled 1.85% of GDP, higher than the average of 1.06% of GDP from 2018 to 2020 and 0.93 percentage point above the annual average from 2011 to 2020. The performance largely explained the jump in total federal gross revenues in 2021.

Revenues from royalties and special participations grew to 1.08% of GDP in 2021 from 0.76% the year before. Petrobras’s dividends reached 0.24%, the highest rate relative to GDP since 2001. Federal taxes complete the picture. Revenue from taxes and contributions from extractive industries, including oil, yielded 0.52% of GDP for the state in 2021, almost double the 0.27 percentage point seen in the previous year.

The revenue projection, Mr. Borges said, shows that the extractive industries will continue to increase the state’s gross revenue until the end of the decade. The expected increase in production, especially of oil, natural gas and iron ore, is expected to contribute to this. These three commodities represent virtually 89% of the royalties collected from natural resource exploration in Brazil. The projections are included in a study that is the subject of an article by economist Luiz Guilherme Schymura, to be published by Ibre in the magazine “Conjuntura Econômica.”

In the study, Mr. Borges considered the 10-Year Energy Expansion Plan 2031, in which Energy Research Company (EPE) projects growth of little more than 80% in the production of oil and gas by 2030, with an increase from pre-salt exploration. This comes in the wake of production growth of 50% in the last decade and expansion of 150% in 20 years. Iron ore production is expected to grow 30% by the end of the decade, considering mining giant Vale’s estimates.

Another factor that will contribute to revenue growth is the so-called “profit oil,” a still small collection for the state established when the sharing regime was created, in 2010. That meant an increase in taxation on the extraction of oil and natural gas, Mr. Borges said. As production subject to the sharing regime is expected to increase, the revenue from profit oil, almost insignificant until 2021, is likely to grow until 2030.

Based on data from PPSA, the state-owned company created to represent the state in the sharing contracts, Mr. Borges projected the impacts on revenue. “It is worth saying that two-thirds of Brazil’s oil extraction in 2030 is expected to be under the sharing regime.”

Royalties, special participations, Petrobras dividends and revenues from profit oil combined are expected to reach 1.7% of GDP between 2022 and 2030 on average. Last year, it was 1.33% of GDP. In the 10 previous years, the annual average was 0.7%. For 2030, the projection is 2.25% of GDP – considering, as previously mentioned, a barrel of Brent crude oil at $65. The collection of federal taxes paid by extractive industries is expected to add 0.4% to 0.45% of GDP on an annual average from 2022 to 2030, totaling 2.11% of GDP in this period.

The most recent rise in the contribution of extractive industries to the state’s gross revenue is due in large part to the surge in commodity prices, under the impact of the pandemic and, more recently, the shock of the Russia-Ukraine war. Because of this, Mr. Borges said, the expected adjustment in prices is likely to drive down tax collection linked to extractive industries over the following two years, with a minimum level projected for 2024 at 1.6% of GDP.

From 2025 on, with the increase in domestic production of oil and gas, these revenues are likely to rise again and reach 2.71% of GDP, considering the baseline scenario with Brent crude at $65 a barrel.

Even with the energy transition, Mr. Borges said, oil demand is expected to still be high for 15 to 20 years, and “Brazil is well-positioned to meet this demand.” At the same time, he says Brazil has the third-largest nickel reserves in the world, a production that can grow a lot if the energy transition accelerates and boost royalty collection. This was not included in the projection, he said.

Mr. Borges points out that this commodity windfall brings volatile revenues based on finite natural resources. “A number of factors can make oil extraction in Brazil grow more or less,” he said. “The additional revenue will apparently materialize between now and the end of the decade, but it is not necessarily eternal. The projections, in fact, are that in the decade following 2030 Brazilian oil production will start to fall.”

Source: Valor International

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Cellera teams up with Ferring for innovative medicines

Agreement includes production, commercialization of gastroenterology product

06/07/2022

Omilton Visconde Junior and Rafael Suarez — Foto: Celso Doni/Valor

Omilton Visconde Junior and Rafael Suarez — Foto: Celso Doni/Valor

Brazil’s Cellera Farma has signed an agreement with the Swiss laboratory Ferring for the production and commercialization of an innovative medicine for gastroenterology healing, in the first step of a partnership that may be more comprehensive in the future.

For Cellera, whose controlling shareholders are businessman Omilton Visconde Júnior and private equity manager Principia Capital Partners, this first project represents technology transfer, occupation of the installed capacity of the Indaiatuba plant, in São Paulo, and a new jump in revenues, with the right of the first choice for commercializing the new drug.

Ferring, which is present in 56 countries, now has local production of one of its drugs and will use Cellera’s broad bases to take it to health professionals and pharmacies throughout the country. The biopharmaceutical company, specialized in fertility, gastroenterology and urology, has placed one of its 12 innovation centers in Brazil and wants to advance in research and development locally.

The new drug — a gel that combines two existing molecules to accelerate the healing process of anal fissures and control pain — was developed in the country, at Ferring’s center. In future projects, Cellera may even join the multinational at this stage.

The drug will enter phase 3 of clinical studies in 2023 and may reach the market in mid-2025. So far, investments in the product have reached between R$15 million and R$17 million, and more R$5 million are likely to be spent until registration at the health regulator Anvisa. In the launch phase (“go-to-market”), investments are estimated at R$50 million. “The product will be important for both companies,” said Rafael Suarez, Ferring’s CEO in Brazil and leader for Latin America.

According to the multinational, the choice of Cellera as a partner took into account the quality of its productive assets, which meet the requirements of international agencies, and the willingness to invest in innovation. Besides that, the proposal is that the drugs developed by the partnership can be internationalized without the need to repeat clinical studies abroad, said Renato Faro, head of R&D and regulatory affairs at Ferring.

Omilton Visconde Júnior, CEO of Cellera, says that the Brazilian pharmaceutical company bets on partnerships to grow, at the same time avoiding exposure to commoditized products, in line with what Ferring has to offer. With operations in the central nervous system (CNS) and gastroenterology fields, the pharmaceutical company has some participation in pediatrics and is evaluating the entrance into orthopedics. “Our focus is innovation,” he says.

Mr. Visconde Júnior became known for his sequential ventures in the health sector in the country. Among other moves, he sold Biosintetica to Aché in 2005 and, years later, he sold Segmenta, of hospital serums, to Eurofarma. In 2017, he and his private equity partner formed Cellera, the result of the purchase of Instituto Terapêutico Delta and the company MIP Brasil Farma.

For this year, the Brazilian pharmaceutical company is expected to reach R$500 million in revenues, 10 times more than in 2017. The plan, according to the businessman, is to seek an IPO when the company reaches the R$1 billion threshold, in three to four years.

Ferring, formed in 1950, belongs to a single owner and has been in Brazil since 1985. Worldwide, the group has revenues of $2 billion and invests 20% of its revenue per year in R&D, said Mr. Suarez.

Source: Valor International

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Global economic outlook boosts share buybacks in Brazil

May is second-busiest month since 2020 in Brazil, with 21 companies launching such programs

06/07/2022

São Paulo-based B3: stocks are going through strong correction in 2022 — Foto: Aloisio Mauricio/Agência O Globo

São Paulo-based B3: stocks are going through strong correction in 2022 — Foto: Aloisio Mauricio/Agência O Globo

Faced with volatile markets that are sensitive to the global economic scenario, stocks are going through a strong correction in 2022 and companies in several industries, in Brazil and abroad, are launching share buybacks as a result.

In Brazil, share buyback announcements accelerated in May, with 21 companies starting buying back shares, almost four times the number seen in the same month of 2021. This reflects the Ibovespa – Brazil’s benchmark stock index saw the second-worst performance since the onset of the Covid-19 pandemic by falling 10.1% in April.

May was still the second month with the most open programs since March 2020, when the coronavirus triggered an unprecedented global crisis.

This year, 57 companies unveiled buyback programs, more than half of the entire 2021 volume of 108 announcements. The number is 63% higher than the number announced between January and May last year, which had most of the openings concentrated in the second half of the year.

If completely fulfilled, the buyback programs can total R$72 billion, taking into account the current price of the companies. The operations announced in the month alone cover a volume that may exceed R$17 billion if fully executed. Gerdau, CSN, Suzano, JBS, Bradesco, XP, Cosan and Hapvida are among the groups that started buyback programs in May.

This is not a local phenomenon. Share buybacks in the United States are expected to reach a record of $1 trillion in 2022, as companies see their shares depreciating between 15% and 30% in the year to date.

Guilherme Tiglia, a partner and analyst at Nord Research, cites escalating global inflation, the Russia-Ukraine war, the Covid-19 pandemic, and reduced growth in major economies such as the United States and China among factors driving buybacks.

“At times like this, when we see the [financial] market moving sideways and concerned about the global economy, a window of opportunity opens up for companies to do buybacks. It’s a market moment, with discounted stocks,” he said.

He points out that, in the local scenario, there is still the impact of the high interest rate, which reflects strongly on variable income due to the migration of investments to fixed income.

Besides the drop in stock prices, the strong cash reserves of some Brazilian companies — after higher revenues in 2021 — contributed to driving buyback programs last month, said Gabriela Joubert, chief analyst at Inter.

“Companies, especially those linked to commodities, which have revenues in dollars, have a cash surplus. They need to allocate this money. After so many [announcements and payments of] dividends, buyback is also an alternative,” Ms. Joubert said, stressing that stock buybacks are another way of returning profits to shareholders.

The analyst notes that, for the investor, the buyback plan contributes to containing share losses, at first. “We are entering a bear market, so it makes sense for companies to announce buybacks,” she said.

Vale, at the end of April, paved the way for more robust programs with the announcement of a buyback of up to 500 million shares — equivalent to more than R$40 billion — expected to continue until the second half of next year.

In a conference call with analysts held after the announcement of the program, the chief financial and investor relations officer, Gustavo Pimenta, said that the share buyback “is the best investment” the company has, adding that this does not mean the mining company will not pay extraordinary dividends.

“It will depend on the cash flow. We can do both [dividend and buyback], but the buyback has a great prospect,” the executive says.

Ms. Joubert says she disagreed with the buyback announced by the company in October last year, of up to 200 million shares — a program finished this month with the acquisition of all shares for the opening of the current buyback — since it could have been converted into dividends for shareholders.

According to her, Vale wanted to send a message of confidence in the company. “Companies continue to pay dividends, but they also buy shares, sending the message that they are investing in themselves. The message is unanimous. I have surplus cash, I will pay you dividends. But I will also buy shares of my company and do the same, shareholders,” the analyst with Inter said.

Mr. Tiglia, with Nord Research, considers that the share buyback is also a benefit and that, at that moment, it was an allocation of funds that made sense for the company’s strategy.

“There is no such thing as a better or worse proceed. I believe that, at that moment, Vale understood that its shares were cheap, which is consistent with the robustness of the program, and the buyback was the tool that made the most sense in that scenario,” the analyst said.

Daniel Sasson, a commodity analyst at Itaú BBA, said that the program is in line with Vale’s recent positioning, in which it sees no need for investments and expansion in the coming years.

“Therefore, the company is using this surplus by returning cash to shareholders. Another issue is that Vale shares are cheaper compared with its global peers. The company sees this, that stocks are cheap,” he said.

Mr. Tiglia says that Vale shares are at a level below what they could be, even with gains of more than 17% in the year.

Some programs launched in May, weeks after Vale, have the potential of reaching R$1 billion each, including Suzano, CSN and Gerdau.

Gerdau’s chief financial and investor relations officer, Rafael Japur, evaluated that the repurchases of the company and Metalúrgica Gerdau reflect the steelmakers’ cash generation capacity. “We understand that the shares are undervalued in recent months and that the discount is important concerning our peers in North America. That’s why we started the program,” Mr. Japur said.

Ms. Joubert, the executive with Inter, however, highlights the post-purchase and wonders about the company’s goal. “We need to pay attention to what the company will do with that number of shares it bought. Will it cancel it, will it keep it, or will it do a secondary offering to raise money again?”

Mr. Tiglia, the analyst with Nord, said that buybacks can reflect negatively on stock liquidity. “There are programs that don’t change, while others mess a lot with liquidity,” he said. “At the end of April, Vale, for example, had 305 million in treasury stock. The natural path is that it cancels those shares in the coming months and the market is already expecting this,” said Mr. Sasson, with Itaú BBA.

Source: Valor International

https://valorinternational.globo.com/
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Government proposes reducing tax rate on fuel to zero

States would be compensated, according to plan; measure would be in place by December

06/07/2022

Jair Bolsonaro — Foto: Antonio Molina/Fotoarena/Agência O Globo

Jair Bolsonaro — Foto: Antonio Molina/Fotoarena/Agência O Globo

In another effort to try and lower inflation and reduce fuel prices — less than four months before the election — President Jair Bolsonaro proposed Monday to reimburse states if governors agree to reduce to zero sales tax ICMS on diesel and LPG (cooking gas).

In addition, the federal government has committed itself to cut to zero social taxes PIS and Cofins and the federal tax Cide levied on gasoline and ethanol. The package is a compensation for Congress to pass the bill that curbs state taxes on fuel, energy and telecommunications to 17%.

The tax breaks and compensation will be proposed through a constitutional amendment proposal (PEC) to be issued by the federal government, with defined financial and time limits. According to sources within the economic team, the total cost will be around R$40 billion.

Of this total, R$25 billion — concerning the transfer to state governments for the loss of revenue from the ICMS tax on diesel oil and cooking gas — will be kept outside the spending cap. The remainder – around R$15 billion – derive from the total exemption of PIS/Cofins and Cide on gasoline and ethanol. Those federal taxes have already been reduced to zero, previously, for diesel and LPG.

As for the duration of the measure, the PEC will say that the measures will be in force between July 1st and December 31st, 2022. Nevertheless, the government is confident that the increased revenues from oil royalties and dividends from Petrobras will contain impacts on the primary result. Economy Minister Paulo Guedes said the effort will be “fiscally responsible.”

“It is an extraordinary transfer of funds. It has a defined time, until December 31, and a defined value, it will be clear that this is fiscally responsible,” he pondered. Mr. Guedes also explained that there are extraordinary revenues not yet released in the budget, and that this transfer to the entities will be limited to these revenues. “In the same way that there must be a spending cap, there must be a tax cap,” he said.

Mr. Guedes called for a joint effort on behalf of a reduction in fuel prices that protects the population. “If the economy became strong again and tax collection is increasing, we are behaving in a way to transfer this to the population. Everyone has to collaborate. States and municipalities are all in the black, a situation they have never been in before,” he said. “We are renewing our commitment to protect the population with the cooperation of federal entities, Senate and Chamber.”

The announcement of the package was made by the president in the presence of government ministers and the speaker of the Chamber of Deputies, Arthur Lira (Progressive Party, PP, of Alagoas), and Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais), who also endorsed the measure.

In practice, the package is a way for the Executive branch to pressure governors to accept an agreement on the issue. This is because allies of the president have shown concern about high inflation, which tends to impact the approval of the president during the election campaign.

With this proposal, President Bolsonaro admitted expecting an “agreement” in the Senate for the approval of the so-called complementary bill (PLP) 18/21, already passed by the Chamber of Deputies and making its way in the Senate, which establishes a cap for the collection of ICMS for items considered essential, such as fuel, electricity, telecommunications and public transport.

“The government has decided to move forward with the reduction of the tax burden for Brazilians — on diesel and cooking gas, if the governors understand that it is possible to reduce ICMS to zero, we will reimburse them for what they fail to collect. As for gasoline and ethanol, the federal government is willing to reduce PIS/Cofins and Cide to zero,” Mr. Bolsonaro said.

Mr. Lira also admitted that the negotiation is primarily aimed at solving the problem of inflation, which worries Mr. Bolsonaro’s allies. “We are concerned about reducing the impacts of inflation, the crisis caused by pandemic and war. The Chamber is sensitive to the government’s effort,” said Mr. Lira before sending a message to senators. “We hope that the Senate has sensibility in the approval of PLP 18 [which limits ICMS to 17%]. After that, we will deal with the PEC on the reimbursement of the states,” he said.

The Senate president said he expects a consensual solution and through dialogue to reduce the ICMS on fuels, but reiterated the existence of the states’ concerns and did not talk about a date to vote on the bill that imposes a 17% ceiling on gasoline and diesel oil, among other items.

According to him, the government’s initiative highlights the concern of the branches of government with the prices of fuel and food. “It is a very serious problem,” he said. Mr. Pacheco recalled that the state governments took to the Senate several amendments to the PLP 18: “Within the dialogue, which is very broad in the Senate, we will seek consensus on all interests, also listening to the states. We welcome the demands of the federal government and will take them to the senators for analysis,” the Senate president added.

São Paulo’s Treasury Secretary Felipe Salto defined the announcement as “a bad joke.” “The states don’t have any guarantee,” he said. Mr. Salto questions the source of funds for such compensation. “The only revenue cited does not exist: the Eletrobras concession. How will they reimburse [states] with the cap there?” he said.

Another criticism from the state secretary is that first the bill that establishes the ceiling on the collection of ICMS on fuels would be approved, and then a PEC would be sent to the states to account for the reimbursement.

“The losses from PLP 18 will come and the PEC will be delayed. Even if approved, nothing guarantees the reimbursement, according to the announcement,” he said. According to him, the measure would generate losses of R$14.4 billion by locking the rates at 17% — 18% in the case of São Paulo.

(Anaïs Fernandes contributed to this story.)

Source: Valor International

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Inflation, supplies are L’Oréal’s priorities

Company has double-digit growth in Brazil and gains market share with consumers loyal to the brands

06/06/2022

Alexis Perakis-Valat — Foto: Leo Pinheiro/Valor

Alexis Perakis-Valat — Foto: Leo Pinheiro/Valor

Brazil was the first country that Alexis Perakis-Valat, global CEO of L’Oréal’s division for the general public, visited when he took over the position five years ago. Last week, Mr. Perakis-Valat returned to Rio de Janeiro and São Paulo. Even though sales have resumed to pre-Covid-19 levels, the scenario is different from before 2020. Global inflation and supply issues are of concern. He says the business in Brazil has had double-digit growth and it is gaining market share in an environment of consumers loyal to the brands.

The large public division includes Niely (a national company incorporated into the French group in 2014), Colorama, which focuses on nails, and Maybelline, of makeup. The products are found in retail channels, such as supermarkets, pharmacies, and cash-and-carry. In 2021, the area was responsible for 37.9% of L’Oréal’s global sales, behind only the luxury segment, which accounted for 38.2%, the company says. Considering the result as a whole, sales in Latin America grew 20.6% last year. The company does not reveal the figures for Brazil.

“In the medium and long term, we are extremely confident in the future of our division, both globally and Brazil. The market has a lot of potentials to develop. Brazilian women are looking for more transparency, performance, and sustainability. And, as in the rest of the world, the digital [channel] has accelerated the knowledge of consumers,” said the executive, in an interview with Valor. L’Oréal has less than 10% of the local market share, but the country is the fourth-largest beauty market in the world.

The executive says that L’Oréal’s main objective is to “develop markets”. A current example are the serums — cosmetics for the face that have a light texture and fast absorption. There is still a low percentage of Brazilian women who use this kind of product, says the executive. “Our work in our division is to spread the serum. Explain why to use it and how to use it. This develops the market because it is an additional gesture. And when we develop the market, it grows, and we want to gain market share.”

The current environment increases the complexity of the business. Inflation, a legacy of the large injection of liquidity by governments in Covid’s peak, is new in many countries where the multinational operates. There is not yet a long history to analyze the consumption behavior in those places, but Mr. Valat says that in the beauty market people are inclined to pay a little more as long as the offer is better. In Brazil, although the subject is not new, inflation is currently eroding the income of the local population.

In the mass market, the final prices are fixed by the retailers. However, the multinational has tools to trace price scenarios because of customers’ behavior. The goal is that the values suggested to retailers can be absorbed by the consumer public.

According to Mr. Valat, the beauty company has dealt very well with the issue of global supply chain problems, but this issue requires more effort than before the pandemic began. “We spend a lot of time on this. The situation is complicated, but it is evolving every day. I hope the scenario will get better, but it is challenging,” he says.

Current efforts involve more intense monitoring of raw materials and greater flexibility of the company in the search for supply alternatives and diversification of supply sources. The goal is to reduce dependence on just one part of the world.

Another focus of increasing attention worldwide is ESG practices. Diversity, gender equity and inclusion, and causes such as tackling sexual harassment on the street are among the company’s focal points. And L’Oréal aims to be an industry leader on issues related to sustainability. There are, for example, initiatives to reduce water use in factories.

In addition, alongside companies like Unilever and Natura, the company is developing an industry-wide environmental impact assessment and a sustainable scoring system for cosmetic products. “Consumer demand for more sustainable products is growing. Younger generations are leading this movement. We see concerns about impacts in Brazil as well.”

Source: Valor International

https://valorinternational.globo.com/
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Amazon can be recovered, generate income, experts say

They suggest the use of agroforestry occupation to generate economic activity in degraded areas

06/06/2022

Beto Verissimo and Juliano Assunção — Foto: Leo Pinheiro/Valor

Beto Verissimo and Juliano Assunção — Foto: Leo Pinheiro/Valor

The historical process of occupation of the Amazon has created enormous forest loss, but the stock of deforested areas can be recovered and used for the production of items that generate development and income, agronomist Beto Veríssimo and economist Juliano Assunção say. They are the coordinators of the Amazônia 2030 project, which seeks to make a diagnosis of the region’s problems and point out solutions, encouraging the formulation of state policies for the Amazon.

In a live-streamed interview with Valor on Friday, Mr. Veríssimo said that over the last 40 years 83 million hectares have been deforested in the region, which is equivalent to the area of Minas Gerais and São Paulo states. Of this total, only 10% is used in agronomic terms, mainly soybeans. Another 60% are underused areas, generally with low productivity cattle raising, while 30% are abandoned spots.

“There is a myth that it is necessary to deforest to develop. The analyses are absolutely conclusive that it is not necessary. Too much has already been deforested,” added Mr. Veríssimo, who is also a senior researcher and cofounder of the Institute for Man and the Environment of the Amazon (Imazon). “So there’s a long job of making good use of the areas that have already been opened up.”

Mr. Assunção said there is no need to cut down the forest to increase agriculture. “If you look at FAO [Food and Agriculture Organization of the United Nations] data, food production since the early 1960s has been growing at a very constant rate. But if we look at what is happening in terms of area, in the last 20 years, it hasn’t increased,” said the associate professor at the Catholic University of Rio de Janeiro (PUC-Rio) and executive director of the Climate Policy Initiative (CPI) Brazil.

He explained that the Amazon territory was allegedly occupied to “integrate” the country, which made sense in the past, but the goal was not to extract value from the forest. “If this brought us a deforestation of 20% of the Amazon, which is something dramatic from the environmental point of view, today we have in our hands, when we look ahead, a stock of area that no country has to expand its agricultural production,” he said.

Mr. Veríssimo affirmed that reforestation can be used to promote the paper and pulp industry: “The expansion of this sector has to take place in the Amazon, but not over the forest. The specialist points out the important role of agroforestry systems, which combine the preservation of the standing forest and the cultivation of species to generate income, such as cocoa and açaí.

According to Mr. Assunção, the sector of products compatible with the Amazon ecosystem has more than 60 quality items for export, but they account for only 0.17% of the world market share. The Brazilian Amazon represents one-third of the world’s tropical forests.

Both specialists also emphasized that it is necessary to have a land title regularization policy for the region, provided it does not promote flexibility for the illegal advance on preserved areas, which, according to them, has been happening in recent years.

Mr. Veríssimo said that the Amazon is experiencing “a perfect storm of problems”, which include, deforestation, youth unemployment, poverty, and violence. While the region covers 59% of the country, it produces only 8% of the GDP.

For Mr. Assunção, there is a “paradox” in the region, which, with a population of 28 million people, is going through a demographic moment that is expected to be favorable. “The working-age population is growing in comparison with the population of dependents, a process that is likely to come to an end around 2030,” he said.

However, those people have few opportunities. “The labor market is very fragile, mostly with informal labor contracts, and the private sector has difficulty in dynamically establishing itself,” he said. Among young people between the ages of 18 and 25, 42% are outside the labor market.

Source: Valor International

https://valorinternational.globo.com/
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Unipar to invest R$130m in new plant in Bahia

New plant with capacity to produce 10,000 tonnes of chlorine a year will be built at the Petrochemical Complex of Camaçari

06/06/2022

Mauricio Russomanno — Foto: Silvia Zamboni/Valor

Mauricio Russomanno — Foto: Silvia Zamboni/Valor

Unipar, the largest producer of chlorine and caustic soda and one of the main PVC manufacturers in South America, will invest R$130 million in a new plant, in Bahia. This raises to R$230 million the disbursements unveiled since the end of last year by the company to expand capacity.

The new plant, with a capacity to produce 10,000 tonnes of chlorine a year, will be built at the Petrochemical Complex of Camaçari (Bahia) and is expected to start operating in the first half of 2024. It will meet the growing demand for hydrochloric acid, sodium hypochlorite and caustic soda driven by the new basic sanitation legal framework.

“We believe in the sanitation framework as one growth driver for the market. There have already been several approvals [of projects] and auctions, and there will be more,” CEO Mauricio Russomanno told Valor.

In chlorine, the company’s installed capacity will jump to 715,000 from 680,000 tonnes/year with two expansions – in Santo André (Greater São Paulo), with an investment of R$100 million, the production of chlorine, caustic soda and hydrochloric acid will be increased by 15% as from the second half of 2023.

With the new injections, the company starts to shape a new growth cycle supported by the perspective of increasing demand for chlorine and its products driven by the new legal framework for basic sanitation in Brazil. The plant in Bahia is the first greenfield project within the company’s geographic expansion strategy, whose last major leap was taken at the end of 2016, with the purchase of the PVC plants of the Solvay group (Indupa) in Brazil and Argentina.

The company had already signaled the intention to have a plant in the Northeast region, in the wake of the high investments necessary for the region to reach the levels of universal access to water and sewage services by 2033 foreseen in the framework.

Bahia is the first step in the region, Mr. Russomanno said. “We are looking at Pernambuco and the north of the region, at states such as Rio Grande do Norte and Maranhão,” he said.

The construction of new plants and potential acquisitions, possibly branching into adjacent businesses, are on the company’s radar.

As Valor reported, Unipar studied the purchase of the chloralkali plant of Compass Minerals in Igarassu, Pernambuco, formerly Produquímica, in the first half of last year, but the deal fell apart. Compass Minerals ended up selling the plant, in addition to the chemical units for water treatment in Marechal Deodoro (Alagoas) and Suzano (São Paulo), to Cape Participações for R$236 million. These units will be operated by Chlorum Solutions.

According to Mr. Russomanno, Unipar may seek financing to execute the project in Bahia, but it has enough funds on hand to build the new plant. At the end of March, the company had more cash and cash equivalents than gross debt, with a positive balance (net cash) of R$432.9 million.

Source: Valor International

https://valorinternational.globo.com/
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