As Brazil’s largest producer of biscuits and pasta, M. Dias Branco is the type of company that can provide notable insight into trading conditions in the country.
Last month, the business behind brands like Amori cookies and Fortaleza pasta booked a 20% jump in half-year revenues, boosted by higher selling prices and an increase in sales volumes. Net profit was also up.
However, M. Dias Branco’s success in pushing up prices was not enough to protect margins. The company saw its EBITDA margins fall by 2.6 basis points in the first half of 2013, hit by the devaluation of the Brazilian real against the US dollar, which has pushed up its wheat bill.
The fall in the value of the real has been a consequence of the slowdown in the Brazilian economy, itself prompted in part by a cooling Chinese economy. Global investors have been offloading assets in emerging markets as they slowed and as the US economy has improved, leading to speculation the Fed may up interest rates. Brazil’s GDP growth in 2013 and 2014 is expected to be higher than the 0.9% posted in 2012 but forecasts have been lowered throughout the year.
However, there is, among many FMCG companies, confidence in Brazil’s long-term prospects, which is shared by M. Dias Branco.
“In spite of the short term challenges, we maintain a positive outlook for the Brazilian economy in the long term,” Geraldo Luciano Mattos, the company’s vice president of investments and controlling tells just-food.
In the short term, consumer good companies are hoping to benefit from next year’s football World Cup, which is being held in Brazil, and the 2016 Olympics, which is taking place in Rio. The World Cup was a factor in the recent nationwide protests against the Brazilian government but Mattos believes the food industry can exploit the public investment put in for the events.
“The food sector can take advantage of the economic growth these events can bring to the country as a whole, as well as all the improvements made in the local infrastructure, where the Brazilian government has invested a large amount of money,” he says.
Mattos says the company is investing between BRL200m and BRL250m this year, and a similar amount in 2014, to modernise and expand its production infrastructure around the country.
M. Dias Branco has been slowly stepping out of its comfort zone in the Brazilian north-east region, where 70% of its market is, increasing its presence in other areas of the country, as well as entering new categories.
The company manufactures a variety of products such as margarine, wheat flour and snacks. M. Dias Branco is also the second-largest baked goods (cakes, pies, biscuits and breakfast cereal) seller in Brazil, after Pandurata Alimentos, which owns the popular brand Bauducco. However, pasta and biscuits continue to be its strong point. It accounts for 27% of biscuits sales and 27.3% of the pasta market, the category leader in both. Biscuit sales volumes were up 5% in the first half of 2013; pasta volumes grew 12%.
Mattios says M. Dias Branco “is working on increasing sales in cities in which it does not have a large market share yet”. However, he says the company is also always looking for opportunities to acquire rival companies or to expand in its current markets or enter new ones, although he refused to reveal if they are targeting any particular firm.
One of M. Dias Branco’s most recent acquisitions was in the biscuits sector, which it acquired local rival Pelágio in 2011 for BRL240m. After that, it also purchased the mill Moinho Santa Lúcia, in 2012, for BRL90m. “All the companies that we have acquired have showed a good sales performance. The result is in our sales growth and market share participation,” Mattos says.
Alongside monitoring potential M&A, M. Dias Branco is looking at organic growth, Mattos says, including in Brazil’s north-eastern state of Bahia, where it already has a significant presence.
“Our investment plan in Bahia began in the year 2000. In 2003 we opened a wheat mill in that state and in 2005 a pasta manufacturing facility and a biscuits plant. Now we are in a stage of expanding our production and the stocking space,” Mattos explains. The company is also planning to build three more mills, two in the north east and one in the south, and is investing in the construction of a toasts facility and one for cake mixtures.
Looking ahead, Mattos believes M. Dias Branco’s biggest businesses can continue to prosper. “Demand for pasta, biscuits and snacks in Brazil can continue to grow, and the snacks market is the one showing the fastest growth locally,” he says.
Despite the slowdown in Brazil, M. Dias Branco, like many of its domestic and international peers, believes in the country’s long-term prospects and, with a mix of organic growth and M&A, can itself prosper.
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