Brazil’s economy is thriving. Last month the benchmark Bolsa de Valores de São Paulo stock market index set a new record, topping out at 42,069 on November 23. Unemployment is down, the middle class is growing (and spending) and October’s reelection of President Luiz Inácio Lula da Silva holds out the promise that the era of prosperity will continue.
Even when business is booming, however, not every company will succeed. The ones that do all have one element in common: effective leadership. They are helmed by executives with vision, insight and determination.
Who are the Brazilian executives who best exhibit these characteristics and inspire confidence in investors? To find out, Institutional Investor surveyed directors of research and portfolio managers at more than 140 institutions, domestic and foreign, managing $61 billion in Brazilian equities, or 66 percent of the Bovespa free float. Participants were asked to name their first, second and third choices for best CEO in the sector (or sectors) for which they are responsible. The responses were weighted to produce a numerical score for each candidate. We named a top corporate officer in each of the eight industry sectors that we surveyed for the All-Brazil Research Team (Institutional Investor, September 2006). Voting was concluded at the end of June.
Some of the chief executives started in entry-level positions and worked their way up to the top spots; others honed their skills at different companies before moving into leadership roles at the organizations they now oversee. But all of them have one element in common: the ability not only to envision success but also to achieve it. Here are the business leaders whom investors have chosen as the top CEOs in Brazil for 2006. — Tom Johnson
The ranking was compiled by II under the guidance of Director of Research Operations Group Sathya Rajavelu and Senior Editor Jane B. Kenney.
Francisco Tosta Valim
Net Serviços de Comunicação
Age: 43
Year named CEO: 2003
Company employees: 4,800
12-month stock performance: +50 percent (split-adjusted)
Controlling shareholder: Rede Globo (51 percent)
One investor: “A soft-spoken and single-minded manager, he focuses intensively on executing his strategy.’’
Francisco Tosta Valim faced a daunting challenge when he took over as CEO of pay-TV operator Net Serviços de Comunicação in 2003. The company was reeling from a weak economy and a dubious acquisition strategy; its shares had plummeted 99.6 percent over the preceding 12 months, to 4.05 reais ($1.14), adjusted for splits.
Valim started by fixing the basics. He expanded the company’s sales force, stepped up advertising and replaced a poorly performing call-center outsourcing service. He also shored up revenues by chasing after deadbeat customers and instituting tougher credit checks on new subscribers.
The executive has also streamlined the group’s business profile, selling off an underperforming corporate data-transmissions business to focus on pay-TV and broadband Internet service. In March 2006, Valim spearheaded a partnership with Empresa Brasileira de Telecomunicações, or Embratel, a leading telecom network operator, to offer telephone service through Net Serviços’ fiber-optic and coaxial cable network. In October he announced an agreement to acquire Vivax, the No. 2 cable-TV provider in Brazil. The combined company will boast 1.7 million subscribers, or 45 percent of the Brazilian pay-TV market. It also will have 14 percent of the market for broadband Internet service, with some 640,000 subscribers.
Valim “has overseen incredible growth,” observes one investor. The company, which had a loss of R268.4 million in 2003, posted net income of R130.9 million in 2005, up 21 percent from a year earlier; sales rose 25 percent, to R432.6 million.
The share price also has taken off, rising to R22.03 at the end of November. That was up 37 percent from the start of the year, 11.9 percentage points better than the Bolsa de Valores de São Paulo index.
Valim is keen to keep shareholders happy. As he puts it, “Having a good relationship between shareholders and management is fundamental for any company to move forward.” — Ben Mattlin
José Carlos Grubisich
Braskem
Age: 48
Year named CEO: 2002
Company employees: 3,500
12-month stock performance: –18 percent
Controlling shareholder: Odebrecht
(43.7 percent)
One investor: “He’s a world-class manager, and he’s building an organization to match.”
The right amount of heat can mold plastic into almost anything, but too much can destroy it. The same can be said about chief executives. José Carlos Grubisich, CEO of plastics manufacturer Braskem, has been feeling plenty of heat lately, but investors say it is shaping him into a better leader.
High oil prices have compressed profit margins throughout the fiercely competitive plastics industry, even as a strong real has put Brazilian exports at a disadvantage against other suppliers of resins, particularly Asian manufacturers. Relatively soft domestic demand — Brazilians use only 15 percent of the plastic that Americans consume — has prevented local manufacturers from raising prices to protect their margins. And as if all that weren’t enough, a new competitor, Rio Polímeros, entered the polyethylene market in November 2005.
These developments have tested the leadership skills of Grubisich, a former chemical engineer who has been the standard-bearer of Brazil’s once-fragmented plastics industry since his company was melded together from various producers in 2002. Despite improvements in production, increases in exports and revenues and record earnings before interest, tax, depreciation and amortization, unfavorable currency rates have left Braskem operating at a net loss; raw materials, especially naphtha, are priced in dollars, and those prices have increased 15 percent over the past year.
Grubisich is seeking to improve profitability by going to the roots of Braskem’s problems. He is exploring ethanol-based manufacturing to reduce the company’s dependence on petroleum-based products. (Brazil is the world’s biggest ethanol producer.) He also is introducing value-added products such as new nanotech-enhanced, impact-resistant materials, which should help Braskem compete globally on a noncommodity basis by the middle of next year.
Investors believe that Grubisich has the talent to steer Braskem through today’s harsh environment. “He has an unparalleled sense for how the global industry fits together,” says one investor, adding that Grubisich “proved he was up to the task of fitting the company together, and now he’s executing plans to turn it into a global enterprise.” — Scott Martin
Constantino de Oliveira Jr.
Gol Linhas Aéreas Inteligentes
Age: 37
Year named CEO: 2001
Company employees: 5,400
12-month stock performance: +22 percent
Controlling shareholder: Aeropar Participações (55 percent)
One investor: “He deserves everything he’s got because he’s a genius.”
The Portuguese word for “goal” is gol, meaning both a score in soccer, the Brazilian national pastime, and an objective. It is also a fitting name for the enterprise of Constantino de Oliveira Jr., who has scored a string of victories over the past five years in fulfilling his objective: transforming Gol Linhas Aéreas Inteligentes from a start-up discount airline into one of Brazil’s biggest carriers. “He hasn’t wavered from the business model he started with: tight cost controls, operational innovation and profitability above all else,” says one investor.
Oliveira’s own career has followed a similar trajectory. His rise from teenage employee of his family’s bus business (itself built from a one-truck start-up into a national transportation conglomerate by his father) to Brazil’s youngest billionaire is the stuff of corporate legend. But Oliveira is no overnight wonder. His venture’s success followed endless family discussions, seven years of planning and $20 million in seed capital that went into Gol before the airline was launched in January 2001. Competitors accused Gol of unfair competition for undercutting their fares by 50 percent, but its no-frills formula meant that its planes were covering their costs after only one week in the air.
Today, Gol has outstripped most of its former rivals (only Tam has a bigger domestic market share, and the gap between the two is narrowing) while maintaining profit margins that are among the highest in the world: In third-quarter 2006 the airline had a net profit of 17.6 percent and an operating margin of 21.5 percent. Gol’s competitive influence was a factor in the near-collapse of Varig, the venerable flag carrier that filed for bankruptcy in 2005 and grounded most of its flights after being acquired by Brazilian and U.S. investors in July 2006.
Oliveira’s campaign to expand consumer aviation markets has spread from major cities such as Rio de Janeiro and São Paulo to lesser-known Brazilian markets such as Florianopolis, Salvador and Belo Horizonte and, more recently, throughout South America. Gol now serves Argentina, Bolivia, Chile, Paraguay and Uruguay, and Oliveira plans to add destinations in Mexico. “He’s been great at encouraging people to fly who would ordinarily not elect that mode of transport,” says one investor. — S.M.
José Salim Mattar Jr.
Localiza Rent a Car
Age: 58
Year named CEO: 1995
Company employees: 2,300
12-month stock performance: +139 percent
Controlling shareholders: Mattar, executive vice president Antônio Cláudio Brandão Resende and their families (50 percent)
One investor: “He steered the company to unbelievable expansion.”
Few 24-year-olds would find inspiration in a handful of used Volkswagens, but José Salim Mattar Jr. envisioned a car rental business just waiting to be built. Along with Eugênio, his brother, and their friend Antônio Cláudio Brandão Resende, Mattar founded Localiza Rent a Car in Belo Horizonte in 1973 and steadily nurtured the company into the dominant player in Brazil and Latin America, with a network of 310 branches in 217 cities throughout the region. The entrepreneur, who started with just six used Beetles, boasted some 45,000 automobiles at the end of last year, more than the fleets of Brazil’s second-, third- and fourth-biggest auto renters combined.
Mattar, who has been CEO since 1995, has made aggressive use of advertising to build brand recognition, instituted promotional offers such as a loyalty program that rewards repeat customers with free rental days and created an around-the-clock customer help line. He also has enlarged the company’s geographic footprint, notably by expanding into Brazil’s underserved northeast.
Those efforts have helped Mattar increase Localiza’s leading share of the Brazilian car-rental market to 20 percent in 2006 from 16 percent two years earlier, according to the Brazilian Car Rental Association. “He has earned the respect of peers and competitors,” says one investor.
Localiza also offers long-term rentals and leases to corporate and individual customers, as well as resale of its used cars.
The results of these efforts speak for themselves. In the third quarter of 2006, net income surged 62 percent from a year earlier, to 36.1 million reais ($16.4 million), and sales rose 25.7 percent, to R287 million.
The company’s shares have shown plenty of vroom too. Since Mattar took Localiza public with a R239 million IPO in May 2005, shares have surged 395 percent through November 2006, to R55.49. — B.M.
Roberto Setubal
Banco Itaú Holding Financeira
Age: 52
Year named CEO: 2003
Company employees: 45,300
12-month stock performance: +30 percent
Controlling shareholder: Itaúsa-Investimentos Itaú (88.2 percent of holding company; 100 percent of bank)
One investor: “He has earned a reputation of being Latin America’s best banking executive, and this year he proved it.”
As CEO of Banco Itaú since 1994 and head of its holding company since its formation in 2003, Roberto Setubal has raised investor expectations — and the occasional eyebrow — by expanding steadily through acquisition, first within Brazil and then abroad. His most recent conquest, the two-stage, $2.8 billion buyout of the remainder of Bank of America Corp.’s BankBoston business throughout Latin America between May and August, is also his most audacious, taking Itaú ahead of private domestic leader Banco Bradesco in terms of assets but unlocking relatively few synergies within Brazil.
To some analysts and investors, the real point of the transaction was BankBoston’s Chilean and Uruguayan operations, which represented roughly $630 million of the overall deal. The newly acquired businesses provide Itaú with a solid platform from which to distribute its investment and private banking products.
“He clearly holds regional ambitions, if not global ones,” says one investor. “He has been fairly clear on that point in the past, but Itaú is now a significant presence in areas beyond Brazil.”
Closer to home, Setubal has hinted at plans for at least one more domestic acquisition that would boost Itaú to a 20-to-25 percent share of the overall Brazilian banking market in terms of assets under management — the BankBoston acquisition raised it to roughly 17 percent — although he declines to identify his target. Meanwhile, Brazil’s consumer credit boom continues to push Itaú’s profits to sequential records, transforming what had been a deposit-oriented bank into a lending-driven enterprise. Itaú is now the biggest credit card issuer in Brazil, with 12 million accounts, or 22 percent of the market.
“Setubal thinks strategically about how to maximize the value of all of the financial instruments at his disposal to benefit his shareholders,” sums up one investor. “He’s a consummate banker — and more.”— S.M.
Wilson Ferreira Jr.
CPFL Energia
Age: 48
Year named CEO: 2000
Company employees: 5,800
12-month stock performance: +17 percent
Controlling shareholders: VBC Energia, 521 Participações, Bonaire Participações, Banco Nacional de Desenvolvimento Econômico e Social Participações, International Finance Corp.
One investor: “He has the determination and knowledge to make things happen, and should not be underestimated.”
Wilson Ferreira Jr. is a “progressive thinker,” according to one investor. Consider how the CEO listed his energy utility, CPFL Energia. The 821 million-reais ($287 million) initial public offering was carried out simultaneously in São Paulo and New York in September 2004, making CPFL the first Brazilian company listed on both the New York Stock Exchange and São Paulo’s Novo Mercado, a prestigious subset of the Bovespa for companies that adhere to strict transparency and governance standards.
CPFL Energia serves some 5.6 million industrial and residential customers in the populous Brazilian states of São Paulo and Rio Grande do Sul; as such, it is the nation’s biggest private power company, with just under 13 percent of the national energy market. Ferreira is not satisfied, though. He wants to continue to grow revenues and profits by taking advantage of the company’s vertically integrated business model, which is composed of generation, distribution and trading of electricity, and its network of hydroelectric power plants, which enable it to avoid rising oil prices.
Ferreira has expanded the company largely through the acquisition of small energy businesses, such as Companhia Luz e Força Santa Cruz, a small distributor in São Paulo and Paraná that it acquired for R$203 million in October.
Such moves helped boost CPFL Energia’s net income by 86.2 percent in the third quarter of 2006 from a year earlier, to R$447 million; sales were up 16.5 percent, to R$3.2 billion.
With approximately 70 percent of revenue coming from distribution, it’s not surprising that Ferreira plans to expand that segment of the company further. He aims to spend R$500 million a year to acquire more small energy companies and hydroelectric plants. Such expansion should enable CPFL Energia to add as many as 200,000 new clients annually for the foreseeable future and to double its generating capacity from the current 900 megawatts within the next five years. — B.M.
Roger Agnelli
Companhia Vale do Rio Doce
Age: 47
Year named CEO: 2001
Company employees: 33,000
12-month stock performance: +150 percent (split-adjusted)
Controlling shareholder: Valepar (32.5 percent)
One investor: “He’s led CVRD to surpass our expectations for strong revenue growth. The acquisition of Inco is a good example of his drive to expand further.”
Since taking over as president and CEO of Companhia Vale do Rio Doce in July 2001, Roger Agnelli has transformed the former state-owned company from a major iron-ore exporter into a diversified global metals conglomerate. Thanks to his audacious $17.6 billion takeover of Canada’s Inco in October, CVRD is now the biggest mining company in the Americas, with a market cap of $55 billion, and the world’s biggest producer of iron ore.
A 20-year veteran of Brazil’s Banco Bradesco, Agnelli rose to the top job at the bank and served as chairman of the board of CVRD, in which Bradesco is a major shareholder, before being named CEO following the privatization of the mining group in 2001. His banking skills helped him pull off the Inco deal. The acquisition was financed in part with a $3.75 billion bond offering, the largest ever by a Latin American corporation. With an investment-grade rating from Moody’s Investors Service and Standard & Poor’s — two notches above the Brazilian government’s — CVRD was able to borrow cheaply and in size.
Agnelli knows how to build his company organically, too. The company invests $4.6 billion a year in expanding production. Since mid-2004, CVRD has ventured into copper, nickel and coal, breaking ground on mining projects in Brazil and as far away as Mozambique. The company boasts a pipeline of more than 40 mining projects to be developed by 2010.
Supporters hail Agnelli as a “genius” for reining in expenses while expanding the business. One way he does so is by keeping many costs in-house: CVRD owns and operates four hydroelectric power plants to supply much of its own energy; it also owns railroads and ports.
Agnelli’s strategy is paying off. In the first three quarters of 2006, CVRD’s net earnings advanced 28.9 percent from a year earlier, to 10.1 billion reais ($4.7 billion), while sales rose 14.9 percent, to R30.1 billion. CVRD’s São Paulo–listed shares have kept pace too, soaring 150 percent (split-adjusted) year-to-date through November. Between 2000 and 2004 the company’s 48.5 percent annualized total shareholder return was the highest of any large-cap company’s globally, according to Boston Consulting Group. — B.M.
José GallÓ
Lojas Renner
Age: 54
Year named CEO: 2004
Company employees: 5,800
12-month stock performance: +117 percent
Controlling shareholder: None
One investor: “At last, he’s the master of his own destiny. I like the results so far.”
Fashion-conscious Brazilians know retailer Lojas Renner as a mall-based style center, but CEO José Galló is a trendsetter in his own right. The executive’s aggressive store expansion and promotion of credit card purchases — a relatively new phenomenon in Brazil — have made the group a supermodel of the country’s retailing sector.
“Galló has been extremely effective at building the Renner brand identity,” says one investor.
Trained in marketing, Galló advanced up the ranks at Lojas Renner when it was a subsidiary of J.C. Penney Co., a distracted corporate parent that investors say limited the chain’s rate of expansion. He has wasted little time in accelerating the pace of growth since taking the 94-year-old apparel chain independent with a $230 million initial public offering in July 2005.
Galló expects Renner to have 81 locations by the end of 2006, up from 66 in 2005. He also has been quick to take advantage of the sharp decline in Brazilian interest rates in recent years, which has encouraged consumers to buy on credit.
Having built the country’s third-largest shopping card network to encourage Brazilians to buy today and pay in installments, Lojas Renner is now deepening its financial services platform to sell more traditional revolving credit and insurance products as well.
“The potential of financial services is very big, since only 32 percent of the economically active population has a bank account,” Galló says.
“There’s no question that the financing activities are one of the company’s crown jewels and his greatest achievement so far,” says one admirer on the buy side.
Galló’s strategy is paying off. Sales rose 26.8 percent in the first nine months of 2006 from a year earlier, compared with average annual growth of 23 percent over the previous seven years; earnings before interest, tax, depreciation and amortization were up 35 percent in the period.
“Retailing is my passion,” says the executive. “I love visiting stores and being close to our customers.” — S.M.
