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Latin American Economy & Business - August 2015 (ISSN 1741-7430)

Corporate Radar

Big Cola makes African move: Big Cola, the soft-drink brand controlled by Peru’s Aje Group, is initiating operations in Africa, where it has opened two bottling plants, one in Nigeria and the other in Egypt. Although less than 30 years old (the company was set-up in Ayacucho in 1988), Big Cola is now a significant player in the global market. According to the UK-based Euromonitor, it is ranked number 10 by revenue among global soft drinks producers, with a 1% market share (Coca-Cola is number 1, with a 20% global market share, while Pepsi takes 9.7%). Annual sales are reported at US$1.2bn, and Big Cola is present in 20 countries around the world, particularly in Asia: this year it became the top soft drink by sales volume in Indonesia. The company originally started as a family business run by Eduardo Añaños and Mirtha Jerí, a couple with five children, who at the height of the violence and scarcities sparked by the Sendero Luminoso guerrilla movement realised that there was a gap in the market – the big bottling companies had stopped supplying the region. As a result of some experimentation they created a new carbonated soft drink with citric overtones that was initially marketed as Kola Real. Sales grew strongly in Peru, prompting international expansion starting in Venezuela in 1999 (when the name was changed to Big Cola), Ecuador in 2000 and the fiercely competitive Mexican market in 2002.

Juan Lizariturry, a Madrid-based executive of Aje Group, told Spain’s El País that its strategy is not to seek a head-on confrontation with dominant players like Coca Cola that have spent massively on marketing but instead to focus on the price-sensitive lower middle classes in emerging markets. “People have got used to Coca Cola. No one has enough money to break the link between a customer and a brand that has been in the market for years. Our target market is the consumer who hasn’t been drinking Coca-Cola for long and doesn’t have their head full of advertising” he said. Another executive, chief marketing officer Jorge López-Dóriga, told Beverages Daily, “This is a new world. You can be global without having to be in Europe or the USA – actually, around 90% of the world population is outside USA and Europe”.

 

Cemex sells European assets: Mexico-based Cemex – one of the world’s largest cement and construction materials producers – announced the sale of a number of European assets, principally in Austria, Hungary and Croatia, for EUR391m (US$445.3m), with the funds to be used to reduce debt and for general corporate purposes. Operations in Austria and Hungary – a number of aggregate quarries and ready-mix plants – were sold to the Rohrdorfer Group for EUR160.1m (US$179m), while in Croatia operations were sold to Duna-Dráva Cement, and included holdings in Bosnia, Montenegro and Serbia. Cemex has been seeking a general repositioning of its business strategy to reduce debt and restore profitability. In the first half of this year the company reported a net US$32m loss, a reduction of 86% on the US$220m loss registered in the year-earlier period.

 

SolarReserve gets Atacama go-ahead: Chilean authorities in August approved the environmental impact study for the US$2bn Copiapó Solar project, considered one of the largest solar energy and storage projects in the world. The project, to be executed by US-based SolarReserve, is designed to add 260MW of new capacity to the country’s electricity grid. It will use concentrating solar power (CSP) tower technology and solar photovoltaic (PV) panels combined with molten salt thermal energy storage. It is envisaged that the project will supply mining companies and other industrial consumers with some 1,800-gigwatt hours (GWh) every year. In a statement SolarReserve noted: “No other proven renewable energy technology can provide this cost competitive energy solution to meet the needs of Chile’s largest and most important industries.” According to Tom Georgis, the senior vice president of development, “This technology realistically has the potential to power the entire country of Chile using two phenomenal Chilean resources, salt and sun”.

 

Trouble in the air: Share prices in the main Latin American airlines fell in mid-August, as investors became nervous over lower levels of demand and the effects of currency depreciation in a number of countries around the region. Latam Airlines Group SA (the carrier formed in 2012 from the merger of Chile’s LAN and Brazil’s TAM) saw its share price fall 10% to a nine-year low in the week to 14 August; Colombia-based Avianca saw a 15% fall, Copa Holdings of Panama lost 19%, and Brazil’s budget airline Gol Linhas Aéreas Inteligentes lost 3.9% on that date. Analysts said the effects of lower fuel prices – a positive for the airlines – were being more than offset by slower economic growth across Latin America.

Earlier, Latam Airlines had reported an unexpected US$49.7m Q215 loss, on a 22.2% year-on-year drop in revenue to US$2.3bn. It also modified its guidance for operating margins, down to 3.5%-5.0% from 6.0-8.0% previously, a change it attributed to “a weaker macroeconomic context in Brazil, caused by higher inflation and a steep depreciation of the Brazilian Real”. The company also said it was looking into delaying the delivery dates for new long-haul passenger aircraft. Separately, Copa said that its sales fell 20% year-on-year to US$538.4m in Q215, while its profits dropped by 44% on the same basis to US$64.1m. The airline attributed this to a “weak economic environment in South America”.

According to Daniel Guardiola of Larrain Vial, “massive depreciation of currencies and economic slowdown in the region is affecting demand” across the region.

 

Profits up at Itaú: Itaú Unibanco Holding – Brazil’s largest private sector bank by loan portfolio – reported record profits of BRL6.13bn (US$1.78bn) before extraordinary items in the second quarter. The results were significantly ahead of market expectations (in a survey of analysts by Reuters, the consensus was for profits of BRL5.74bn). The bank benefited from rising interest payments on loans and extra earnings from commissions, which more than compensated for the negative effects of a rise in non-performing loans (NPLs) and lower demand for credit. Tighter cost control and risk management procedures introduced by Chief Executive Roberto Setubal were also credited for the good performance.

Analysts wondering whether the Brazilian recession is eventually going to dent the sector’s strong profits have watched bank performance closely. Overall bank profits reached a four-year high in 2014. Some argue that the recession is now making its first real appearance in bank balances through the rise in NPLs. In fact, Itaú’s 90-day NPL ratio rose for the first time in 11 quarters to 3.3%. Philip Finch of UBS securities said the markets should receive Itau’s results positively, but that perceptions might be clouded by worries over asset quality and the need for bigger gross provisions.

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