Latin America’s Best Companies

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The Latin 500 shows the 500 largest companies in Latin America based on revenues. But which ones are performing best and not just in one specific year?  The ranking of Latin America’s 100 Best Companies has the answers. Our sister publication, Latin Business Chronicle, analyzed 779 publicly-traded companies in the region using data from Economatica and then narrowed it down by looking at companies with more than $100 million in annual revenues. On the following five pages, Latin Trade takes a closer look at the top 10 companies as well as the three-year revenue and profit winners.

#1 Shougang Hierro – PERU
A Chinese company outperforms all others in Latin America thanks to strong demand for iron ore in China.
BY LISA K. WING

LIMA –  While the demand for iron ore — driven by the demand for steel and steel products — has clearly helped boost Shougang Hierro Peru’s profits and revenues over the past few years, the company’s continued investments to expand production also have contributed to its spectacular growth, according to industry leaders.
The company, which is part of Chinese Shougang Group, one of China’s largest steel companies, placed first in Latin Business Chronicle’s second annual ranking of Latin America’s 100 Best Companies. Last year, revenues of Shougang — which specializes in the exploration, exploitation, processing and commercialization of iron ores — grew 123.9 percent to $700 million while profits jumped 456.1 percent to $292 million.
“A rise in commodity prices has resulted in additional revenues, which mining companies have reinvested to expand their operations,” notes Pedro Martinez, president of Peru’s National Society of Mining, Petroleum and Energy (SNMPE). “For Shougang, this has led to increased production levels.”
According to Peru’s Ministry of Energy and Mines, iron ore production rose 40.71 percent in July — a figure attributed solely to Shougang, the country’s only iron ore operation.
Mining execs note that the company also has been able to keep operational costs down — and profits up — by running a vertical operation, in which it oversees the production, processing and commercialization of its products. Shougang’s location on Peru’s southern Pacific coast also is key to cutting costs, namely those related to transportation, as it not only owns its own port but also is near the end of a planned highway to Brazil, notes SNMPE’s Martinez.
Although the mine already has a small electricity operation, the company recently announced plans to build a natural gas-fired power plant, which has been put on hold until it is able to secure a steady supply of gas for the plant, according to local news reports. “Reaching self-sufficiency in electricity is a common goal among mining operators,” says Fitch’s Djemal. “When you have energy self-sufficiency, you are not at the whim of rising fuel costs — or at the mercy of volatile energy prices — which helps keep a lid on costs. Moreover, if you generate excess electricity, you can sell the surplus to the grid.”
The “insatiable demand” of iron ore from China is the top reason why producers of this metal have had record profits over the past few years, as mining industry insiders such as Jay Djemal of Fitch Ratings note. The Chinese are seeking to reduce their dependency on the so-called Big 3 Iron Ore miners, a fundamental factor that has contributed to the outstanding results of Shougang Hierro Peru, the country’s sole iron ore mine.
“The overall combination of a robust demand for commodities from China and Peru’s relatively friendly mining framework have had the greatest impact on the country’s mining sector,” notes Djemal, the analyst responsible for metals and mining companies across the region on the Latin America corporate team at Fitch. “Peru is a low-cost producing country with abundant reserves. And Chinese steel mills, which are operating at full capacity, are continually looking for high-grade ore internationally to make their mills more profitable — and Peru’s iron ore is high-grade.”
Despite Shougang’s stellar performance over the past few years, things haven’t been smooth sailing for the company, which has been battered by social conflicts and labor disputes for many years. Most recently, Shougang’s 1,000-plus workers went on strike in August, demanding higher wages and better working conditions.
Indeed, social conflicts are the biggest hurdle for Shougang — and for other mining companies in Peru, for that matter.
“We must work on strengthening dialogue among the state, companies and communities, and in general on changing the negative perspective people have towards mining,” says SNMPE’s Martinez.
Shougang also faces other challenges. Three new mining laws passed by Peru’s new left-wing President Ollanta Humala create a windfall tax that aims to raise $1.1 billion a year over the next five years. The law requires companies to pay an additional tax on profits, money that is to be allocated for social programs in the communities where mines operate.

editorial@latintrade.com

Duratex plant in São Paulo. Courtesy of Duratex

#2 Duratex – BRAZIL
Construction Boom Boosts Duratex, Ranked as Brazil’s best company and Latin America’s second-best company.
BY THIERRY OGIER

SAO PAULO — Duratex is a rather discreet company. In spite of its fast growth performance and a spectacular marketing campaign that recently scattered 60 fiberglass rhinoceroses in the streets of Brazilian cities to celebrate the company’s 60th anniversary, its executives keep a low profile.
Yet, Duratex emerged as No. 2 in Latin Business Chronicle’s annual ranking of Latin America’s 100 Best Companies — and, indeed, the best Brazilian company.
Brazil is the company’s home market for wood panels, china and metal fittings, with sales of $1.6 billion in 2010. Duratex ranked only 190th on the Latin 500 — Latin Trade’s annual list of Latin America’s biggest companies, ranked by revenues — but it placed in the top 10 in terms of revenue growth.
“Only strong brands last more than 60 years,” trumped the multicolored rhinoceros-based marketing campaign. The rhino is the company’s logo for its various brands (including Durafloor, Deca and Hydra) and is designed to reflect strength.
Duratex emerged from a small office in downtown São Paulo in the early 1950s and now has 14 plants in Brazil and one in Argentina. More recently,  the company also has taken advantage of a very supportive environment in the domestic housing market. Henri Penchas, the CEO of Duratex, has acknowledged that the construction boom and social mobility (the fact that parts of the new middle class had a first access to home ownership) were extremely positive factors. The company also exports to more than 35 countries.
Duratex has some powerful shareholders. Itausa, the holding company that controls the Itaú Unibanco financial group, is one, besides Companhia Ligna de Investimentos. Duratex, like Itaú Unibanco, has long invested in the Brazilian market potential, and it has managed to make the most of the recent high growth period.
“We are looking forward to the future, and we are confident that the economic expansion cycle is sustainable in the long run,” Flavio Donatelli, CFO of Duratex, tells Latin Trade. “The demand for housing and durable consumer goods has increased a lot in recent years, thanks to the rise of the C-class [new middle class], and there is a lot more to come.” Still, Donatelli has acknowledged some slowdown in the first half of the year “due to the government’s macro-prudential measures” to curb inflation.
The acquisition of Satipel in 2009 allowed Duratex to boost its position in the so-called medium density fiberboard (MDF) segment beyond its traditional presence in medium density particleboard (MDP). Duratex, which owns its own forest and is supplied with certified timber, later decided to invest 1.2 billion reais (about $700 million) within five years in two other MDF plants, where margins are higher. Those are due to be launched in 2012 and 2014, which should support Duratex’s medium-term growth.
Meanwhile, Duratex also will “feature among the world’s top five in sanitary ware,” says Donatelli, thanks to an investment of 400 million reais in its Deca division, which makes the ceramic plumbing fixtures. The company’s metal-fittings division already is No. 1 in the Southern Hemisphere.

editorial@latintrade.com

Port of Santos. Courtesy of Santos Brasil.

Santos Brasil – BRAZIL
Santos Brasil outperforms Latin American companies in revenue growth.
BY THIERRY OGIER

SANTOS — If you think some things will never change in Brazil, such as infrastructure, the experience of Santos Brasil is an invitation to think again. If you think there is little behind Brazil’s success besides commodities, again the leading Latin American container and car terminal tells another story.
Beyond Santos, Brazil’s busiest port, where it enjoys a 51 percent market share in container trade, the company has expanded south (in Imbituba, in the state of Santa Catarina) and north (in the port of Vila do Conde, in the Amazonian state of Pará). Furthermore, Santos Brasil has diversified its business away from the port itself and now handles logistics and distribution for Mercedes-Benz and other large multinational companies, such as Colgate-Palmolive and Kimberly-Clark.
True, Santos Brasil has surfed on the waves of international trade in recent years. “We have been lucky that correct investment decisions were made, and we were lucky to be ready to take advantage of this period of economic growth,” says Mauro Salgado, commercial director of Santos Brasil.
The company registered the strongest revenue growth in Latin America last year, according to the ranking of the region’s 100 Best Companies from Latin Business Chronicle, the digital sister publication of Latin Trade.
Santos Brasil continued to register a spectacular performance during the first half of 2011, when its gross revenues increased by 48 percent (including a doubling in car-handling activities), and its profits shot up by 236 percent to 83 million reais compared with the same period last year. Logistics, thanks to the acquisition of the formerly family-run Mesquita company in Santos and the investment in new distribution centers, now account for 20 percent of the company’s business.
Strolling around the state-controlled Tecon in the port of Santos some 15 years ago was a bit like taking a walk on the wild side. From a business point of view, it was a depressing site. But now it is a bustling terminal where human presence is dwarfed by the imposing presence of 14 cranes (only two were operating when the company was privatized in 1997) and piles of multicolored containers from various origins and destination.
“Shareholders have already injected some 2 billion reais in the Tecon Santos,” Salgado says. This was after a consortium led by controversial investor Daniel Dantas won the concession to operate the terminal in 1997 in a landmark privatization during the government of Fernando Henrique Cardoso. In 2006, Santos Brasil completed its IPO on the São Paulo stock exchange.
Productivity gains tell a large part of the story. In the once-sluggish port of Santos, where old cranes and strike-prone stevedores struggled to move 20 containers per hour in the late 1990s, Santos Brasil set a record at 80 per hour last August.
Santos Brasil is now on the look out for
new deals.
“[The rest of] Brazil and South America are on our radar screen,” says Salgado, who mentions Argentina, Chile and Colombia as possible targets for the São Paulo-based company, which has expanded from its Santos birthplace in recent years.
Meanwhile, the company is certainly concerned about the impact of the current crisis on international trade.
“It is going to have an impact. Our greatest concern is related to China,” Salgado says. “But we believe that the impact will be mitigated by the strength of the [Brazilian] domestic market.”

editorial@latintrade.com

Dot Baires mall in Buenos Aires. Courtesy of Alto Palermo

Alto Palermo – ARGENTINA
THE ARGENTINA SHOPPING-CENTER DEVELOPER LEADS LATIN AMERICA IN PROFIT GROWTH.
BY Charles Newbery

BUENOS AIRES ­— Alto Palermo, the biggest shopping mall operator in Argentina, is expanding as a consumer boom boosts profits.
The company, controlled by Argentine real estate developer IRSA, saw revenue soar 56 percent to 659 million pesos ($155 million) in the fiscal year ended June 30, 2011. Net profit more than doubled for the year, to 261 million pesos.
A revved up economy helped. After a 2009 slump, GDP expanded by 9.1 percent in 2010 and 8 percent in 2011, the fastest rates in Latin America.
The growth is generating new jobs and higher salaries, while government programs are reducing poverty. The unemployment rate fell to 7.4 percent in 2010, down from the 2001 crisis level of 24 percent. Poverty hit 54 percent in 2003 but at year-end 2010 stood at 8.3 percent. Inflation is high, at 25 percent annually, driving some spending as consumers accelerate purchases and buy more on credit to stretch out payments — and get goods cheaper, in terms of future prices. Low savings rates at banks also underpin the 30 percent rise in mall sales this year.
Alto Palermo is courting shoppers by stepping up its marketing efforts, expanding centers and building new ones, putting some in poorer neighborhoods where buying power is increasing. Alto Palermo currently operates a dozen centers, eight in the Buenos Aires area, home to a third of the country’s 40 million people, with others in the smaller cities of Cordoba, Mendoza, Rosario and Salta.
“We plan to continue growing and expanding, even beyond our current portfolio,” says institutional relations manager Carolina Lascano. “This is a sector that still has great potential for development and a long road to travel.”
Alto Palermo and its rivals aim to secure a bigger slice of the retail pie. Malls generate only 18 percent of retail sales in Argentina, versus 23 percent in Chile and 31 percent in Brazil.
This year, Alto Palermo launched a humorous TV commercial that illustrates how malls have been incorporated into Argentine culture. In the spot, a young man in plain clothes watches shoppers stroll by in Alto Avellaneda, a mall on the southern outskirts of Buenos Aires. “Is everything a brand in our lives?” he asks. He concludes that it might be better if there were no brands. “It’s something to think about,” he says before he turns and walks away, revealing an Adidas logo on the back of his jacket.
Developers including Alto Palermo will collectively invest $700 million to expand the roster from 94 covered indoor malls as of 2011 to 120 by 2013, according to the Argentine Chamber of Shopping Centers. Construction is spreading across the country, from Rafaela in the western province of Mendoza to Ushuaia at the southern tip of Argentina.
Alto Palermo is responding to the increasingly competitive environment with discounts, loyalty programs, marketing and promotions. It has staged an opera inside its properties with singers dressed as ordinary shoppers as well as a confessional where shoppers can admit to their addictions and show off their latest purchases on camera. The videos are uploaded automatically to Facebook and YouTube.
Tenants are as cheery about the future, with occupancy rates running at nearly 100 percent at its centers.
Lascano attributes Alto Palermo’s success in part to location. Its centers are in residential neighborhoods that offer easy access by car, public transport or on foot. Cafes, movie theaters and restaurants keep traffic steady, she says.
Not all is bright, however. Economic growth likely will decelerate to 4.6 percent in 2012 as a global slowdown reduces demand and prices for Argentina’s exports. The local economy may get more sluggish. In November, after the government stepped up capital controls and reduced public spending — moves that could dampen consumer confidence — economists downgraded their 2012 forecasts for GDP growth to as low as 3 percent.
Even so, popular brands like Billabong, Levi’s, Nike, Rip Curl and others have been demanding more space for their mall-based stores, prompting mall owners to scale back the size of food halls and entertainment venues to make room.
Alto Palermo also plans to diversify by entering the fledgling outlet business, betting that brands will seek such opportunities to sell off excess stock, she added.
Then there’s the rest of the country, where malls are far less common.
“We believe that one of our challenges is to explore markets” in the interior of the country, in cities of more than 300,000 people, Lascano says. “We believe the retail sector will remain solid.”

editorial@latintrade.com

Other Stars
A brief look at thE TOP 10 Of the Best Companies ranking.
BY MARY SUTTER

#3 EcoRodovias, Brazil
EcoRodovias is one of Brazil’s leading infrastructure and logistics companies, and its success reflects the booming national economy. It was founded in 1997 as the highway concession division of engineering and construction firm Grupo CR Almeida, which retains a majority interest. EcoRodovias today operates five major roadways, including the Anchieta-Imigrantes System that links the São Paulo metropolitan region with Santos, the country’s most important port.
In addition to operating toll roads, the company has a minority stake in Serviços e Tecnologia de Pagamentos, which operates electronic toll and parking-lot fee collection systems nationwide. EcoRodovias also has a growing intermodal logistics division, which consists of specialized port terminals; customs, warehousing and terminal services; transportation services; and distribution centers.
In 2010, EcoRodovias expanded its logistics business via the acquisitions of Columbia, a company with roots in the coffee and cotton sectors; and of EADI Sul, whose coverage extends into the other member nations of Mercosur.

#4 Ferbasa, Brazil
The global commodity boom is keeping mining companies busy, including 50-year-old Ferbasa. The company was founded in Brazil’s Bahia state in 1961, then with a focus on chrome ore. Today its operations also include reforestation and metallurgy. It is Brazil’s largest producer of ferrochrome alloys, which are used to produce special steels, such as corrosion-resistant varieties; high alloys, used by automobile manufacturers; and stainless steel, which is primarily used by the consumer-goods industries. Ferbasa’s reforestation activities are guided by both its business needs and sustainability efforts. It manages eucalyptus plantations on the northern coast of Bahia that are its primary source of charcoal used in its ferrosilicon factory, which Ferbasa says is the only such green factory in the world. Although revenue increased 56 percent in 2010, profits surged nearly 300 percent for the year, and profits as a share of revenue averaged 22 percent from 2008 to 2010.

#5 Vale, Brazil
The Brazilian mining giant dwarfs the other companies in the top 10 of the 100 Best Companies, in terms of revenue and profits. The second-largest mining company in the world, Vale also is the third-largest company, by revenue, in Latin America, according to Latin Trade’s Latin 500 ranking. Vale’s core product is iron ore, which has been in high demand for projects around the world, including China, and the sale of which generates approximately 60 percent of revenue. Vale also has extensive logistics operations, originally built to support its own mineral activities, but has invested heavily in its capacity, fostering economic and export growth in Brazil, the company says. Its rail lines and proprietary railroads carry agricultural products, wood and paper products, fuels and chemicals, steel productions and construction materials within Brazil and to Vale-owned port terminals for international export.

#6 Milpo, Peru
Mining is one of Peru’s most robust industries, and Grupo Milpo has been enjoying high demand for its output. Via five operating units, the company is involved in the extraction of copper, gold, silver, lead and zinc in Peru as well as in neighboring Chile. To support future growth, Milpo says, it conducted extensive exploratory drilling in 2010, focusing its efforts on advanced prospects and projects. In the first quarter of 2011, the company again reported robust revenue growth, driven by higher mineral prices and by increased treatment capacity at its Cerro Lindo plant. Peru’s entire mining industry faces higher costs going forward after President Humala raised royalty rates on the sector. And like the rest of the sector, Milpo’s financial performance will be closely linked to the prices for the metals it extracts.

#7 CAP, Chile
CAP Group traces its history back six decades, having opened its first steel plant in 1950. Today the Chilean holding company operates three principal units: CAP Mineria, which produces iron ore and pellets in northern Chile via Compania Mineria del Pacifico and its subsidiaries; CAP Acero, which operates via Compañía Siderúrgica Huachipato and produces steel products; and CAP Soluciones en Acero, which supplies the construction, industrial and infrastructure sectors in Chile and abroad through Novacero and a number of subsidiaries, including companies in Peru and Argentina. The massive earthquake that struck Chile in 2010 forced the group to suspend steel production for four months after a key facility was heavily damaged. At a group level, the company nonetheless reported higher revenue in 2010 and reported a record US$590 million in profits for the year, compared with a net loss for the year in 2009.

#8 Cia. Hering, Brazil
Cia. Hering has a long history in Brazil, founded in 1880 by a German immigrant who came from a weaving family. The company began as a small weaving mill in Blumenau, in the southern state of Santa Caterina, and was a successful textile business before expanding into finished garments and apparel sold under the brand names Hering, which makes both men’s and women’s fashions, and the children’s lines PUC and Hering Kids. In 1993, the company opened its first stores as franchises and now claims to have brand recognition among 90 percent of Brazilians. Cia. Hering’s growth strategy focuses on international retail expansion. Hering stores are currently in four markets outside Brazil: Bolivia, Paraguay, Uruguay and Venezuela. The company remains controlled by the family.

#9 Modasa, Peru
With mining and other key industries driving Peru’s economic growth, Motores Diesel Andinos is keeping those sectors moving. The company produces, assembles and sells commercial vehicles, generators, chain saws, spare parts and other industrial and automotive equipment and components. It licenses such brand names as Volvo and Perkins. The operation has become increasingly profitable, with net income averaging 119 percent growth from 2008 to 2010. But last year, Modasa saw revenue increase by 185 percent, to $192 million, compared with 2009, and profits surged 412 percent.

#10 Compania Minera Autlan, Mexico
This Mexican mining company, majority-owned by Grupo Ferrominera, specializes in the extraction and production of manganese ore (used in steel) and ferroalloys. The company says its Molango mine, in the northern state of Hidalgo, contains one of the world’s largest deposits of metallurgical-grade manganese, with several decades’ worth of reserves. The company reported huge increases in revenue and profits in 2010. However, it has subsequently noted that revenue and profits in 2011 are affected by lower prices for manganese ore and ferroalloys, coupled with higher prices for electricity. During the third quarter of 2011, Minera Autlan’s parent company inaugurated the Atexcaco hydroelectric facility, which it says will meet 25 percent of its power-supply needs. Ferrominera plans to invest more in hydroelectric as well as wind power to generate a higher percentage of its own power needs. Minera Autlan also is exploring a product diversification to include lightweight carbon materials for industrial applications.

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