An Image that Regains Value

The companies that managed to make the leap to the top of the ranking and the companies that surprised us with their exit. The industries that drive market perception at an international level. How has the situation had an impact on each sector?

Last year was not an ordinary one for the Argentine economy. Hand in hand with the midterm elections, which consolidated the openness model based on measurable economic bases, the local market and the companies that make it up received the message. This is confirmed by the new edition of the ranking of the top 100 companies with the Best Image in Argentina. After years of variations that ranged from three to four positions gained or lost, the list made by SEL Consultants exclusively for Apertura magazine, shows significant changes this year. It can be inferred from the more significant changes in the general ranking that our economy has reorganized its sectoral matrix around Finance, Supplies, Technology, and Health. The most prominent example is Pampa Energía, which climbed 107 places to reach for the first time the top of mind, where it holds the 40th position. Other examples are Sancor Seguros and BBVA Francés, which improved their performance by climbing 70 and 29 places, respectively. For its part, Despegar.com boasts about its successful landing at Wall Street in September 2017, with a growth of 30 positions, while Bagó Laboratories closes the group of the most relevant climbs with a jump of 21 spots. “During the last two years, there was a very significant change on how image is built. Today, exposure of management and company information on networks are the most important factors, while media and advertising actions are placed on a second level of importance,” stated María Laura Cali, Executive Director of the company that prepares the ranking. “This change strengthens the need for team work because all voices count today in the formation of image, starting with the voice of the CEO and following with each voice that speaks about the company,” summarized the executive officer. It is worth mentioning here that the consulting firm founded by Ernesto Kritz drew the sample from 260 responses of opinion leaders: entrepreneurs (190), business consultants (35), and specialized journalists (35).

From a general perspective, this time it is the financial sector which marks a milestone. This is not surprising after a year in which the investment in instruments such as Lebac, Letes or UVA mortgages, but also in mergers and acquisitions (M&A) competed head to head with the Argentine weakness for the U. S. Dollar. Led by Banco Galicia, which returns to the top 10, the financial entities record five of the major improvements among the 25 best-ranked companies. Among them, American Express achieves the second most prominent climb: from the 27th to 17th place.

However, at the top of the general ranking, Arcor leaves no room for interpretation. Captained by Luis Pagani, the Company maintains the pole position at 53 points away from the second place, Organización Techint. The change comes in the third place, where Toyota boasts of a performance that accounted for the honor of being on the top of the world best selling cars ranking, with 8.7 million units sold, according to data from the global research company Focus2Move. In the image ranking of APERTURA magazine, the bottom line is that the car manufacturer led in Argentina by Daniel Herrero overtook Unilever, which this time ends up in the fourth place, suffering from the expectation of an improvement in the consumption that still has the handbrake on. The good news for the sector is that Natura anticipates a light at the end of the tunnel, with a climb of seven places, the largest change in the top ten.

Interview to Luis Pagani

“Cutting Inflation to One Digit is Taking Longer than I Thought”

The CEO of the largest food company of the country projects one year of consolidation for the local economy. Among the warning lights, he warns about the commercial deficit and the lack of clarity to continue on the path of transformation.

Gone are the sounds of a city that in this Tuesday of February is organizing the first strong march of the year. On the 23rd floor of the Sheraton Park Tower, area of Retiro, the thick carpets of the presidential suite generate a cone of silence and calm that Luis Pagani will use to look beyond the current situation. In dialog with APERTURA magazine, Arcor's President is confident that, despite the local and financial noise generated during the first weeks of the year, the economy will finally begin the path to recovery. Among the main challenges in this path, he puts emphasis on the commercial, rather than the financial deficit: “Due to the level of indebtedness against the GDP in our country, I see no difficulty in honoring it. What I would like to see is that the debts we incur are allocated to transform, support or improve the infrastructure, rather than to cover the fiscal deficit. But I do not see that the international financing rate can greatly affect the local economy in the short term. I see a positive year for 2018, more than 2017”. Another issue is inflation, which is surprisingly resilient. “Cutting inflation to one digit is taking longer than I thought. And although it is halfway down, it is true that I would like it to be faster”, he stated. He expects improvements in employment, where the postponed labor reform would do well to aim to turn SMEs into the natural reservoir for the workers of an oversized public sector.

Enthusiasm appears when you are focused on the international horizon. From the G20 to the growing possibility that Argentina might be reclassified as an emergent market, Pagani sees more lights than shadows for 2018. His optimism is also based on the end of a year that allowed a Company with 21,000 employees around the world to expand its business. With US$ 3.1 billion in sales, Arcor added US$ 300 million to the 2016's result. Last year, Arcor included, among other milestones, the expansion of its interest in Mastellone and the purchase of paper mill Zucamor in US$ 230 million.

For 2018, he anticipates the arrival of a product that will combine innovation with healthy life. The novelty, that would be launched this month, promises to open new channels. “But if I tell you more, you will realize what we are talking about,” stated, amid laughter, this businessman whose Company manufactures products in 47 plants, across Argentina, Brazil, Chile, Peru, and Mexico. Far from self-complacency, the person in charge of the “Food” task force under the scope of the B20 recognizes that China as its object of desire. “It is still one of my dreams. At breakfast, we were talking about how difficult it is and the time it takes to get into that market. In the last 10 years, we made more progress in countries such as Japan, Korea, Thailand or Vietnam than in China,” said who last year managed to improve the Company's own trade balance, with foreign sales that reached US$ 270 million.

How much does the fall in consumption affect the Company?

I do not see it as a fall in consumption. What I can see is a different distribution of channels. There are some businesses who suffer more than others, such as the channel of supermarkets and large accounts, which has been suffering a drop in these past four years, but wholesalers have been growing. This shows that consumers are focused on finding the best price. The digital platforms are also appearing, although they are still incipient in the country.

Is inflation a matter of concern again?

It obviously concerns all of us and cutting inflation to one digit, which would be the goal, is taking longer than I thought. Although it is in a downward trend, and is halfway down, it is true that we would like it to be faster, and this situation causes anxiety.

Was the correction of the Government’s inflation target to 15% made by the end of last year the right step to reduce that anxiety?

That is something that I still do not understand. In my opinion, the announcement of December 28 was not enough. It was expected that the target would be changed and, basically, I have not seen they found a new path.

How much can the debt complicate this situation? Is the time for gradualism ending?

Due to the debt level against the GDP in our country, I see no difficulty in honoring it, although it is true that the rate price increased and there are still pending increases. However, if more debt is taken, I would like it to be to transform, support or improve infrastructure and not to cover the fiscal deficit.

Then, how is the business scenario projected for 2018?

I see a positive scenario for Argentina. This infrastructure plan is something tangible and not only in the City of Buenos Aires and Greater Buenos Aires. Another issue is energy and renewable energies. There is also talk of some mining projects. All of this is the positive side. I also believe that if the Government wants to see transformations this year, it will have to make its best because next year is an electoral one. The issue of exports, and the lack of competitiveness that Argentina has in several areas are matters of concern.

What should we expect from the new products among the 200 products launched by Arcor each year?

One of them will combine innovation and healthy life. We plan to launch other products that may involve entering new categories. It is a product that we were going to release last September, but we decided to postpone it for March due to seasonal reasons. It will have channels that are different from those regularly handled by Arcor. But if I tell you more you will realize what we are talking about (he laughs). Apart from that business, we will boost the area of products for Celiac people; today we have more than 300 products.

As regards investments, do you intend to continue expanding your vertical chains as you did in 2017 with Zucamor? And for that purpose, do you plan to return to the market of Corporate Bonds (ON, for its acronym in Spanish) after the US$ 150 million of 2017?

Our plan is to invest US$ 100 million. With regard to the Corporate Bonds, we have not planned any issuance for the short term in 2018. And, regarding acquisitions, we have no projects. - Do you think it is a bad year for M&A? First, we have to integrate Zucamor and then continue with the Mastellone transaction. With that, we already have several challenges. In addition, within our field, i.e. Food, Consumer Food and Packaging, I have not seen anything interesting.

How much can the incipient recovery of Brazil help with exports?

Brazil is doing good since last year. With regard to 2015, the volumes were not recovered. This will be increasing slowly. It is perhaps a better year for trading with Argentina since the balance continues to be negative. In our case, at a general level, exports showed growth, albeit slow. Arcor exports more chocolate confectionery from Mexico than from Argentina.

How much more will the dairy business increase its footprint in Arcor's portfolio?

For the moment, apart from Mastellone, we do not anticipate any shareholding in other companies. Some of your colleagues asked me if we were going to buy SanCor (he laughs). But competition is good. In Mastellone, we will continue with the proposed plan until 2020, taking different parts of the shareholding. Last fiscal year was good despite the fact that the dairy sector has recently undergone a serious crisis. Today, the balance is good.

Has SanCor reasons to survive?

By what I can see, Fonterra (Editor's Note: The New Zealand company and cooperative that is made up of 10,500 producers, has a turnover of more than US$ 12 billion and operates in 140 countries) is planning to keep the largest interest in the company. It will take control of 6, out of the 14 plants. I believe that the involvement of a player like Fonterra is positive, because Argentina recovers a place in the world again. Today, the local sector lacks raw materials to return to lost markets. Ten billion liters of milk are produced each year, while there is potential to produce 15 billion. We have been stuck on that brand for 20 years.

How much can the settlement with the EU strengthen you?

For the time being, and even if it is signed shortly, it will be a letter of intent for an agreement, which is going to take years. Specifically, they need to explain to the sectors that will be involved what it means to be integrated into such a market. Its dimension has not been clearly explained.

Wouldn't the Pacific Alliance have been better?

In my opinion, it would have been the space where Argentina has more to win, because those markets are the largest consumers of our products. Argentina has more chances of placing its products in the Pacific markets than selling them to the Spaniards (he laughs). For the EU-Mercosur agreement to work well, there are internal matters of the block that have to be resolved. It would be good to have better relationships. There should be more trust between the private sector and the public sector.

What opportunities does the B20 have?

The more the B20 recommendations are aligned with the priorities of the G20 agenda, the more opportunities the B20 will have. I believe that the opportunities will also come with our ability to build consensus.

Then, what is the potential of the B-20 to enhance the Argentine food sector so that it can become a food engine for the world?

On the one hand, we have to continue with topics that were already existing. On the other hand, we can suggest that Mexico, Argentina, Brazil, and Australia have a common position, as China and India or the EU already have. The team that I lead is the Sustainable Food System Task Force. It is made up of a coordinating team of 10 organizations and more than 60 companies and institutions of G20 countries. We have already made progress not only in the preparation of a document that summarizes the challenges but also in the focal points of future recommendations. Among the challenges, we can find sustainable production, global trade of food, responsible consumption, and food loss and waste. This is a great opportunity to impact from a regional perspective on the global agenda of our industry, and on the public policies of G20 countries.

Has the Government's tax reform gone far enough? What is your take on it?

For the companies, it is positive even though it provides for a five-year gradualism; however, it is an aid for investments and, in the case of our Company, it has a strong degree of reinvestment, which is positive. And it helps with the gross income tax, which was part of that lack of competitiveness. This is going on the same line to correct the problem.

However, isn’t the spirit of the reform blurred?

The issue is that there is an informal economy that accounts for 30% of GDP and that we need to reduce. And the Government, in turn, needs financing. Then, both needs have to be joined.

How right was the Government to postpone the labor reform?

It will not be too different for a company that has all its employees duly registered. But it will certainly help small and medium-sized enterprises. Because, more than a reform, it is going to be an opportunity to set the record straight in terms of employees.

What is the impact of this back and forth in reforms on international investors and companies?

Their attention is focused on the tax reform. Regarding the labor reform, it has less importance. The reason is simple: the tax burden in Argentina is very heavy for any incoming investment. Moreover, if you have to export, the tax burden makes the difference.

Another of the expected reforms is the Capital Markets Law...

I know what you are trying to say (he laughs deeply) and I anticipate: over the next three or four years there is nothing that can warrant going public.

If the law is enacted, would the re-issuance of Corporate Bonds change the situation for Arcor?

It would be a good thing in general, because a big flaw of Argentina is that there are no capital markets. If it is enacted, and if Argentina is reclassified as an emerging market, this would definitely put Argentina back in the world.