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Posts Tagged ‘growth’

JBSJBS spreads its wings
By Cluck, moo, oink, ka-ching – The Economist

UNLESS you work with quadrupeds, it may have escaped your notice that a Brazilian company, JBS, is about to become the world’s largest
processor of meat. Its recent acquisition of Pilgrim’s Pride, a big
chicken processor in America and Mexico, and a pending merger with
Bertin, another Brazilian firm, will soon give it bigger sales than
Tyson Foods, the American firm that currently claims the top spot.
Other Brazilian names–Vale in mining, Embraer in aviation, Petrobras
in oil–may be more famous. But JBS is now the second-largest
private-sector company in Brazil by sales, after Vale. And a large
majority of its sales come from outside the country.

This is a stunning transformation for a business that began life in
Goias state 56 years ago with a slaughterhouse that could butcher just
five cattle a day. Its founder, Jose Batista Sobrinho, used to carry
sides of beef on his back to market, according to a friend. The
expanded firm will slaughter more than 140,000 animals a day and employ 129,000 people. Mr Batista’s three sons still control and run the
company, although 49% of it is publicly traded.

The mixture of family control and rapid expansion is unusual in
Brazilian agriculture. Many cattle-ranchers operate in the informal
economy and lots of slaughterhouses do not pay taxes, making the
industry difficult to consolidate. As in other parts of the world,
family-run agricultural firms in Brazil tend to focus on keeping things
intact for the next generation rather than betting the farm.

JBS has behaved differently, bringing in professional management and
expanding through ambitious acquisitions from an early stage. Some say
the company has been too aggressive. It was fined 15m reais ($8.4m) in 2007 for anti-competitive behaviour by Brazil’s antitrust regulator,
although it recently improved its image by agreeing to forgo buying
cows raised on deforested land.

GADOAn international shopping spree has brought the company big operations in Argentina, Italy, Mexico, America and Australia. But none of the company’s previous buys compares in size to its purchase in 2007 of Swift, the third-biggest processor of beef and pork in America and the biggest processor of beef in Australia. With it came a lesson in the politicking that can hamper big foreign acquisitions.

The Ranchers-Cattlemen Action Legal Fund lobbied against JBS before the antitrust committee of America’s Senate, warning of price-gouging of farmers and anti-competitive behaviour, and got a sympathetic hearing. But in the end American regulators approved JBS’s purchase of Swift, just as they approved the Pilgrim’s Pride transaction in mid-October.

Part of the resistance to JBS in America has come from the
distinctively Brazilian way in which the firm is financed. Brazil’s
national development bank, BNDES, has a mandate to promote the
international expansion of Brazilian companies, among other things. It
is funded by a compulsory levy paid by companies and public-sector
bodies on each worker they employ. BNDES bought 13% of JBS’s stock in 2007 as part of a capital-raising that allowed it to buy Swift. It also
provides long-term loans to the company. One way around the
public-relations problem this creates is to buy struggling companies
like Pilgrim’s Pride, which JBS is rescuing from bankruptcy.

A far bigger problem for JBS is how to integrate all its new operations
into a coherent beast. This will be a big test for the Batista brothers
and for Brazil’s tropical brand of capitalism, which mixes family
control with traded stock, and finance from state-run banks with
foreign acquisitions. Brazilian companies in other industries are
watching how JBS gets on and plotting similar moves themselves.

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From Reuters (Tais Fuoco)

* Q4 net income jumps to 215.5 mln reais vs 26.2 mln

* 2008 profit 389.7 million reais vs loss 99.8 mln

* Sees Brazil’s wireless market continuing to expand

* Seen “a small growth” in January

Brazil’s largest mobile phone company Vivo Participacoes (VIVO4.SA)(VIV.N) said on Friday its fourth-quarter profit surged nearly ten-fold because of a sharp increase in new users and as it kept costs in check.

The company’s chief executive Roberto Lima said the profit surge in the fourth quarter was due to changes in its subscriber and pre-paid telephony offers and “very rigorous” cost controls, as it renegotiated contracts with suppliers.

Vivo, a joint venture of Portugal Telecom (PTC.LS) and Spain’s Telefonica (TEF.MC), said net income rose to 215.5 million reais ($94.1 million) from 26.2 million reais in the fourth-quarter of 2007.

For all of 2008, Vivo made a profit of 389.7 million reais, the best year since the company was formed in 2003, compared with losses of 99.8 million reais in 2007.

“Vivo had a few illnesses in its infancy but today it’s growth is healthy,” Lima said in an interview with Reuters.

Vivo added 2.668 million new mobile phone users in the fourth-quarter, bringing its total user base at the end of 2008 to 44.95 million people.

The jump in new wireless clients helped boost sales by 14 percent to 4.27 billion reais in the fourth quarter, Vivo said. Sales for all of 2008 totalled 15.8 billion reais.

Lima said the company’s growth could slow in 2009 but he believed Brazil’s wireless market would continue to expand.

“This is a sector that has been growing in the double digits since its creation. Even if it grows 10 percent, it’s still a fantastic rate,” he said, pointing out that any growth achieved was on the basis of an already large customer base.

He said the company had seen “a small growth” in January this year over the first month of 2008.

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 43 percent to 1.39 billion reais from 978.9 million in the final quarter of 2007.

EBITDA as a percentage of sales, a measure of profitability widely followed by analysts, jumped 6.6 percentage points to 32.7 percent in the fourth-quarter.

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The property market in Brazil has celebrated the news that a new record growth has been achieved, to show that the credit crisis has not reached the South American country. Housing credit has closed 2008 with 299.746 properties financed, the highest number ever and a rise of up to 53% over 2007.  According to ABECIP (Brazilian Association of Property Credit Institutions and Savings Accounts) , total amount of mortgages achieved over US$ 13 billion in 2008, a figure 64% higuer than the previous year. Only in december, total mortgage amount rose 36% in relation to november.

As The Move Channel has reported, as a consequence of the strong economy, prosperity levels are rising fast in Brazil, with sharp increases in housing demand. In just two years, 23 million people have risen to prosperity level C (middle class), which now counts 85 million people. This middle class has a monthly income between two and five times the official minimum wage.

With insufficient first home housing stock to satisfy local demand, Brazil currently has an estimated housing deficit of a minimum of eight million properties.

The middle classes are expected to purchase between 1,000,000 and 1,200,000 units per year until 2015. Fuelling demand further is the fact that for the first time in 25 years mortgages are available to Brazilians.

Mortgages account for only two per cent of GDP in Brazil, versus 65 per cent in the United States and 74 per cent in the UK, so consumers aren’t feeling the effects of credit squeeze. Massive growth in this sector means that domestic mortgages are predicted to increase by up to 600 per cent by 2014.

With this in mind it is clear that the first residence market within Brazil’s regional cities is a major investment opportunity and no region has seen faster growth that the North East.

In Natal for example, a local residential 100 square metre two bed room villa with a secure gated community can cost around 180,000 Reais (around £54,000) and deals can include optional rental guarantees of six per cent for four years and guaranteed buy back agreements from the developer.

As an investor, this means there is an opportunity to invest in well located local property that has a well defined target market and exit strategy, attracting middle class tenants and buyers.

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The global financial crisis is not expected to lead to a major economic downturn in Brazil, a new study has concluded. According to the Organisation for Economic Cooperation and Development (OECD), prospects for the South American country remain favourable in comparison with many other countries.

Indeed, the OECD’s composite leading indicators showed that the nation had experienced a decline of just 2.9 points in the last year. This compares with 7.6 points in the euro area and 8.7 points in the United States. The figures were based on various measures of economic activity, such as output in the industrial sector.

Meanwhile, the Brazilian central bank has polled 100 economists in an attempt to determine the likely rate of growth in 2009, Bloomberg reports. Respondents to the survey predicted on average that the economy would expand by two per cent this year.

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Brazil’s Embraer, fourth largest aircraft manufacturer in the world, has announced it is doing really well in spite of the crisis. Associated Press has reported the company delivered 204 jet planes last year, a 21 percent increase over the 169 jets delivered to buyers a year earlier.

The jet maker also announced it has $20.9 billion in firm orders for its planes as of Dec. 31. In 2008, the company delivered 162 midsize jets used for regional routes, 36 executive jets and six jets for military and government customers.

Embraer was Brazil’s largest exporter from 1999 to 2001 and the second largest in 2002, 2003 and 2004. It currently employs more than 23,509 people, 87.7% based in Brazil.

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The Brazilian govervenment has celebrated today as the country’s GDP has grown to 1.8 percent in the third quarter from the second. These are further signs that the South American country is resisting the global recession.

According to the official statistics agency, IBGE, the expansion of the gross domestic product was faster than the 1.6 percent expansion in the second quarter from the first.

The announcement comes against pessimistic forecasts that saw GDP growing 1.2 percent in the third quarter. Previous estimates were between 0.4 percent to 1.4 percent growth.

According to Forbes NY: “On an annual basis, GDP expanded a robust 6.8 percent in the third quarter compared with the same period in 2007 , after posting a revised year-on-year growth of 6.2 percent in the second quarter. The result was stronger than the the 5.6 percent year-on-year GDP median growth forecast in the Reuters poll. Estimates ranged from 4.2 percent to 6.0 percent.”

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The New York Times highlighted the growth of Power.com, a start up social networking company from Brazil which aims to become the leading portal where people can access their virtual lives. Power’s investors include venture capital firm Draper Fisher Jurvetson and Esther Dyson. What the site does is to put in one place instant messages, network updates, email and contact lists – instead of spread across Facebook, Hi5, LinkedIn, MSN, MySpace and Google’s Orkut.

“To me the important issue is that users are driving Power themselves,” said Esther Dyson, one of the technology industry’s preeminent global trend spotters and a seed investor in Power.com. “And it excites me that these users are not just in the US. Nor are the software’s creators: Latin America has impressive software design and engineering talent. Silicon Valley is not the only place to find great talent to build a world-class company.”

Vachani, a self-proclaimed “global adventurer” arrived in Brazil 5 years ago to take a break from the Silicon Valley. A UC Berkeley graduate, and a serial entrepreneur, Vachani, who lives in Rio de Janeiro, said, “I came to Brazil with a smile, a backpack and a passion for Brazilian dance and music. I just wanted to get my mind off of technology, and I thought I would go back to the US and start a new project after a year or so. Little did I know…”

Vachani soon recognized Latin America’s hidden treasure: undiscovered great minds. Vachani stated, “I quickly realized that Latin America was like India 30 years ago, before Silicon Valley discovered it. Back then, most of India’s brilliant minds were trapped in academia or working as bureaucrats in the government, with no entrepreneurial opportunities. Today, thousands of brilliant minds in Latin America are likewise underutilized and undervalued, with their biggest dreams being jobs as government bureaucrats and academics. Little capital and few role models are available to young entrepreneurs.

If I could create a project that truly pushed the limits of innovation, and that had capital, I knew I would be able to attract hundreds of Brazil’s and Latin America’s brightest minds. Together we have built Latin America’s first global technology company built upon the Silicon Valley adage to first bring the brilliant minds together and then they will create a brilliant product and company.”

Vachani did just that. As founder and CEO of Power.com, he attracted the world renowned Silicon Valley venture capital firm Draper Fisher Jurvetson, famous for investing in Skype, Baidu, and Hotmail, to invest $6 million in Power and complete DFJ’s first ever investment in Latin America. A group of private investors — including Esther Dyson — added another $2 million. Power has attracted over 70 of Brazil’s brightest minds, including self-made entrepreneurs, professors, PhD’s and top graduates from Brazil’s most prestigious universities.

Igor Barenboim, Power’s Director of Business Development, PhD graduate from Harvard University and former Global Economist for Latin America’s largest hedge fund, stated, “I joined Power when it was just an idea on paper because I truly believed that Steve’s vision would help jumpstart Latin America’s transformation into an economy which truly values its intellectual capital. As a Brazilian with great dreams for the future of Latin America, I knew I needed to join this adventure”

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