U.S. company is said to be strongly interested in assets of Neve and Kleenex brands
10/13/2022
A new name has appeared in the negotiations for Kimberly-Clark assets in Latin America. U.S.-based Woodland Partners is being considered a frontrunner at this stage of the negotiation, sources say. Woodland has hired Bank of America as an advisor in the talks, according to Pipeline, Valor’s business website.
RGE, the owner of Bracell, also remains strongly interested. Suzano is also interested, but maintains its interest restricted to the asset in Brazil. Kimberly-Clark’s proposal is to get rid of the regional package in a single negotiation. The company is advised by J.P. Morgan.
The Chilean CMPC, the owner of Softys, dismissed its financial advisors, considering that the asking price at that moment, around one time the revenue, was high. Kimberly-Clark is looking for between $800 million and $1 billion for the Latin American operation, sources say.
Kimberly-Clark, a company founded in the U.S., owns brands such as Neve and Kleenex. The process of selling the assets began in May.
The loss of competitiveness led Kimberly-Clark, the fourth-largest company in the sector with an 8.3% share in Brazil, to review its business in Latin America, except for Mexico, people familiar with the matter say. The multinational does not break down data by region.
According to a source, Kimberly-Clark intends to sell its assets in a block at once, but there is a consensus among buyers that there is no interest in the whole package. Part of these investors hopes that the company will slice up the assets. In another alternative, the buyer would sell the regions that are not of interest in a separate operation.
The size of the Brazilian market for personal care papers and the potential for growth attract domestic and foreign groups, despite the strong competition. Last year, the production of tissue, which is absorbed locally, totaled 1.3 million tonnes, a flat figure compared to 2020, according to the Brazilian Tree Industry (Ibá). The annual consumption per inhabitant is estimated at 6 kilograms — it is 27 kilograms in the United States.
Suzano declined to comment. In a statement, Kimberly-Clark said it does not comment on market speculations regarding its operations. “The organization stresses its commitment in the locations where it is present, based on 150 years of close partnership with customers and respect for consumers and its employees.”
RGE said Bracell consistently reviews attractive business opportunities, also in the tissue sector. However, it also cannot respond to M&A speculation in the market at this time. Woodland Partners did not immediately reply to a request for comment.
The original story in Portuguese was first published on Valor’s business website Pipeline.
*By Maria Luíza Filgueiras, Mônica Scaramuzzo — São Paulo
Reduction in in-person offerings intensified in the pandemic, while distance learning grew
10/13/2022
Several private educational groups are requesting to close colleges and face-to-face programs all over the country. At the end of August, a decree by the Ministry of Education (MEC) authorized the closure of more than 500 undergraduate programs at once. In the past few days, Ser Educacional has asked to end six schools, whose campuses are in Duque de Caxias and Nova Iguaçu (Rio de Janeiro), Vitória (Espírito Santo), Anápolis (Goiás), Uberlândia and Montes Claros (Minas Gerais).
Besides Ser, other large groups such as Cogna’s Kroton, Yduqs’s Estácio, and Cruzeiro do Sul have asked for the closure of programs. A relevant part of them is in the fields of engineering and business management. There are also degrees in law, biomedicine, accounting sciences, nursing and pedagogy.
According to specialists consulted by Valor, the cancellation of in-person programs is related to a combination of factors: students’ lack of interest in this learning model, especially after the outbreak of the coronavirus; the financial crisis that led many students to migrate to the online format, which has lower tuition fees; the drastic reduction of Fies (a financing program funded by the federal government for in-person programs); and graduations with outdated methodologies and content, which are disheartening students, especially the younger ones.
With the low demand, colleges are unable to fill classrooms with enough students to be profitable. In distance learning (DL), this problem does not exist, and the profit margin is higher because there are fewer fixed costs with teachers and infrastructure.
In 2020, there were 31,100 face-to-face programs in the private sector, which together offered 5.3 million places. “There are many programs and places, and proportionally, the number of cancellations is not representative. But the issue is relevant. We need to better understand this lack of student interest. It may also be related to the outdated content of the higher education programs,” said a source connected to the MEC.
Kroton started to close part of its 2020 in-class undergraduate programs and has been following a strategy of only keeping the more expensive ones, such as medicine and engineering. “Cogna, loyal to its strategy of encouraging and promoting the growth of digital programs, a movement that was intensified due to the pandemic, has been migrating its portfolio of programs to distance learning from in-class. This way, it is necessary to close some classroom programs, while we increase our portfolio of distance learning by approximately 50% between the beginning of 2021 and the end of 2022, duly registered with the MEC. The two movements seek to adjust the portfolio of higher education programs, with a focus on digitalization, allowing for greater diversification, efficiency and operational leverage,” said Cogna, owner of Kroton, in a statement.
Yduqs explained that the “termination of activities in programs takes place in the midst of the natural dynamics of educational institutions for assorted reasons, such as adaptation to demand, increased efficiency, commercial strategy or a combination of them. When they happen, they are always associated with careful planning and alternative offerings for students, which are made possible by a broad portfolio of programs and an equally broad network of campuses,” said the company, which owns Estácio.
Cruzeiro do Sul said that “adjustments of programs in some locations are healthy and normal to ensure the best use of physical space to serve the growing base of in-person students. In addition, there are program upgrades (extinction and creation of a program in the same field of knowledge) necessary to meet the demand for knowledge of the students.”
Ser Educacional declined to comment. The Ministry of Education did not immediately reply to a request for comment.
The reduction in the supply of in-person programs was intensified during the pandemic. According to the Ministry of Education, in 2020 (the most recent data available), the number of in-class programs decreased to 35,837 from 35,898, that is, 61 fewer programs. It is the first time that the sector has reported such a decline. Those figures also include public universities, which account for 22.5% of students in higher education.
This movement goes against the backdrop of the DL market, which has been growing at a dizzying pace since 2017, when legislation was eased. Between 2017 and 2020, the number of online programs tripled to 6,100.
The supply of DL vacancies in relation to the number of students in the private sector draws attention. There are 3 million students for 13.4 million vacancies. For comparison, there are 3.7 million enrolled students for 5.4 million vacancies, which leads to an occupation rate of 70%. In other words, there is an excessive amount of vacancies for online programs, even considering that, in the last three years, the volume of students enrolled in distance learning programs has surpassed that of face-to-face programs. In 2020, of the 3.2 million new students, 1.9 million enrolled in online programs and 1.2 million in onsite undergraduate programs. There is no official data on the current volume of enrollments in each modality today.
This gap between supply and demand has generated a price war in the sector, leading to a questioning of the quality of these programs. “Today, it is possible to find in-person programs for R$250 per month, and distance learning programs for R$99. With these prices, the quality of education falls definitely,” said João Vianney, a consultant with Hoper Consulting.
There is a discussion between the sector and MEC to regulate hybrid programs, but many educational institutions only digitalize the didactic content for remote classes, without binding to new learning methodologies — one of the reasons for the high dropout rate in online programs. The Semesp Institute released about 10 days ago a study warning about the risk of a shortage of 235,000 basic education teachers by 2040. In addition to the young people’s lack of interest in professions, 60% of undergraduate students study in distance education.
Inflation projections around 5% consider that fuel prices will not be raised
10/13/2022
Brazil’s official inflation index IPCA is seen by some economists closer to the top of the target range for 2022, of 5%, or slightly below this level. These analysts believe that the recent inflation slowdown cannot be explained by the federal government’s tax-cutting move alone –a broad-based price settling down has also played a role, according to their view. But such projections depend, in general, on oil giant Petrobras holding down prices despite the higher cost of the commodity abroad.
The median projection of Focus – the Central Bank’s weekly survey with analysts – for IPCA in 2022 is at 5.7%. But since the end of September, the minimum projection is below 5% and declining, having reached 4.74% on October 7, the latest reading.
“Our projection is at 4.9% and the market is moving to something around 5.5%,” said Carlos Thadeu Freitas Gomes Filho, a senior economist at Asset 1. Among the reasons for projecting a slower inflation rate than the consensus of the market, and below the top of this year’s target range, he cited durable goods prices, which are expected to give a break; slowing food inflation; and lower travel prices.
The economist highlighted durable goods, saying that both supply and demand indicate lower prices. “Sales of cars are weak, for instance. On the supply side, we have already seen the chains indicating deflation in wholesale.” In addition, Mr. Gomes Filho sees slower food inflation ahead, including animal protein, a “well-stocked” segment.
Lower energy prices have also spread to other parts of the economy, said Alexandre Lohmann, the chief economist at Constância Investimentos. “In addition, raw materials have also contributed positively,” he said. He sees the IPCA at 5.2% at the end of this year.
Mr. Lohmann recalled that general price indexes have shown strong deflation, which may indicate that the IPCA will slow down. Plus, inflation cores – measures designed to ease the effect of more volatile items – have also sped up. The average inflation of the five main cores followed by the Central Bank went to 0.41% in September from 0.66% in August, and to 10.12% from 10.42% over 12 months, data by MCM Consultores show.
“If there is any additional fear of global recession affecting oil and other commodity prices, this could put the IPCA at the target this year, for example. At this moment, the projected inflation is very close to 5%.”
In the coming months, the federal decision to cut ICMS tax levied on telecommunications services will probably still reach final prices, which may ease pressure on services, said Mr. Lohmann. “Plus, cheaper energy is also expected to reach other prices, and commodity prices, which had been rising strongly, are likely to settle down,” said Mr. Lohmann. He believes that the Brazilian real could even gain ground against the dollar after risks brought by the presidential election are dispelled, which could help the IPCA to fall even more. “But now the focus is on waiting to see what will happen with gasoline prices.”
On Tuesday, after statistics agency IBGE released a 0.29% reading for the IPCA in September, some firms revised downwards their projections for this year, including Bank of America (to 5.3% from 5.9%), LCA Consultores (to 5.5% from 5.8%), Barclays (to 5.6% from 6%) and Credit Suisse (to 5.6% from 5.9%). Last week, Santander Asset had already cut its projection to 5.2% from 5.9%, while Itaú Asset reduced its forecast to 5.2% from 5.8%.
David Beker — Foto: Silvia Zamboni/Valor
David Beker, Bank of America’s head of economics for Brazil and Latin America strategy, cites as a reason for the change a stronger slowdown of regulated prices and service prices and the lower commodity prices and inflation core. Yet, according to him, the projection “included a larger impact of tax cuts on communication items and assumed that Petrobras will not raise fuel prices in the short term.”
On the other hand, BTG Pactual economists raised the projection for IPCA this year to 5.5% from 5.3% citing the worsened short-term perspectives for food inflation. “Recent news indicates harvest losses, and our reading for unprocessed food prices in the wholesale market indicate higher prices,” they wrote. This way, although BTG still sees lower inflation for semi-processed and processed food, the bank sees higher prices for fresh food “and, consequently, for food at home.”
With slow pace of auctions, governments and regulatory agencies seek ways to bring construction works forward
10/12/2022
The infrastructure industry is coming to the end of this administration without an effective solution for problematic concessions of the past. The main alternative for these contracts is to hold new auctions, a path chosen for at least 10 of them. However, in face of delays and divergences, regulatory agencies, companies, and governments are proposing new alternatives to unlock the planned investments and construction works.
In recent weeks, an unprecedented agreement between Novonor (formerly known as Odebrecht) and Mato Grosso’s state government has emerged as a potential model. The company sold its BR-163 concession, Rota do Oeste, to the state-owned company MT Par, which will invest R$1.2 billion in construction works and take over the operation for at least three years. After this period, the state will be able to sell the contract, and Novonor will be blocked from taking part in the auction.
The arrangement, which was approved by the Federal Court of Accounts (TCU), a public spending watchdog, provides for changes in the contract – such as the extension of the term, the renegotiation of the construction schedule, and changes in the risk matrix – in addition to potential cancellation of regulatory liabilities.
The agreement was signed on Tuesday and has been moving the market. The government of Espírito Santo, for example, approached the National Land Transportation Agency (ANTT) to try and understand the model and analyze whether it would be possible to do the same with BR-101, a federal highway. Eco101, Ecorodovias’s concession in the state, is among those that asked to return a contract, which is likely to be auctioned. “If it fits our situation, this is a proposal the state government wants to study,” said Ricardo Pessanha, the state’s secretary of innovation and development, in a note.
Other groups are also analyzing this solution for transactions between private-sector companies. The challenge is in getting the green light to change the terms. This is a more complex path and will possibly require complementary regulation, which is under discussion.
In the TCU vote on Rota do Oeste, rapporteur Bruno Dantas highlighted the peculiarity of the case and said that the model could not be automatically replicated.
Rafael Vitale — Foto: Ricardo Botelho/MInfra
Rafael Vitale, ANTT’s managing director, said that the use of the Rota do Oeste solution for deals between private-sector companies would require adjustments, but might be feasible. The regulator started to study the proposal of a new arrangement, which would allow the sale of the concessions, combined with the renegotiation of the contract, through an auction.
“We could redesign the contract, change the risk matrix, and halt regulatory liabilities until the execution of the construction works. But this would not be done for a particular company. A public call would be made, to see who would like to take over the concession under these terms. And, for this, requirements would be put in place. This way, I keep this impersonal, avoiding a negotiation without transparency between two private-sector companies,” he said.
Mr. Vitale said that the possibilities are still being studied and that ANTT does not intend to do anything “on the spur of the moment.”
According to one source, who spoke on condition of anonymity, the prevailing assessment within TCU is that, for the Rota do Oeste arrangement to be applied to deals between private-sector companies, the federal government would have to make new regulations. This source thinks that is important to ensure that the mechanism does not create the wrong incentives – for example, by opening a window for successive transfers as a strategy to eliminate regulatory liabilities.
The fact that alternatives are being studied does not mean that a new auction will be unfeasible. Today there are at least 10 underway: six highways, three airports, and one railroad.
Most of these failed concessions were granted during the Rousseff administration, at a time of great optimism in relation to Brazil’s growth. With the economic crisis and the Car Wash corruption scandals, companies found themselves without access to credit, and assets suffered declines in demand. At the same time, they had investment obligations, concessions, and multibillion debts to pay.
The law of new auctions came into effect in 2017 to provide a solution to projects that had become unsustainable. The model provides for the amicable return of the contracts, so that the federal government can hold a new auction. Until then, the operator continues to do the maintenance. At the end of the process, the company leaves and is compensated for the unamortized investments.
The process was regulated in 2019. Many companies joined since then, but so far no contract was returned for the government to hold a new auction. Analysts point out as problems the slowness of the process, doubts about how to calculate compensation, and uncertainties in the face of conflicts with old operators.
Mr. Vitale, with ANTT, said there is a learning curve to be overcome, but that the process tends to consolidate after the first cases.
In the view of the National Civil Aviation Agency (ANAC), there are two paths for problematic airport concessions: new auctions of old contracts; and the early disbursement of fixed concession payments at a discount, said Tiago Pereira, the regulator’s director.
The latter option was created in a 2020 law. The idea is to improve the financial situation of the concessionaires, especially the older ones, which need to pay annual fixed concession grants – these high disbursements have been a major problem in the airport sector. Early payments mean substantial discounts. In some cases, the net present value drops 50%, said Mr. Pereira.
In the more problematic contracts, the solution is to hold a new auction, he said. The most advanced process is that of the airport of São Gonçalo do Amarante (Rio Grande do Norte), which is being returned by Inframérica.
This could become the first asset to complete the process, which is in the final stage of analysis by the TCU. ANAC plans to launch the auction later this year. In a note, Inframérica said it “has fulfilled all the legal requirements and believes that the new auction will be launched soon.”
Another case, more complex, is the airport of Viracopos. The concessionaire, which was under judicial reorganization, joined the plan as a last resort to avoid being declared bankrupt. However, the company questions the government’s plan to pay only the uncontroversial part of the compensation before the transfer of the asset. The second part, which would be defined after the arbitration decision, would be paid with “precatórios” – securities that represent debt from the loss of a court dispute.
In parallel, Viracopos’s shareholders will try to convince the government to undo the devolution agreement, under the argument that the new auction does not bring advantages.
Lawyers believe that the ideal solution for the concessions depends on each case. Lucas Sant’Anna, a partner at Machado Meyer, holding new auctions is the main path. He defends measures to unlock the process. The first is for the agencies to calculate the compensation more quickly. The second is for the government to ensure that the compensation will be paid immediately, after the arbitration, and not via “precatórios”.
Rodrigo Campos, with law firm Porto Lauand Advogados, believes that the possibility of holding a new auction will be used once in a while. For him, the most advanced projects, such as the São Gonçalo do Amarante airport and Invepar’s highway Via040, will be successful.
Massami Uyeda Junior, a partner at law firm Arap, Nishi & Uyeda Advogados, is skeptical about holding new auctions. For him, the most interesting solution is to replicate the Rota do Oeste case for transactions between private-sector companies. “When you look at TCU’s arguments, none of them are linked to the fact that the transfer is to a state-owned company,” he said.
New version is capable of delivering two compositions in one run
10/12/2022
Roboagro’s feed dispensing robots now deliver two different compositions in a single run — Foto: Divulgação
Roboagro will launch a new version of its swine feed dispensing robots later this month. Now, the equipment is able to deliver two different compositions in a single run through the farm. This novelty has generated savings of up to R$200 per group of 3,000 animals, in tests. With the launch, the Rio Grande do Sul-based is expected to begin negotiations to export its technology.
There are more than 1,000 robots of the brand operating in Brazil. They work in farms that supply giants in the protein sector, such as Aurora, BRF and Seara (JBS). According to Giovani Molin, Roboagro’s director, the technology has a double function: to give pig farmers a quality of life and ensure nutritional efficiency.
“When we started, there was a demand for solutions that relieved the arms of the producers, especially in regions where they were aging. There were some technologies that did this but did not bring gains to the operation. We put the two things together,” Mr. Molin told Valor.
According to him, it is necessary to treat each animal from a group individually, providing a customized diet, to extract all the genetic potential and avoid waste. Today, the delivery of feed in a homogeneous way causes the weight of a pig to vary up to 45% in relation to the others in the same group.
Roboagro’s technology can lead to a 10% reduction in feed costs, which are, in turn, about 80% of the producers’ expenses. There are also environmental gains since an adequate diet reduces the excretion of nitrogen and phosphorus by up to 60%.
In a scenario of tight margins for pig farming, one advantage is that the rental of the robots is a fraction of the savings generated. With this business model, Roboagro has grown an average of 91% per year from 2017 to now.
According to Central Bank’s Focus survey, it retreated to 3.47% from 3.5%
10/11/2022
Brazilian Central Bank — Foto: Michel Filho/Agência O Globo
Inflation expectations for 2024, a year increasingly important in monetary policy decisions, receded a bit last week, to 3.47% from 3.5%, in Focus, Central Bank’s weekly survey with economists. The percentage is still above the target set for the year, of 3%, but this is the first good news for the conduct of monetary policy in a long time.
Until now, what had been falling were basically inflation expectations for this year and next, which are very much influenced by the pricing policies adopted by the government during the elections, such as tax cuts on fuel and other essential products.
But inflation expectations for 2024 had been worsening, in a sign that market analysts believe the measures bring only illusory gains because they amplify the fiscal risk and are likely to be reversed in the medium and long term.
The drop in expectations comes after the Monetary Policy Committee (Copom) toughened its message about interest rates, hinting at the maintenance of the key interest rate Selic at the current 13.75% per year for a long time and indicating that, if necessary, it may resume hikes.
As the drop in inflation expectations this week was quite small, for the time being, it can be understood more as stabilization of inflation projections, after rising a lot, and not as a new downward trend.
In its September meeting, the Copom came to the conclusion that although the median (the most central percentage among all the projections informed by the specialists) of inflation expectations was worsening, the average (sum of the projections informed, divided by the number of projections) remained stable.
“The median of inflation expectations for 2024 rose since the previous Copom meeting, even though the average has been more stable,” said the minutes of that meeting, released two weeks ago.
The average is considered to be a leading indicator of what happens to the median. In recent weeks, the average has remained stable, a little below the median. But, for the time being, it has not retreated. It remained at 3.48% last week.
Another leading indicator is the median of expectations informed by specialists in the last five working days. They have been oscillating between 3.5% and 3.3% in recent weeks. The official indicator for expectations is the median of expectations informed by specialists in the last 30 days.
Another good news is the decline in expectations for service inflation in 2024. During the week, it was lowered to 3.7% from 3.8%. It will be necessary to watch the data in the coming weeks to see if, in fact, economic analysts are more confident that the current monetary tightening will cool down the economy and cause service inflation to fall.
Forest-based sector expected to invest more than R$63m in Brazil by 2028
10/11/2022
Joao Cordeiro — Foto: Silvia Costanti/Valor
The more than R$63 billion in investments planned or being executed by the forest-based industry in Brazil up to 2028 are moving the global chain of suppliers, from consulting and engineering services companies to manufacturers of machinery, equipment, and other inputs.
According to a survey by Pöyry, a global reference for the sector, in the pulp segment alone there are 11 projects under construction, of which seven are in South America. In the region, there are still seven other projects under study and Brazil is expected to get a good part of the future investments in the sector.
In cardboard and packaging paper, according to the consulting firm, it will be 12 million tonnes of additional capacity between 2022 and 2024. There are projects in Brazil, but most of them are concentrated in China.
“Since the 1980s, there has been a great deal of concentration among suppliers. The problem is not capacity [to service all projects], but timing. The queues have increased, but this also helps discipline the market,” said João Cordeiro, CEO of AFRY Management Consulting group, of which Pöyry is part.
Leader in the supply of air gases to the pulp and paper industry, White Martins opened at the beginning of the year a unit in Minas Gerais, which supplies LD Celulose’s dissolving pulp production lines, and has already started the construction of a new gas factory in Mato Grosso do Sul. This new project will supply the future Suzano unit in Ribas do Rio Pardo.
Andritz, in turn, recently informed that it will supply Bracell SP Celulose with four production lines for tissue paper, to be installed at the Lençóis Paulista (São Paulo) mill, with start-up scheduled for 2024. The new tissue paper mill will be self-sufficient in steam and electricity consumption for the drying process.
According to Gilney Bastos, CEO of White Martins and Linde for South America, the paper and pulp sector is one of the main clients, in volume, of the air gas industry, and has been growing strongly in the region. Besides Brazil, Paraguay, Uruguay, and Chile have projects under execution or already announced.
“The quality of the projects is impressive,” says Mr. Bastos. White Martins estimates its share in this market at 60%, after winning large contracts in recent years in the region.
In less than a year, the multinational opened two new units in Brazil. Besides the air separation plant dedicated to the production and supply of industrial gases in Minas Gerais, with a capacity of up to 60 tonnes of oxygen per day, it put into operation, in 2021, a unit with total production capacity of 240 tonnes of oxygen per day for Bracell in Lençóis Paulista (São Paulo).
According to Mr. Bastos, in Ribas do Rio Pardo, the unit being built to serve Suzano will be complete, the second of its kind in Brazil, and will supply different types of gases also destined for hospitals and agribusiness.
The first complete White Martins plant on Brazilian soil was also installed in Mato Grosso do Sul, in Três Lagoas, where Suzano and Eldorado produce pulp and Sylvamo (a company that was spun off from International Paper), printing and writing paper.
A gas plant for a specific client requires investments of around $15 million to $25 million. On the other hand, a complete unit requires investments of $35 million to $50 million. In all cases, the investment in the facilities is made by White Martins.
Currently, the Brazilian operation supplies about 800 tonnes of oxygen per day, in six units, which may be on or off-site. Of this volume, 90% is produced onsite. “There is still more to come. The market is receptive,” said the executive.
As far as the world consumption of certain types of paper and pulp is concerned, it is certain that there will be a need for new mills ahead. In Mr. Cordeiro’s opinion, some major trends, such as the search for more sustainable materials, open positive perspectives for the forest-based industry.
In paper, while the demand for tissue and packaging papers will continue to expand, the printing and writing segment is expected to continue to shrink globally, a reflection of digitalization. Between 2021 and 2035, according to the consulting firm, the consumption of cardboard and packaging paper around the world is expected to grow at an annual rate of 1.1%, with China’s rate of 2% standing out.
In pulp, the global demand for all types of fiber, which was at 424 million tonnes in 2020, may reach 543 million tonnes in 2035 – in market pulp, which is produced with the purpose of being sold to third parties, the volumes that today are around 70 million tonnes per year will reach 100 million tonnes shortly after 2035, driven by Chinese demand.
With available land and competitive forests, analyzes Mr. Cordeiro, Brazil is expected to continue to attract investments in this segment. “When you compare the cost, in China it is 50% more expensive to make pulp than in Brazil, considering the Brazilian pulp placed there,” he explains.
At White Martins, according to Mr. Bastos, the Brazilian operation is “a little more verticalized” than the traditional one, which makes it capable of quickly meeting the additional demand. Transferred from Rio de Janeiro to Sorocaba (São Paulo), the multinational’s mill is flexible and can also build carts and tanks. “By having this flexibility, we can quickly adapt,” he said.
Retail chains are not part of the main strategies of their controlling shareholders
10/11/2022
The rivals of construction materials C&C, owned by the family Faria, and Telhanorte, which belongs to the French group Saint-Gobain, were put up for sale and are likely to compete for the same buyers. Although the sale of construction materials has grown in the country in 2021, the two major retail chains are not part of the main strategies of their controlling shareholders, sources familiar with the matter say.
With 77 stores in Brazil, Saint-Gobain hired Bradesco BBI to sell its retail chains in the country. Besides Telhanorte, the multinational owns Tumelero, with a strong presence in Rio Grande do Sul. C&C, which has 36 units in São Paulo, Rio de Janeiro and Espírito Santo and belongs to the daughters of Aloysio Faria, owner of bank Alfa, who died in 2020, is in talks with BTG Pactual to study the sale of the business.
The talks for the sale of the two chains have been going on informally for a few years. C&C’s Aloysio Faria resisted the idea of selling the chain he founded, sources familiar with the matter say. After the banker’s death, two years ago, the heiresses hired investment banks to evaluate the business – besides Alfa Bank and C&C, the Faria family owns the palm oil company Agropalma, the ice cream chain La Basque, the Transamérica hotel chain and radio stations.
Telhanorte is not Saint-Gobain’s crown jewel either, two sources told Valor. The French company has been looking for a buyer for at least four years, a person familiar with the matter said.
In the ranking prepared by the Brazilian Institute of Retail & Consumer Market Executives (Ibevar), the two chains are among the seven largest in the country. Saint-Gobain, which recorded revenues of R$15 billion in the country, does not disclose revenues per segment.
In 2019, the Faria family’s construction materials chain underwent restructuring, but the company arrived weakened in 2020, a year marked by the pandemic, as it was not prepared for online sales, sources say.
Last year, sales of construction materials totaled R$202.3 billion, a nominal growth of 34.3% over 2020. The real increase, however, is 4.4%, discounting inflation in the sector, according to a survey by the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre), compiled by the National Association of Construction Material Merchants (Anamaco).
Although sales will grow in 2021, retail specialist Enéas Pestana said that the construction material sector is difficult. “You can’t compare this sector to pharmaceutical and food retail,” said Mr. Pestana, who has a namesake consulting company and has seats on retail company boards.
Mr. Pestana recalled that the construction material sector has a lot of informal jobs and is formed by many small family-owned retailers. “It is an extremely pulverized sector, which has a lot of room for consolidation.”
Sources within C&C say that the points where the stores are located are likely to be of much more interest than the chain as a whole.
According to Mr. Pestana, the two chains that are for sale have strong brands in the market and are expected to entice investors, although they have already been made available to buyers informally a few years ago.
Mr. Pestana does not see the same buyer acquiring both brands. “Whoever places a bid for C&C will have to make a turnaround. I see Telhanorte more competitive at this point, since the group’s stores have a wider assortment and are more modern.”
The retail consultant sees financial investors, such as private equity funds, and strategic investors interested in the business. “But if an asset management company takes over the business, it will have to put people in the management team. It is not obvious for a private-equity firm to enter this sector without putting someone who understands the business.”
Advent entered this segment with the purchase of the building materials and homeware chain Quero-Quero in 2010. In August 2020, the fund raised R$2 billion in an IPO. Sources say the firm is not interested in returning to the sector.
Chile’s Sodimac is said to be a potential interest buyer of both businesses. The company acquired Dicico in 2013.
C&C and Saint-Gobain said they do not comment on market rumors. Bradesco BBI and BTG declined to comment.
Goal is to end irregular situations in about 20% of the Brazilian cities
10/10/2022
Veronica Sánchez — Foto: Wenderson Araujo/Valor
The National Water Agency (ANA) has made an alliance with control bodies and the Judiciary in an offensive against 1,117 municipalities that have not adapted to the requirements of the basic sanitation regulatory framework. The goal is to put an end to the irregular situation experienced by about 20% of Brazilian cities, putting pressure on the local authorities to comply with the new law, which completed two years in July and requires the universalization of services by 2033.
Many state-owned water and sewage utilities, especially in the North and Northeast regions, have not proven to be economically and financially able to meet this deadline. Other municipalities – including capitals such as Salvador and João Pessoa – have no valid contracts with the current providers. In both cases, there is non-compliance with the new legal framework and the municipalities must bid for the services, opening the way for the change of operator and the advance of the private sector.
The problem is that the ANA, in practice, has no attributes to enforce anything. The change of operators in an irregular situation is at the mercy of local managers, since the municipalities hold the ownership of services, and the states are in charge of designing regionalized bidding blocks – to which mayors may or may not join. The most the federal government can do is interrupt the channels of public funding, such as transfers from the Ministry of Regional Development and disbursements from the Brazilian Development Bank (BNDES) or Caixa, for those who are outside the legal framework.
ANA’s president Verônica Sánchez says that they draw up the reference standards for sanitation, but have no power,” says. The agency signed two technical cooperation agreements to seek the implementation of the sanitation law at the local level. One was signed with the National Council of the Prosecution Service (CNMP) and another with the National Council of Justice (CNJ). The idea is to provide prosecutors, attorneys, and judges with greater knowledge about what is at stake.
This way, it is intended that the control organs act in the sector’s inspection and judges are equipped to make decisions. The ANA will be responsible for issuing general recommendations. A third agreement is being negotiated, along the same lines, with the Association of Brazilian Courts of Accounts Members (Atricon).
According to estimates by Abcon (association of private sanitation concessionaires), it will be necessary to invest R$308 billion over the next four years in order not to compromise the universalization goals contained in the new law. If this investment plan is complied with, it is expected that 91% of the population will have treated water, and 71% will have sanitary sewers by 2026. Half of the Brazilians do not have sewage treatment today.
FGV study points ways to accelerate the transition of family farmers
10/10/2022
Organic production in Canindé, state of Sergipe — Foto: EmilianoCapozoli/Valor
Marcelo Fukunaga’s life changed radically when his daughter was born. Besides experiencing the excitement of becoming a father, he also realized that, as a farmer, he did not have the courage to feed her with the products he grew on his property, because of the amount of pesticide he used. It was then that he took the courage and decided to migrate to organic production on his 10 hectares of land in Vale do Ribeira, in the south of São Paulo state.
But not all small producers have the motivation for such a change. And as much as some want to reduce their dependence on chemicals, they face a many challenges.
To unlock this market, the Center for Sustainability Studies of the Fundação Getulio Vargas (FGVces) prepared a study with recommendations for the public and private sectors to encourage the transition of small producers. The initiative had the support of Carrefour Brazil and the Carrefour Foundation and the collaboration of 50 organizations and more than 70 people, including Mr. Fukunaga.
Those who believe that the difficulty for organics is low productivity are wrong, he says. “In the past, I was always in debt to the poison and fertilizer industries. Today, I produce without debt, and the revenue stays all with me,” says the producer. In 2010, when he changed his model, Mr. Fukunaga reduced his production area to four from ten hectares, and his net income doubled.
The organic produced this way can be as competitive as conventional food. The difference is in the costs after the gate, logistics and certification. “Organic food can be affordable if it is produced close to where it is consumed,” says Taís Brandão, researcher at FGVces and manager of the project.
According to FGVces, it is possible to untie the knot with a tripod formed by technical assistance and rural extension of organic practices, promotion of markets suitable for organic family agriculture, and dedicated public policies. The center defends that the guidelines should also target producers “in transition”, that is, who still don’t fit in fully organic.
There are already some initiatives, such as the São Paulo government’s, which approved in February the Agroecological Transition Protocol, aimed at a “gradual” transition. “There are those who don’t use pesticide, but being organic is not only that,” says Araci Kamiyama, leader of the organic group of the Sustainable Rural Development Coordination (Cati). According to her, the biggest challenge is in the technical support.
On the leg of market access, the study says that retailers need to establish contracts with those suppliers that foresee sharing of losses and of certification costs, purchase guarantee, reduced payment terms, non-consigned sales, and flexibility in supply that respects the season of each food.
Cooperatives can play a crucial role, says the study. This is what made a quick transition possible for Mr. Fukunaga, who participates in the cooperative Coopafasb. “Were it not for the cooperative, I would not have access to markets as I do today,” he says. Coopafasb organizes food baskets sold directly to consumers.
Another leg indicated by FGVces is that of government support. According to Mr. Brandão, besides the need for credit lines for systems in transition, it is necessary that bank employees have the orientation to offer them. “Sometimes the producer wants these lines, but the manager doesn’t know about them or has no incentive to offer them, and directs the farmer to a standard line, which foresees intensive use of external inputs”, says Ms. Brandão.
In São Paulo, a line of credit from Fundo de Expansão do Agronegócio Paulista (Feap) offers up to R$500,000 for each farmer that wants to migrate to organic systems, but the demand is small. “I don’t know why. Some producers are very small and or don’t have planning, but some have capacity,” says Ms. Kamiyama, with Cati. The study also advocates public procurement of organic food and systems in transition.
There is also the leg of science. “When you talk about an organic agroecological model, you don’t have enough inputs or research, and the genetic base comes from conventional agriculture,” Ms. Kamiyama recalls.
The producers who are now seeking a transition for their crops end up learning by doing, as it was for Mr. Fukunaka. “In the previous model, I didn’t have time for my family because I always needed to increase the scale. But there are several techniques that make you produce more food and in a more diverse way. Today I work more calmly and have been able to see my children grow up.”
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