After Two Months of Contraction, Brazilian GDP Remains Stable in May

After two months of contraction, the Brazilian economy remained stable in May. According to the metric from the Central Bank (IBC-Br), the activity had a modest rise of 0.03% in May compared with April, when it had shrunk 0.88% (revised from 0.84%), in the seasonally adjusted series.

May result was below the estimated by analysts. The average forecast suggested a high of 0.1% in May.

bancocentralIn the 12 months ending in May, the IBC-Br shows a decrease of 1.68% in the adjusted series and fall of 1.72% in the observed data. Due to the constant indicator reviews, the IBC-Br measured in 12 months is more stable than the monthly measurement, like the Gross Domestic Product (GDP). In the year, the IBC-Br decreased 2.78% without adjustment and 2.64% without adjustment for seasonality. Compared to May 2014, the activity shows contraction of 4.75% without adjustment and 3.08% in the adjusted data.

The Central Bank (BC) continues to add to its data the new methodology adopted by the Brazilian Institute of Geography and Statistics (IBGE). Thus, revisions are made steadily in the historical series. Data for December 2014 went from 0.97% to 0.95% contraction. In February, the growth was 0.71% instead of 0.7%; in March, there was a decrease of 1.53% instead of 1.51%.

Although it is known as “the BC GDP”, the IBC-Br has different calculation methodology from the official GDP calculated by IBGE. The IBC-Br takes into consideration the estimated production for the three sectors plus tax. But the GDP calculated by the IBGE is the sum of all goods and services produced in the country for a certain period.

In the June Inflation Report, the central bank projected a fall in GDP of 1.1% in 2015. Analysts consulted for making the Focus bulletin estimated contraction of 1.5%.

Pão de Açucar (CBD) Post 6% Sales Growth in Q2. Highlight is Food Sales

Grupo Pão de Açúcar (NYSE:CBD) reported net revenue of R$ 16.1 billion in the second quarter 2015, representing an increase of 6% year over year. The food segment rose 6.4% on the same basis of comparison, to R$ 8.95 billion, and non-food has advanced 5.3% to R$ 7.17 billion.

pao-de-acucarAccording to the company, the quarter sales performance was negatively impacted by the effects of the Football World Cup, which took place in the same period of 2014 and Easter sales, which happened partially in the first quarter of 2015 and in the previous year it had happened all during the second quarter.

CBD also states that the more cautious consumer landscape, due to the macroeconomic environment, affected the performance of the quarter.

Same store sales retreated 2.9% in April, May and June, with a negative highlight to Via Varejo (which includes the brands Casas Bahia and Ponto Frio), and fell by 23.5% in this indicator.

Within the food segment, multivarejo, which includes the brands Extra and Pão de Açucar, had an improvement of 0.7% in revenue in the quarter to R$ 6.51 billion.

Assaí, which is the group’s wholesale chain, was the positive highlight with a high of 25.6% to R$ 2.45 billion, with same store sales above inflation and market share gain.

The food segment opened 141 stores in the last 12 months, being 120 proximity (small) stores, seven Pão de Açucar four Extra, nine Assaí and one drugstore.

Within the non-food segment, Via Varejo’s sales fell 21.7% in the quarter to R$ 4.32 billion.

The sale of televisions retreated 56.6% over the previous year, with an impact of 10 percentage points in the total fall. The main factor for this performance was the strong TV sales performance during the Soccer World Cup last year.

The company claims that a number of additional measures have been implemented to adjust its expense structure, covering all operational and administrative areas, in order to mitigate the effects of inflation on fixed costs and the lower dilution of expenses.

Disposable Income Drops 10% in 6 months in Brazil

The combination of high inflation with layoffs and wage loss caused a downturn of unprecedented proportions in disposable income for consumption in Brazil. The Monthly Employment Survey (PME) of IBGE shows that real wages decreased by 10% between November 2014, peak of recent years, and last May. In the crisis of 2003, a decline of this magnitude happened after eight months of deterioration in the labor market. In the 2009 crisis, despite the recession, there was no drop in payrolls of this magnitude.

The decline is highlighted in part because of the seasonality for jobs. November is traditionally a strong month in terms of jobs created for the end of the year. Adjusting for seasonality, the drop indicates a nominal income 4.7% lower. In this series, the largest and only previous loss (considering the clipping six months) was 2.8% between April and October 2003.

While some of the effects of this drop in disposable income is already affecting the economy, the spiral effect that it can cause is probably just starting and will affect the Brazilian economy more heavily in the second half and into 2016.

Petrobras to Pay R$ 2.2 billion to ANP – National Oil Agency

Petrobras (PBR) reported today, after the market close, that the Arbitration Court issued on July 2nd, an interim decision on the arbitration proposal by Petrobras regarding the resolution of ANP (National Agency of Petroleum, Natural Gas and Biofuels), which considers the concessions Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu, Jubarte and Pirambu as a single field from the second quarter of 2014.

The interim decision determines that Petrobras starts to deposit quarterly, on behalf of ANP, the controversial “special participations”. Based on the current price of oil and the current production in the field, this amount will be approximately R$ 350 million per quarter. “Although the amount is pending confirmation by the parties, the value previously estimated by the ANP is R$ 2.2 billion”, Petrobras said, stressing that “it is a decision of preliminary nature, given that the arbitrage has not decided on the merits of the matter yet”.

More on Petrobras

Brazilian Antitrust Council Investigates 15 Foreign Financial Institutions for FOREX Manipulation

Brazilian antitrust council, CADE (Administrative Council for Economic Defense), opened an administrative process to investigate alleged cartel consisting of 15 foreign financial institutions in order to manipulate the foreign exchange market. It is the first antitrust case in Brazil for manipulating rates in the financial market.

Financial InstitutionSome of these banks have been investigated for the same practice in the UK, Switzerland and the United States, in cases that came to light in 2013 and which totaled over US$ 5.8 billion in settlements and fines. The Brazilian investigation started from a leniency agreement signed by a cartel participant with CADE and the federal prosecutors. The bank in question, whose name is kept confidential, requested full immunity after cooperating. The institutions investigated in the Brazilian process are: Standard Investment Bank, Bank Tokyo Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Nomura, Royal Bank of Canada, Royal Bank of Scotland, Standard Chartered and UBS, as well as 30 individuals.

Read More:

Brazilian Banking
Brazilian Antitrust Council
Brazilian Exchange Rate

Petrobras Plans to Raise US$ 6 Billion with Sale of its Distributor, BR Distribuidora

The sale of a slice of BR Distribuidora or attracting a private partner for the company will be the first step in Petrobras’ (PBR) asset sale plan, necessary to reduce the company’s debt level. Last night, the company officially announced this intention. The plan is to try and complete the operation this semester.

BR Distribuidora Gas StationThe state-controlled company considers the possibility of two operations: an IPO (initial public offering) and/ or to attract a partner. The IPO would promote a ‘governance shock’ in the company, which is now a wholly owned subsidiary of Petrobras. The ‘benchmark’ is Ultra Group – Ultrapar (UGP).”

BR Distribuidora is the largest distributor in the country with 7,797 gas stations. It has 36.9% of the fuel market, with sales of R$ 121.7 billion and profit of R$ 1.1 billion in 2014. Ultrapar, which has 7,100 stations, sold R$ 69.7 billion and had a profit of R$ 1.2 billion.

Using the market value of Ultrapar as a reference – today, around 12 times its cash generation (EBITDA) – it is possible to estimate that BR can be worth close to R$ 40 billion. In theory, to sell half of the shares, Petrobras would raise R$ 20 billion (aprox. US 6 billion) However, because it is state owned, investors may demand a reduction in multiples.

In the announced business plan for 2015/2019, Petrobras set a realistic target of increasing oil production – from 2.8 million barrels per day to 4.2 million in 2020. The next step was to announce an ambitious assets sales plan, US$ 58 billion in four years. “We will combine realistic production goal with sale of assets, attract partners, reduce costs and a better way of doing things. We forced this situation on purpose and the announcement about BR is the first major move in that direction”, he said. In the model to attract partners, Petrobras plans to have different partners in different parts of the business.

Apple’s main rival, the Chinese Xiaomi arrives in Brazil with smartphones at R$ 499 (aprox. US$ 160)

Chinese giant Xiaomi finally landed in Brazil. After suggestive pictures on Facebook and suspense, the company announced on Tuesday (30) that it has begun to sell: the Redmi 2 smartphone, the activities monitor Mi Band and the PowerBank super charger.

The smartphone is the flagship: direct competitor of the iPhone 6, the Redmi has 4.7-inch screen, the operating system Miui 6 – based on Android – the Snapdragon 410 processor (the same as the Galaxy Duos A5), and 8GB of memory; as technical differential, the device is the first to have support for 4G Dual Sim – that is, one can use 4G in two chips from different operators.

Xiaomi_Redmi_2_4G_LTE_Dual_Sim_Snapdragon_410_Quad_Core_1GB_8GB_4.7inch_IPS_Smartphone1420340807What draws attention in addition to the technical characteristics, is the price. R$ 499 per smartphone – compared to R$ 3,200 for the 16GB iPhone 6. According to Hugo Barra, vice president of Xiaomi, this is one of the company’s traditions: to offer quality at a fair price.

The phone is available in several colors and, at first, will be sold only via the mi.com website from July 7. Pre-sale is available since today.

The Mi Band, in turn, is a bracelet that monitors user activities, including their sleep.

Finally, the third product to be sold in Brazil, the Mi Power Bank is an energy bank, famous 10400 mA “portable charger”, capable of charging the Redmi 2 up to 3.5 times without having to be connected to a source.

For now, the smartphone is the only product of the company manufactured in Brazil, in the city of Jundiaí. The other products still come from imports and will also be sold through the website, on the same dates.

United Airlines to Buy 5% stake in Brazil’s Azul Linhas Aéreas

Azul Linhas Aéreas and United Continental (NYSE:AUL) announced an agreement on Friday under which the US company will buy 5 percent of the Brazilian company’s capital for $100 million.

Azul is the third-largest airline in Brazil and operates more than 900 daily flights in Brazil to 105 different destinations with its fleet of 145 commercial aircraft. Through the investment, United Airlines will be able to offer code-sharing flights in different regions of Brazil, along with the North and South American region

United Airlines

The partnership will also enable United to have a member in the board of Azul, offer code-sharing flights in different regions of Brazil and North and South America. The companies will also integrate their frequent flyer programs Mileage Plus, from United and TudoAzul, from Azul.

The founder of Azul, David Neeleman, told in a news conference that the main purpose of the agreement is to face international networks offered by Gol with Delta (NYSE:DAL) and by Tam/ Lan (NYSE:LFL) with Oneworld.

In between 30 and 45 days, United flights should already be integrated into the Azul systems.

Nestlé Health Science is Looking for Acquisitions, including in Brazil

Nestlé Health Science, Nestlé’s subsidiary in healthcare, is going back to shopping this year. Greg Behar, CEO of Nestle Health Science, said that they are evaluating options in the United States, Europe, China, Japan, Australia and Brazil. The target companies are those that develop products and dietary supplements used in hospitals or home health care. “I hope by the end of the year to make some acquisitions around the world. The interest is greater in countries where there is greater support of the health system”, Behar said.

Nestlé currently has 5% of its revenue coming from Brazil.

After the Merge with BG, Shell will have 20% of its Global Production in Brazil

Responsible for the biggest oil industry M&A deal in the past decade, the president of Royal Dutch Shell, Ben van Beurden, does not rule out increasing the company’s exposure in Brazil, expanding the already billionaire investment program that will be put in place following the merger with BG.

After the merger of $ 70 billion is completed, which is expected for early 2016, after regulatory approvals in several countries, Brazil will be the country with the largest stake in Shell’s production portfolio. Even with its partner Petrobras involved in a corruption scandal, the Dutch executive says it is closely watching, but trusts the technical expertise of the state-controlled company.

Beurden estimates that Brazil will account for 20% of global production of the company when some of the projects under development by the two companies

come into operation, including Libra, which Shell has 20%, and the giant pre-salt fields where BG is a partner, like Lula and Sapinhoá, to name a few. The executive points out, however, that the appetite of Shell does not stop there and is willing to increase its presence in Brazil. He does not rule out participating in the 13th Round of the National Petroleum Agency (ANP), scheduled for October.

“I believe that the fundamentals of Brazil are very strong and, particularly, if you look from our perspective, we are investing in a world-class resource. We have to be optimistic. And I am.” he said, concluding that he will “look seriously” to the ANP auction data.

Shell chose Brazil for the annual meeting of its board of directors and the executive committee. A testament to the appetite of the Anglo-Dutch company with the country is that Brazil should stay out of the sale of $ 30 billion of assets, planned program to take place between 2016 and 2018.

Speaking to newspaper Valor Economico, Beurden listed projects in the country, including Raízen distributor partnership with Cosan, and explained that investing in the Libra auction came from the realization that Shell’s participation in E&P was small in the country.

“We always had the perception that our presence was not big enough, considering the size of the country, its reserves, and also due to its geology. We thought we needed to be more exposed to Brazil and the deal with BG will fix it.”

Shell invested $ 35 billion in 2014, largely on the company’s organic growth program. In 2015, the plan is to reduce the investment through cost cutting, forced by falling oil prices.

“We want to take a little advantage of the supply chain weakness. We are putting off investments, renegotiating contracts and, of course, questioning ourselves about some projects”, he said. “But we’re still looking at more than $ 20 billion investment in 2015. In 2016 and beyond it’s hard to predict because we have to consider the portfolio of Shell and BG, combine the two and decide which areas to prioritize.”

It is a fact that Shell will sell some assets, but Beurden ensures that “there will no fire sale”. He said Shell will be investing, with annual program of $35 billion to $40 billion. The expectation for the long term is that oil prices remain in the range of $70 to $90 per barrel. Yesterday a barrel of Brent crude closed at US$ 63.34, for example.

On the asset sale program, the executive said that two main areas, that even justified the merger with BG, will be left out: the areas of exploration and production in deep waters and the integrated gas business, as the company refers to the projects of Liquified Natural Gas (LNG).

The oil and gas projects of unconventional sources should go through further scrutiny. The involvement of Petrobras in what is already one of the biggest investment corruption scandals in the world was discussed before the offer for BG, which is relevant partner of the state-controlled company in the pre-salt.

Beurden says it is “uncomfortable” to read the news involving the Brazilian oil company, but says that as a partner of Petrobras in Libra, Shell did not notice any side effects on the projects.

“Of course when the agreement with BG completes, Petrobras will be an even greater partner. We discussed this a lot with our board before presenting the proposed merger and take a fundamental decision, based on the fact that Petrobras is very important for Brazil. It is a company we know well from a technical and commercial point of view and regard it as a first class company on the technical expertise and competence”, he said.

The executive also said that it was considered the possibility to involve BG in the corruption investigations, since the British company is a partner of the pre-salt areas where took place the projects led by Petrobras’ Service Board, under Renato Duque (arrested by the police) and the snitch Pedro Barusco (head of engineering).

“Up until now, this is clearly not the case. But it is very difficult to have a clear vision. It’s still too soon and you never know what else can come from this investigation”, he said. “We did a due diligence with our counterparts in BG after we discussed the commercial terms and I can say that was the first question we asked. And of course one can only give guarantees based on what they know. And I don’t know what I don’t know. But so far, there is no concrete indication of risk [of BG involvement]”, he said.

Admitting concern over delays in platform delivery schedules, Beurden said the bid for BG suffered a “discount” on the basis of identified problems, which were not enough to stave off Shell. “Our business, in a sense, is risk management. So, we may have surprises, we may have some negative events, but in this context, it’s no different from any other project”.

Information and news for people considering or actively investing in Brazilian stocks or bonds.

Don't miss the news related to Brazil investment!


Subscribe to this blog and receive notifications of new posts by email.