Industry offers retailers more money to boost sales

Supermarkets are a battlefield for industries trying to sell — Foto: Maria Isabel Oliveira/Agência O Globo
Foto: Maria Isabel Oliveira/Agência O Globo

The current scenario of fiercer competition between brands, following the drop in consumer disposable income, has made the industry spend more to try to improve its sales. Amounts paid by companies to retail chains, or negotiations involving discounts on invoices, lost strength in the first year of the pandemic, but accelerated again at levels above those of the last five years.

According to a survey conducted by Valor based on the financial statements of eight major chains that publish these figures, over R$2 billion in commercial funds were paid by manufacturers to retailers in 2021, a rise of 11.6% over 2020. For comparison, this expansion rate is more than double the average annual growth of 5.7% seen since 2016.

According to calculations, there was a 3.4% drop in the total amount in 2020 compared to 2019. When the health crisis began two years ago, the payment of emergency aid by the government supported the accelerated demand in consumption, and without the need for companies to support much more aggressive actions, some payments lost strength – a different picture from today.

The information was collected from the footnotes and/or financial reports released by GPA, Assaí, Carrefour (including Atacadão), Americanas, Magazine Luiza, Raia Drogasil and Panvel. Among all the companies, in two there is practically stability (GPA and RD) and in only one, Americanas, there is a drop, of 9.5%, in the amount.

There are companies that do not inform these numbers in their reports, such as Via and Grupo Mateus – the publication is not mandatory, according to Brazilian accounting standards. The industry does not usually inform this data in their earnings reports (Whirlpool, Ambev and M.Dias Branco, for example, do not disclose the information), so the best barometer is the retail market. Adding up all the chains, the expansion in disbursements is in line with the increase in total gross revenue in 2021 (11%).

According to consultants who work with the networks, these negotiations accelerated as of 2021, in a movement that has been extended through 2022, with a focus on increasing sales by commercialized volume. In 2021, much of the increase in revenue came from rising inflation, and not from volume (which even shrank in certain products).

“In the good years, companies take their foot off the gas in terms of funds. That’s not to say that retailers won’t continue to negotiate this with industry, but the commercial stimulus drops. But everything indicates that 2022 will be a year of more bumps, and with retailers feeling more pressure on cash, the need for these agreements on the store side increases,” says Eugenio Foganholo, head of consulting firm Mixxer.

“What happened in 2020 was a disruption of products, with the crisis of the supply chains in the pandemic,” says the chairman of the board of a retailer in São Paulo. “There was a shortage of merchandise, from cell phones to furniture, and no one had to beat a drum to sell. Part of 2021 wasn’t bad either, and that made the funding for actions in TV disappear. But if you look now, there are even wholesalers advertising meat and beer offerings in prime time. And the industry is the one who pays for part of this, under the cooperative advertising agreement.”

These negotiations involve marketing funds (support for campaigns in newspapers, on TVs), or in shelf exposure (who pays more has better space). There are still bonuses associated with industry purchase and customer sales targets, and freight reimbursements. If the chain exceeds the goal, a bonus is paid. And the payment can be made through the reduction of invoices payable to the industry.

Store openings are still part of the negotiations, although they do not involve such significant amounts, through the free delivery of initial batches of products to new stores. Openings receive greater funds than refurbished stores – last year, openings and conversions grew more than in 2020. Between openings and closings, the balance was positive in 204,000 stores, and in 2020 there were 75,000 closings. For 2022, the projection is for a new positive balance.

Among the cases analyzed, Carrefour (whose largest business is Atacadão), Dimed (Panvel) and Assaí lead the increase in payments, with expansion of 32%, 22% and 18%, respectively, in 2021 versus 2020. Carrefour integrated at the time the Makro chain to its store base, absorbing new contracts. The chain and Assaí have resumed openings since 2021.

Consultants also point out two aspects in these negotiations: the pressure that the industry itself faces in its expenses and the effect of high inflation in these trade agreements. Manoel Araujo, head of Martinez de Araujo Consultoria de Varejo, remembers yet another aspect. “I have five brands of a certain product in the store, and I signal that I will look for other cheaper brands in the market. I can still use the store’s own brand, which fits like a glove in these times of crisis. This all ends up entering the daily negotiation of discounts,” he says.

Despite the fact that, strategically, these negotiations are fundamental in the sector. Brazilian accounting rules do not require the disclosure of those numbers in the footnotes or in the earnings reports. And the subject has already been the target of fraud in the sector years ago.

There are chains and industries that only mention in the footnotes the existence of commercial agreements, and others that specify them in the “accounts receivable” or “suppliers” lines. The amount is also credited as a type of credit of the cost of the goods purchased.

Audit reports on chains’s financial statements often cite the bonuses as a “significant” issue that merits exchange of information with management for further clarification but conclude that the handling of the issue in statements is “acceptable”. In 2003, Dutch retailer Royal Ahold admitted that its profits were inflated by $500 million between 2001 and 2002 because of the inclusion of bonuses that never existed.

Source: Valor International

https://valorinternational.globo.com

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Oxiteno sold to Thai group for $1.48bn

Joao Parolin — Foto: Divulgação
Joao Parolin — Foto: Divulgação

The sale of the chemical industry Oxiteno — which belonged to Ultra group — to Indorama — leader in the Brazilian PET resin market — was concluded on Friday for $1.48 billion. This way, Indorama Ventures Public Company Limited (IVL) reached the top of the ranking among the ethylene oxide and surfactants producers in the Americas.

With annual sales of around $15 billion, not considering the most recent acquisition, the Thai company incorporated the company, a reference in innovation in the Brazilian chemical industry, in its integrated oxides and products division (IOD), with a strong portfolio complementarity. The synergies are estimated at $100 million.

Ahead of Oxiteno for the last 15 years, the executive João Parolin assumes the position of CEO of IVL’s IOD business for South America. All the company’s management is being repositioned in the new structure. “Oxiteno has a portfolio more focused on specialties and surfactants and accelerates Indorama’s innovation journey,” the executive told Valor. “It is an opportunity for portfolio enrichment.”

Oxiteno has a relevant presence in the agribusiness, personal and home care, paints and varnishes and oil and gas markets and operates 11 plants — 7 in South America and 4 in North America. The deal adds a new geography for the Thai group’s IOD division, which was already in North America, with ethylene oxide and surfactant production in the United States, but did not yet have operations in South America.

In Mr. Parolin’s evaluation, the incorporation by Indorama will strengthen Oxiteno, put up for sale by Ultrapar after reviewing its portfolio of assets. “It was a good solution”, he said. The Ultra group, which is also leaving pharmaceutical retail with the sale of Extrafarma to Pague Menos, plans to focus on power and infrastructure, keeping under its umbrella the fuel distributor Ipiranga, Ultracargo (storage of bulk liquids) and Ultragaz, distributor of liquefied petroleum gas (LPG).

Last year, Oxiteno traded 779,000 tonnes of specialty chemicals and commodities, up 3% compared to 2020. Net revenue jumped 36%, to R$7.1 billion, and Ebitda reached R$1.1 billion, the highest in its history.

According to Dilip Kumar Agarwal, CEO of IVL, the acquisition is in line with the group’s ongoing goal of doubling Ebitda every five years. “Based on our experience of completing about 50 acquisitions in 20 years, the quality of Oxiteno’s people and our shared values were important considerations,” he said in a statement. The group has three major business divisions: PET, polyester fibers and textiles, and IOD.

The transaction implies EV/Ebitda multiple of 6.3 times, considering the results for 2021. Indorama paid $1.33 billion to Ultra on Friday and another $150 million in April 2024. The final price exceeds the initially agreed total amount of $1.3 billion but is still subject to adjustments.

Source: Valor International

https://valorinternational.globo.com

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Port privatization gains steam, but time is short

A container ship docked in Santos, Brazil’s largest port: privatization is complex — Foto: Ana Paula Paiva/Valor

The successful auction of the Companhia Docas do Espírito Santo (Codesa) may boost the other port privatization projects underway. However, market players are skeptical about the feasibility of getting them off the ground by 2022, especially the privatization of the Port of Santos — a much more complex project from a technical and political point of view.

The concessions for the ports of São Sebastião (São Paulo) and Itajaí (Santa Catarina) are smaller and simpler. That is why holding these auctions this year is seen as more likely, although there are also challenges.

The privatization of Santos is a priority for the federal government. The public consultation stage of the project ended last week, and the government plans to publish the public notice in November in order to hold the auction later this year. Any contract would be signed next year.

The auction model will be similar to that of Codesa. Santos Port Authority (SPA) will be privatized, and the administration of the port will be granted for a period of 35 years — R$1.4 billion will be spent on construction and R$14.16 billion on maintenance, mainly dredging. In addition, the winner will have to allocate R$3 billion to make the Santos-Guarujá underwater tunnel feasible — its construction and operation will be tendered separately.

The project has been the target of much interest from the private sector, but the perception of risk is also high. “There are many groups studying it, but it will be important that the government gives a reasonable time for the companies to study the final tender, because there are many risks involved. It is a complex port, which encompasses multiple interests, has many terminal contracts in effect, and the auction will have heavy investment obligations,” said Rodrigo Paiva, a partner at consultancy Mind-Infra.

For Thiago Miller, a partner at law firm RMM Advogados, “it is very unlikely” that the auction will take place this year. “The big determining factor of the schedule will be the analysis of the [public spending watchdog] TCU,” he said.

The disbelief about the viability of bidding for the port on time is shared by at least three other sources that follow the matter closely.

The government, however, guarantees that there is enough time to hold the auction in 2022. Fábio Abrahão, the head of Concessions and Privatizations of the Brazilian Development Bank (BNDES), said that the team will seek to hasten the project as much as possible to try and sign the contract this year — in the market, the evaluation is that leaving the act for 2023, in the next administration, creates an additional risk to the conclusion of the process.

“Privatization today is different from what it was in the 1990s. We no longer have that resistance from the population. In Santos, there are multi-billion investment obligations foreseen, the entire productive sector is convinced that it is necessary, and the companies have already understood the rules of protection [to current contracts]. It would be an uneconomical decision [not to hold the auction],” Mr. Abrahão, who oversees the structuring of the project, said.

The Codesa auction was the first privatization of a port authority in the country. The Brazilian port sector is already used to private or leased terminals, but the port authorities — responsible for the management and development of the common areas of the ports – are still state-owned and, historically, have been the target of partisan nominations and political interference.

Besides Codesa and Santos, the federal government has structured a portfolio of projects in the segment. “We are creating a new market,” Mr. Abrahão said.

The projects for the ports of São Sebastião and Itajaí, also planned for this year, follow a different model: there will be no privatization, only the concession of the ports. In addition, the new operator will have the right to explore not only the common structure, but also terminals — in the case of Codesa and Santos, on the contrary, there are restrictions on the participation of terminals in the auction, to avoid conflicts of interest.

The format was chosen because they are small ports with specific vocation and, therefore, there would be no feasibility for a concession only of the common areas.

Today, the port of São Sebastião basically handles soda ash, an input imported by the glass and soap industries, and is home to a Petrobras private terminal.

Considered challenging from an economic point of view, the project does not foresee minimum investments. The idea is that the new operator, once it takes over, has the freedom to choose the interventions. “The expected revenue is lower, but so are the expenses. There is less profitability and fewer problems, unlike Santos. It can attract niche markets,” Mr. Schwind said.

For Mr. Miller, there are two major challenges for the expansion of the operation in São Sebastião. The first is the need to build a second pier, further out to sea, to obtain more depth. The second is the lack of a land access to the port, something that will depend on the state.

The Port of Itajaí is geared towards container handling. The plan is to attract large shipping groups from the sector. However, it is also a complex project, with a high volume of investment (R$2.8 billion) and operational challenges. “It would be important to mitigate some very big risks in the public notice. Among the obligations, there is expropriation and purchase of private areas, which are not simple. For a private-sector group, it is a very difficult risk to assess,” Mr. Paiva said. Even so, he believes that the auction can be successful.

The Brazilian Development Bank has already started studies for the privatization of the Companhia das Docas do Estado da Bahia (Codeba), which is likely to follow a model similar to that of Santos and Codesa, but the process is just beginning. Besides this, the bank is negotiating to expand its portfolio, with projects that would be left for the next administration. “In the very short term it is estimated that other ports will enter. It would be natural to have Rio de Janeiro, and Pará would also be a good candidate to join the program,” Mr. Abrahão said.

Source: Valor International

https://valorinternational.globo.com

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Central Bank increases fourfold renminbi share in FX reserves

Brazilian Central Bank increased the renminbi share in its foreign exchange reserves — Foto: Tomohiro Ohsumi/Bloomberg
Brazilian Central Bank increased the renminbi share in its foreign exchange reserves — Foto: Tomohiro Ohsumi/Bloomberg

Faced with rising inflationary pressure and monetary tightening in major economies, the Brazilian Central Bank increased the renminbi share in its foreign exchange reserves to 4.99% in 2021, the highest since the Chinese currency became part of the basket in 2019.

The share is four times higher than the previous year’s allocation, of 1.21%. The increase represented, in nominal terms, $13.766 billion more in assets measured in renminbi. At the same time, the representation of the U.S. dollar fell 5.69 percentage points over 2020 and stood at 80.34% in the period, the lowest since 2014. The drop is equivalent to $15.276 billion.

The share of the euro dropped as well, to 5.04% in 2021 from 7.85% in 2020, a reduction of $9.691 billion. The Central Bank did not elaborate on why it decided to reduce investments in the greenback. Yet, with high inflation and the prospect of interest rates being raised by the U.S. Federal Reserve, the prices of the main asset in the reserves (U.S. Treasury bonds) are likely to fall. In addition, inflationary pressure has also risen in the euro zone, generating the same effect on European securities.

There is even greater incentive to invest in renminbi after the United States blocked Russian investments in dollars. As a result, some economists argue that the Chinese currency is likely to gain prominence in the countries’ forex reserves.

In the report, however, the Brazilian Central Bank refers only to the profitability of currencies. According to the monetary authority, assets in renminbi have higher yields than those in dollars, although they have the same risk as the total curve of U.S. securities.

The Central Bank has also increased the share invested in sterling, to 3.47% in 2021 from 2.02% in 2020, as the United Kingdom is further ahead in the process of monetary tightening. The position in gold, another typical hedge against inflation, increased to 2.25% from 1.19%.

The monetary authority has also resumed investments in Canadian and Australian dollars in 2021. These investments were reduced to zero a few years ago because these currencies have a high correlation with the real, since they are from commodity-producing countries and have also been used by investors as a protection against inflationary risks.

Source: Valor International

https://valorinternational.globo.com

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Investors who hold on to risky assets are rewarded

Angel Investor - ThirdBrainFx

The Brazil of interest rates at double-digit levels produced a first quarter of good results for investors. It was good for those who stayed with the safety of fixed income and even better for those who were encouraged to shoulder the stock market risk and bet on more volatile classes, such as multimarket and stock funds.

The Ibovespa, the main barometer of the local variable income market, appreciated by almost 15%, boosted by foreign capital. The flow of new money also led to an appreciation of the real against the dollar and those who had funds in hard currencies saw this portion of their portfolio shrink.

The Russia-Ukraine war, new cases of Covid-19 in China with shutdown policies in Shanghai, adjustment of the American monetary policy and elections in Brazil in the second half are all risk factors, but when you look at the picture of this early 2022 it doesn’t even seem as if that movie is subject to twists and turns in its story. Inflation both locally and in the U.S. continues to be a source of concern.

“It is difficult to argue against capital flow,” says a financial market adage, and it is a fact that it is the international capital that has been guiding the appreciation of Brazilian assets. In dollar terms, the Ibovespa gained almost 35% this year.

Foreign investors have already bought net R$89.6 billion in stocks in the spot market by March 29, while individuals have withdrawn R$25.4 billion. Local institutional investors withdrew more R$71.2 billion, according to B3. In this group are asset management companies, who had to sell assets to cope with the requests for redemption of shareholders. In the year to the 28th, stock and hedge funds saw withdrawals of R$72.7 billion, according to the Brazilian Financial and Capital Markets Association (Anbima). On the other hand, fixed-income portfolios attracted R$128.2 billion.

But it is precisely in periods of greater aversion to loss — when the investor goes to fixed income massively — that may be the best time to compose the portfolio with higher risk assets, according to Fernando Lovisotto, chief investment officer of Vinci Partners. He sees in this beginning of 2022 a scenario similar to 2016, with recovery in commodity prices pushing exports and Brazil benefiting from the foreign flow.

With the rapid adjustment of monetary policy and the cycle of interest rate hikes now nearing an end, “the correlation of commodities to the real is back in place, it is something that had been lost between 2020 and 2021,” Mr. Lovisotto said.

He suggests rebalancing the portfolio, increasing the proportion of assets that have fallen, to the structural level. “I think it’s good the opportunity level for the return level.” He expects foreign inflows to be long-lived, as the number of investable emerging countries has been reduced with the Russia-Ukraine conflict and there are question marks regarding China and India. “But there is volatility, [the investor] will go through some turbulent moments along the way: there’s an election and we don’t know the outcome of the war.”

The specialist sees potential for virtually all local classes, among strategies linked to real and nominal interest rates, shares and multimarket funds, which again had a good performance in the first quarter. For Mr. Lovisotto, this is a window that extends for 24 months. “The managers are gaining, in general, with positions in rising U.S. interest rates, in local interest rates, in the stock market, and in the currency,” he says. He thinks there is still a lot of premium along the maturities of government bonds and futures contracts, with real interest rates of up to 7%, which has also drawn the attention of foreign capital.

In the stock market, if at first the flow has favored raw material producers’ stocks, it is expected that with the end of the high interest rate cycle the stocks linked to the domestic cycle will perform well, adds Mr. Lovisotto. March may have already been an indication of this movement, with the “small caps” index rising almost 9.5%.

As for the portion of the portfolio linked to international assets, the indication of the Vinci executive is not to increase what the investor has today, just to maintain the portion that fulfills the role in the diversification of currencies and geographies.

With new inflationary shocks resulting from the war between Russia and Ukraine and the scenario of monetary tightening in developed economies, Rodrigo Eboli, an asset manager at Brainvest, says that the most prudent thing to do is to maintain a well-diversified portfolio without running major risks. As much as local assets have performed well throughout the first quarter, Brazil has not had great improvements in terms of fundamentals since December.

“There are elections ahead, which are far from being defined, the doubt about what fiscal policy the next administration will put in place, but as prices were very depressed, with exchange rates, interest rates, and the stock market already reflecting a high degree of pessimism, there was this recovery,” Mr. Eboli said. He cites that real interest rates at 5%, 6% are inviting to any investor when compared to developed economies, which are in the process of monetary adjustment at a later stage than some emerging countries. The foreigners who were outside the risk entered quickly, but he thinks that this is a more opportunistic capital, which does not commit to the long term.

At Brainvest, the manager says that the investors’ portfolio is more defensive. In fixed income, the company had already shortened the allocation in fixed-rate and inflation-linked securities for the 2023 maturities. The floating-rate securities, already yielding 10% a year, help the portfolio not to suffer sudden oscillations in the short term, and with this mix it was possible to preserve the exposure to variable income and hedge funds.

“We still think this is a challenging year, we need to take risks, but we won’t have a full pot,” says Mr. Eboli. “The main lesson of the first quarter was the importance of not being contaminated by excessive pessimism, like at the end of last year, when market prices reflected this. Those who were resilient didn’t change their portfolio and are now reaping the rewards.”

Despite the more favorable exchange rate for international diversification, he says investors have to consider the interest rates at 12.75%, the level the Selic, Brazil’s benchmark interest rate, is expected to reach. “The opportunity cost has increased and it’s not easy out there. With the Fed raising interest rates — and no one knows the terminal rate — and stock market prices at ten-year highs, you have to think.” For those who have nothing overseas, it makes sense to set up an offshore allocation plan.

Given the set of uncertainties, with oil shock and geopolitical confusion, the election in Brazil seems to have taken on a supporting role, said Renato Junqueira, managing partner at Gap Asset Management. “The market may price one thing or another. It is not expected to change much until the second half of the year. Prices will be more subject to the global scenario.”

Source: Valor International

https://valorinternational.globo.com

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Economy Brazil unemployment at 11.2% in February

Desemprego elevado é um dos maiores desafios do Brasil após crise sanitária

The unemployment rate in Brazil reached 11.2 percent in the mobile quarter encompassing December 2021 through February this year. The index is lower than in the quarter ended in November (11.6%) and in the one ended in February last year (14.6%).

The figures can be found in the Continuous PNAD (National Household Sample Survey), released today (Mar. 31) by the Brazil’s official statistics agency IBGE.

The jobless also declined in number to 12 million in the quarter ended in February, down 3.1 percent from the previous quarter (ended in November), or 389 thousand fewer people. Compared to the same quarter last year (ended in February 2021), the drop was 19.5 percent, 2.9 million fewer people.

The employed population (95.2 million) remained stable from the previous quarter, but rose 9.1 percent against the same quarter last year.

Source: Agência Brasil

https://agenciabrasil.ebc.com.br/en

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States spent less on security during pandemic

Ursula Dias Peres — Foto: Silvia Zamboni/Valor
Ursula Dias Peres — Foto: Silvia Zamboni/Valor

Unlike health and education, states’ total spending on public security in 2021 was below that seen before the pandemic period. Spending on public security, considering the 26 states and the Federal District, was 3.4% lower than in 2019, despite the favorable situation for revenues in the last two years. In addition to fueling demonstrations that are still taking place in some states to use up the last days of the deadline for adjustments above inflation in an election year, the situation also shows, according to experts, the need for a new model of organization and financing of public security.

In Minas Gerais, the Legislative Assembly approved on Tuesday a 24% adjustment for public security. Also on Tuesday, the government of São Paulo raised salaries of civil servants in public security by 20%. In Rio Grande do Sul, the police will hold a new demonstration on Thursday to ask for salary adjustment for inflation of the last three years. According to the Superior Electoral Court (TSE), due to the elections, raises above inflation to public servants can be granted this year only until April 5.

The drop in spending on public security compared with health and education. The health crisis naturally increased health expenditures, which ended 2021 with a real increase of 15.9% compared to 2019. Spending in this field exceeded the 10.8% growth in current net revenue in the same period. Expenditure on education grew at a slower rate than revenue, but ended last year with a 7.1% increase compared to the pre-pandemic period.

The data collected by the Solidarity Research Network consider the expenses committed to public security reported by states. The 2019 and 2020 values were updated by the IPCA, Brazil’s benchmark inflation index. Expenses consider costs, payroll and investments. States represent about 80% of public sector expenditure on public security.

The real drop in expenses with public security in 2021 compared to 2019 occurred in 14 of the 27 federative entities, according to the data collected by the Network. For Ursula Dias Peres, a researcher at the Center of Metropolis Studies of the University of São Paulo (CEM/USP) and the Solidarity Research Network, the decline in security expenses in the total of the states is not large, but relevant because salary adjustments are restricted since 2020 and, in view of the increase in state revenues last year, the situation favored pressure from servants this year.

The higher collection of sales tax ICMS last year was not anticipated and led to an adjustment of spending by the states during the year, the researcher said. At the same time, Complementary Law 173 of 2020, which restricted salary adjustments, was in force until the end of 2021.

“This has heavily affected fields more dependent on human capital, such as public security, civil and military police and fire departments,” Ms. Peres said. She recalled that, in general, it was not necessary to cut programs, since the effect of the lack of adjustments naturally led to a reduction in expenses. She considers that there is heterogeneity between the states. There is no standard governance model, which results in different payroll weights for expenditures.

The good financial situation of the states did not go unnoticed by security civil servants. Cláudio Wohlfahrt, financial director of Ugeirm, a union of police clerks, inspectors and investigators in Rio Grande do Sul, says that the state’s GDP grew 10.4% in 2021, more than double the federal rate of 4.6%, and that the collection last year exceeded the budget forecast.

“The government’s coffer is full,” he said. The claim of security civil servants, who organized a strike on Tuesday and are expected to demonstrate again on Thursday, is to ask for adjustments that have not been made since 2019, says Mr. Wohlfahrt.

In a note, the Finance Department of Rio Grande do Sul says that, in recent years, it had no margin to guarantee any adjustment to civil servants, having delayed salaries for 57 months. Only in 2020, with reforms and adjustment measures, it was possible to catch up on salaries. The fiscal situation has improved, the government said, but the only issue that can currently be discussed is a general revision. The Rio Grande do Sul government announced that it will send to the Legislative Assembly a proposal for a general 6% adjustment for public servants, with an annual impact of R$1.5 billion.

What is not yet known, says Ms. Peres, is how ICMS will behave this year. Last year, revenue from the main tax collected by the states increased, partly due to the recovery of the economy and also driven by inflation and fuel prices. This year, she recalls, there are already changes in the tax levied on fuel. And any adjustment given in an election year for public security will be permanent.

Ms. Peres explains that, unlike health and education, security does not have a minimum constitutional allocation that obliges states to spend according to the level of revenue growth. In addition to the issue of destination, there are also important differences with other public services. Health, for example, says Ms. Peres, in addition to having been more impacted by the nature of the Covid-19 health crisis, in some states it is also operated largely by third parties, through social organizations, which makes spending less subject to restrictions on salary adjustments.

For sociologist Samira Bueno, executive director of the Brazilian Forum on Public Security (FBSP), an NGO that collects and monitors data in this field, one of the great challenges for associations that represent security civil servants is to claim salary adjustments at a time when indicators show a reduction in crime rates. According to the Violence Monitor, a partnership between FBSP and news outlet G1, there were 41,100 murders in 2021 in the country, down 7% from the previous year and the lowest number since 2007.

Source: Valor International

https://valorinternational.globo.com

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Credit Suisse sees room for stronger real

Produtos Credit Suisse | Acesso exclusivo

The favorable global environment for commodity exporters and the double-digit interest rates in Brazil, which already outpaces recent inflation figures, have provided much support for the Brazilian real since the beginning of the year. When assessing the terms of trade, in particular, it is possible that the real has room to appreciate further in the first half of 2022, said Luciano Telo, the chief investment officer of Credit Suisse in Brazil.

Mr. Telo told Valor that the scenario may be more favorable to the dollar in the second half of the year. Among the reasons are the uncertainty brought about by the presidential elections and the monetary tightening by the U.S. Federal Reserve, which may accelerate the pace of interest rate increases.

Read the main excerpts from the interview below:

Valor: What explains the recent strong appreciation of the real?

Luciano Telo: When the real was not appreciating, we attributed this to two factors: fiscal risks and interest rates. The strong rise [of the Selic, Brazil’s benchmark interest rate] was projected, but it was confirmed over time. The real started to strengthen when interest rates went to double-digit levels because we reached the point of having positive real interest rates, and from then on it was interesting to keep the currency. A second factor was the additional commodity price shock. The scenario, which was already favorable for commodity exporters, became even stronger, especially after the conflict in Ukraine. In fact, that shock will help Brazil’s external accounts. Despite the fact that all countries lose with the war, we will have a commodity effect that favors the terms of trade.

Valor: Does the real have room to appreciate further?

Mr. Telo: If we compare the real with a basket of emerging currencies, the gap has already closed at R$4.80 to the dollar, and this has also happened with currencies of developed countries. When we look at it from another angle, of the terms of trade, we think it can appreciate further. The market has been talking about [a foreign exchange rate of] R$4.50 to the dollar. The real is surfing a more favorable short-term wave and a lot of inflows.

Valor: Wouldn’t Fed’s monetary tightening be a limiting factor for the depreciation of the dollar?

Mr. Telo: The second half of the year is a different story. At least six interest rate hikes [on the American curve] are expected, but there is a discussion about whether the Fed is going to accelerate the pace to 50 basis points and there is a great possibility that this will start in the next meeting. The second half of the year is likely to be favorable to the dollar. As for commodities, the discussion may be about how long this shock will last. We have the war issue, but this shock is likely to take a little longer. Sanctions will continue in the same way even as there is a resolution of the war, and deglobalization is expected to remain. The real has its best chance in the first half of the year.

Valor: What about the domestic scenario? What could influence the behavior of the currency?

Mr. Telo: The election will bring uncertainty. It is natural that the market wants to reduce positions, and dollar positions usually hedge the portfolio. Before the election, the domestic market may suffer if you reduce the volatility of the portfolios by having dollar positions. If one is going to set up a more defensive position, it would be closer to the third or fourth quarter, but not until the middle of the year. Historically, we start to have election discussions in March, but since we are in a favorable flow environment, it seems to me that this discussion has been postponed.

Valor: With high interest rates over the entire horizon, are foreign investors likely to be more attracted to fixed income in Brazil?

Mr. Telo: It is possible that we will draw foreign funds back into our fixed income. It would even be easier than has been the case. We are seeing investments in stocks. The flow is coming to the stock market, and we have seen an increase in foreign participation. Foreigners have brought R$91 billion to the Brazilian stock market. In the whole of last year, excluding IPOs, they brought R$70 billion.

Valor: Do you see an opportunity in the domestic fixed-income market now?

Mr. Telo: The NTN-B [National Treasury note] rate for 2035 is now around 5.6%, but it has been higher. The fixed rates are above 12%. These are levels that, if we compare them to what we expect for nominal and real interest rates in Brazil, are attractive. Since we still don’t know the extent of inflation and we have always had surprises of more inflation, we can’t see the end of the cycle. The Central Bank has signaled that it is near the end, but this also depends on the perspective that you are going to have for the price of oil and commodities. I can’t clearly see a catalyst for the fall of future interest rates, but it seems that there is plenty of premium. When it becomes clear that the adjustment of interest rates is near the end, it will be an opportunity in fixed income. We don’t increase our positions. We have a light position in NTN-Bs and a small one in fixed rate notes maturing in 2025.

Valor: There is a strong discussion in the market about the direction of inflation and our own implicit rates are at quite high levels…

Mr. Telo: The market, in fact, has increased inflation projections a lot – the long ones as well. The market is not irrational, but it has a hard time knowing how long-lasting the commodity and oil shock will be. And there are deeper medium- and long-term discussions, such as whether globalization will start to slow down. Probably the market will go a little stronger in one direction to eventually correct the excesses, but no one can have such an accurate forecast. Inflation convergence ahead would have to correct the implied inflation downward, but we are in a time of a lot of uncertainty.

Valor: How is your portfolio doing?

Mr. Telo: At the beginning of the pandemic, we had maximum stimuli in the world and we had to have an additional allocation in Brazilian and global equities well above what we would normally have in our portfolios. Last year we reduced the stock positions. Today, we have 20% in stocks in our portfolio, of which 12.5% in Brazil and 7.5% abroad. We have 15% in NTN-B notes, which we consider to be a historically neutral level, but has the potential to increase this year. The real interest rate is at high levels. We need to see the moment in which the market will be sure that it doesn’t need such a high level of premium. We still have 30% in hedge funds, 7.5% in fixed income and the remainder we put in credit and post-fixed fixed income.

Valor: You are more optimistic about the Brazilian stock market than about global equities. Why are you so optimistic?

Mr. Telo: We had a very big rally in the global stock markets, especially the S&P 500, and the Brazilian stock market had a performance of -11% last year. By valuation, it was a very different situation. Brazil’s valuation was heavily discounted in relation to any emerging peer. In practice, we are now seeing a very large flow, but it was not well distributed. It is the commodity stocks that are rising and this eventually extends to other stocks that make up the index. It is not the Brazilian stock market that depends on the domestic economy that is rising, but the stock market that receives foreign flow due to the global pro-commodities wave.

Source: Valor International

https://valorinternational.globo.com

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Organic food industry projects 10% growth

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The Brazilian organic food market grew 12% in 2021 and handled R$6.5 billion, estimates the Organic Food Promotion Association (Organis), which expected a 10% expansion. Growth in 2022 is again expected to reach 10%, in a conservative forecast, or range from 12% to 15%, in a more consistent demand scenario.

The association head Cobi Cruz points out that the segment would have grown between 15% and 20% in 2021 were not for the economic downturn and the easing of sanitary restrictions in the second half of the year, which reduced food consumption at home.

“Government purchases could have been better if the pandemic were milder. Restaurants would have been bought more as well. Also, as the economy reopens, people are not cooking at home as much and have lost access to organics. Wages have also flattened out,” he said.

Mr. Cruz recalls that the number of organic food ventures in Brazil grew 11% in 2021, surpassing 25,000 production units, according to data by the Ministry of Agriculture. He says that revenues are far from the plateau, the point where there is a stagnation of growth, since the country accounts for only 1% of the $145 billion-a-year global market.

Organis is working to expand its international activities. Exports represented 20% of revenues last year, mainly thanks to the exchange rate. “There is a very large demand for organic grains and fruits,” he said, citing that Brazil is the largest exporter of acerola cultivated without the use of chemicals. Organic sugar shipments are also a highlight – the product is exported to over 25 countries.

Organic soy, coffee, yerba mate, açaí, palm oil, guaraná, cocoa, mango and acerola are also highlights in exports. About 90% of the sector’s revenue comes from food and beverages, Organis projects. “Yet, we produce and export processed raw materials for both the food and cosmetic industries,” Mr. Cruz said.

According to him, the main pillar of growth of organics is the search for a healthier diet. Vegetables and greens stand out among the products that are advancing the most. Fruits saw a more modest increase because the consumption decision is still more linked to the satisfaction of taste.

The head of Organis points out that the organic animal protein sector is also growing significantly, with the entry of large companies such as Seara and BRF, which can leverage the segment by training and encouraging producers. “When the two parties are partners, you can reduce the cost of uncertainty,” he said.

Source: Valor International

https://valorinternational.globo.com

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Revolut, Europe’s most popular digital bank, arrives in Brazil

Revolut: o que é, como funciona, vantagens e desvantagens

Revolut, Europe’s most popular digital bank and always cited by analysts as one of the best in the world, is finally arriving in Brazil. Glauber Mota, a very seasoned executive partly responsible for creating BTG’s digital bank, will lead the local operation. The group has not revealed its projected user base in the country, but Brazil is expected to be among the five largest markets for Revolut, which is already in more than 35 countries.

The operation will initially offer an international account and card with access to multiple currencies, and gradually bring the full experience of the global super app to Brazil. The full offer is expected to be available by the second half of the year. “I would really like that by the Qatar World Cup [which starts in November] Brazilians are already taking advantage of the full potential of the Revolut app. I think we will arrive well before that,” Mr. Mota said. The app is already available for download, but only for those on the waiting list.

With more than 18 million customers worldwide, Revolut was valued at $33 billion in its last investment round and competes with Nubank for the position of the most valuable digital bank in the world. In June, in its last round before the IPO, the Brazilian bank was valued at $30 billion. At the IPO in December, it reached $41.5 billion, but Nubank has a market capitalization of $36.9 billion after the stocks fell at Nyse.

“Brazil is the largest market in Latin America and a strategic priority for Revolut’s international expansion. With his vast experience in the financial sector and an excellent track record, we are very pleased that Glauber will join Revolut and help us in our mission to create the first truly global financial super app,” Nik Storonsky, CEO and co-founder of Revolut, said in a statement.

Mr. Mota points out that Brazil has one of the most active populations in the digital field, with over 112 million users with mobile devices and a growing number of people using digital banking as their primary account. However, when traveling abroad and shopping online, Brazilians still use credit cards and exchange houses paying high fees. “This represents a huge opportunity for Revolut to bring its product and service offering so Brazilians can shop.”

Mr. Mota joins serial entrepreneur Felipe Lachowski, who leads Revolut’s strategy and operations team in Brazil, and will set up the team. In addition to the local headquarters, Brazil will have a technology hub for Latin America – the digital bank landed a few months ago in Mexico – and serve as support for Brazilians who already work remotely for Revolut’s global operation.

“We are just finishing setting up the team and putting the structure in place,” Mr. Mota said. According to him, initially, the local operation will leverage the global structure, but soon afterward Revolut is likely to also apply to the Central Bank for a direct credit society license. He does not rule out an acquisition but says that it would not be to obtain a license, but to bring in expertise, perhaps along the lines of an acqui-hiring (an acquisition focused on bringing in the acquired company’s team). Still, Revolut’s tradition is to grow organically.

The executive says that Revolut virtually does not invest in marketing, relying on the good user experience and word of mouth, but it may have to change this strategy a little to make the brand known in Brazil. Asked about the potential of the customer base here, he says that, even by the fact of starting with an international account, the public is more restricted than that of Nubank, for example, which has 54 million customers. “Am I going to have 50 million customers? Probably not. In the first year, we will be something like a mix of Avenue, Nomad and Wise. When we have a local account, credit, insurance and everything else, we will be more like C6’s high-income business,” he said.

As for the competitive scenario in Brazil, Mr. Mota acknowledged that there are many digital banks, but he believes that the customer experience at Revolut is something that will make the difference. “We deal with products and clients in an outstanding way, which is why our NPS [Net Promoter Score] is high. It is all based on technology, with data analysis. Our suggestions to customers are very assertive and we offer several benefits. The UK is a pioneer in open banking and Revolut leverages a lot on this, and now we will be able to do the same in Brazil.”

As it is a private company, there is no detailed information about Revolut’s financial performance. In its last round of funding last July, the fintech revealed that it had revenues of £261 million in 2020, with a growth of 57%. The company was still operating in the red, but getting very close to breakeven. In the fourth quarter of that year, the gap was only £6 million.

Source: Valor International

https://valorinternational.globo.com

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