Thursday, August 18, 2022

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Colombia’s new President Gustavo Petro and Colombia’s business trade associations are publicly endorsing broad goals for boosting economic growth, improving the lot of poorer populations, cutting income inequality and moving toward a “greener” future.

But the national tax proposal put forward by Petro and his Finance Minister this month ironically might only help the poor with two or three years of tax transfers, followed by years of economic stagnation caused by crushing tax burdens on most jobs generators, along with tax schemes that would only accelerate the destruction of fiscally crucial energy and mining industries.

In a speech last week to Colombia’s biggest national industrial-commercial trade association (the Medellin-born ANDI), President Petro outlined lofty-sounding goals for a Colombia that would disincentivize exports of oil and minerals, cut income inequality via higher taxes on individuals and companies (ironically hitting middle-class people making just US$2,500 per month), target unhealthy beverages and foods, and accelerate the move away from oil-and-gas and mining industries to “greener” schemes.

Yet all those goals could be achieved much-less-painfully -- and more practically -- with a gradualist, more market-based approach as favored by ANDI and many other business and consumer advocates.

That’s especially important given today’s painful inflation problems and Colombia’s relatively fragile attractiveness for both domestic and foreign jobs-creating investments. Boosting industrial/consumer/employee taxes now -- including a proposed doubling of taxes on investors -- on the very sectors generating most jobs, tax revenues and economic growth inevitably would turn counter-productive, as most economic experts here publicly acknowledge.

What’s more, Colombia already has been on a decades-long, gradual pathway of improving the lot of poorer populations and cutting inequality via dramatic improvements in free or low-cost health care, free public education, low-cost job training programs, expanded social welfare payments, food and medicine subsidies, retirement subsidies, free vaccination campaigns, vastly improved public utilities, dramatically improved highway infrastructure, diminished levels of armed conflict with guerilla groups, and a total avoidance of violent foreign entanglements.

Colombia presumably could continue on this gradualist approach, perhaps with a scaled-down version of Petro’s tax proposal. For example: it’s possible to imagine new incentives for alternative production and consumption of “greener” or “healthier” products and services via tax deductions offered to producers and consumers of some of today’s less-friendly products or services -- just as can be seen many in tax policies in North America and Europe, for example.

In his closing speech to the ANDI national convention in Cartagena last week, ANDI President Bruce MacMaster publicly praised President Petro for publicly sharing his vision and hopes for Colombia’s future with ANDI’s members.

“Opportunities and employment are definitely the best way, the safest, the most concrete, the most sustainable and the most proven to be able to overcome the limitations in terms of poverty that any society has,” MacMaster said, speaking directly to President Petro as well as to the assembled, standing-room-only crowd.

“And we are convinced that we are a fundamental part of that pathway, as the companies of Colombia -- from the micro to the large -- are the best and largest generators of employment.

“[President Petro] said it here, as also said in your inauguration speech, that we have to generate wealth, production and opportunities, that if we do not generate wealth, then we do not have anything to distribute, and wealth must be capable of meeting social needs.

“Competitiveness is extremely important and, of course, involves generating a friendly, reasonable and stable environment for the business world. And in that we are completely willing to read the signs that are given to us.

“And I want to make a special mention of conversations we had with your Minister of Finance in which we talked, for example, about the opportunity that Colombia has to be highly competitive in environmental matters, given the capacity we have to produce in our country, with a carbon footprint much lower than in the rest of the world, a small fraction of what it takes to produce in China. We are sure that we can turn this into a great competitive advantage for the country,” MacMaster concluded.

Medellin-based highway construction giant Construcciones El Condor on August 12 reported a first half (1H) 2022 accounting net loss of COP$17.5 billion (US$4.2 million).

“The results recognized by the equity method and the unrealized net-exchange difference generated a net result of negative COP$17.5 billion, which led the company to present a net margin of minus-4.98%,” according to El Condor.

“These methods have accounting effects, but do not have an impact on the company’s cash. If these effects are discounted, then net income was COP$9.57 billion (US$2.3 million) with a net margin of 2.72%.

“This effect will continue for several periods while the highway concessions begin to generate accounting profit, a behavior that obeys the normal cycle of concessions due to the nature of project finance,” the company explained. “The foregoing does not mean that the concessions do not meet their profit margins, but given the nature of project finance, this builds financially throughout the life of the contract.”

During 1H 2022, income from ordinary activities totaled COP$351 billion (US$84 million), up 25.34% year-on-year, according to El Condor.

“The increase reflects the upward curve of higher levels of work execution in the company’s main contracts: EPC [engineering, procurement, construction] with the Rio Magdalena highway, the Ruta al Mar highway and the Pacífico 3 highway concessions, and the Tunel del Toyo public-works contract [in Antioquia] with Invias,” according to El Condor.

Operating costs rose 16% year-on-year, to COP$302 billion (US$72.5 million), while gross profit came-in at COP$49 billion (US$11.7 million), “equivalent to a gross margin of 13.99%.” Administrative expenses reached 4.34% of revenues.

Operating profit came-in at COP$42 billion (US$10 million) equivalent to 11.92% of revenues, while earnings before interest, taxes, depreciation and amortization (EBITDA) hit COP$66.7 billion (US$16 million), with EBITDA margin at 18.98%, up from 14.92% in 1H 2021.

As of June 2022, El Condor reported total assets of COP$2.47 trillion (US$593 million), while liabilities closed at COP$1.43 trillion (US$343 million).

The company’s current ratio is stated at 0.88-times, decreasing compared to December 2021, when the ratio was at 1.38-times. “The decrease is explained by the reclassification to non-current liabilities of the structured credit that matures in June 2023 and has as a source of payment related to the investment portfolio,” the company added.

As of June 2022, construction backlog -- the balance of works contracted and to be executed -- was COP$3.26 trillion (US$783 million), according to El Condor.

Enka 1H 2022 Net Income Drops 31% Year-on-Year

Saturday, 13 August 2022 16:39 Written by

Medellin-based textiles and plastics/polyester recycling specialist Enka announced August 12 that its first-half (1H) 2022 net income fell 31% year-on-year, to COP$20.3 billion (US$4.87 million).

The company blamed the decline on “lower operating income, foreign exchange differences and an increase in financial expenses as a result of increased indebtedness.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) for 1H 2022 dropped 12% year-on-year, to COP$33 billion (US$7.9 million), despite a 28% percent increase in operating income, hitting COP$310 billion (US$74 million).

Despite the declines, Enka stated that it is “maintaining adequate profit margins and low financial debt.”

“The investments made in the project for the new EKO-PET [plastic bottle recycling] plant amount to COP$84 billion [US$20 million], about 75% of total investment, advancing on schedule and estimated budgets.

“The new single-use plastics law [in Colombia] increases the collection goals for bottles of PET and promotes the use of EKO-PET resins in beverage containers, which further commits to the development of the circular economy in the country,” Enka added.

As for profits challenges this year, “as expected, Asia has managed to reduce its logistics costs and recover its presence in western markets. This contrasts with the strong impacts of the conflict in Ukraine over Europe, affecting production costs and the supply risk of our nylon chain.

“To mitigate this situation, the company decided to increase temporarily our inventories to ensure new supply, and develop Asian suppliers to diversify supply reliability and competitiveness,” according to Enka.

Operating income for 1H 2022 grew 29% year-on-year, to COP$310 billion (US$74 million), “as a result of the increase in international prices and a higher exchange rate, which compensates for a 2.7% decrease in the volume of sales of structural businesses and lower sales of virgin PET, whose production ended in the second quarter of 2022,” according to the company.

During 1H 2022, exports grew 30% year-on-year, to US$35 million, accounting for 45% of total income, “due mainly to the strong increase in international prices. The good performance of demand in Brazil has allowed us to increase our share of sales there to 19%,” according to Enka.

For Enka’s “green” recycled product lines, revenues rose 43% year-on-year, “mainly due to higher international prices that offset a 4% reduction in sales volume,” according to Enka.

“EKO-PET” sales (8,187 tons) decreased by 5% in tons, “mainly due to a lower conversion factor due to lower quality of some bottles and some maintenance during the period.”

“EKO-Fibras” (4,941 tons) decreased 4% “mainly in marketing, due to wholesale Asian competition. Exports of fibers produced for geotextiles offset lower local demand.”

“EKO-Polyolefins” (932 tons) increased by 14% “due to greater demand in the local market for various applications. Dow initiated orders for ‘Revoloop’ resin manufactured by Enka, with expectations of incremental sales during the second semester.”

Textile and Industrial Businesses

Excluding production of virgin PET, textile/industrial sales totaled COP$201 billion (US$48 million), up 32%, “as a result of higher international prices and the devaluation of the exchange rate, which offset a 6% decrease in volume,” according to Enka.

“Textile share of total sales ends at 65% and exports accounted for 62% of sales of the line. Virgin PET sales represented 4% of total sales. Industrial Yarns (6,541 tons) sales remain at levels similar to 2021. Major canvas sales displace some sales of Technical Yarn due to greater added value.”

Textile Filaments (3,931 tons) saw sales dip 3% “due to lower sales of nylon by Asian competition, partially offset by polyester filaments for the export market,” the company added.

Fabricato 2Q 2022 Net Income Best in Five Years

Saturday, 13 August 2022 15:35 Written by

Medellin-based textile giant Fabricato announced August 12 that its second quarter (2Q) 2022 net income hit COP$5.1 billion (US$1.22 million) – its best quarter in five years -- while first-half (1H) 2022 net income is up 110% year-on-year.

Sales during 2Q 2022 also hit levels not seen since 2013, at COP$235 billion (US$56.5 million), while 1H 2022 textile earnings before interest, taxes, depreciation and amortization (EBITDA) rose 42% year-on-year, to COP$31.4 billion (US$7.54 million) – a whopping 2,700% improvement over 1H 2020.

“Fabricato continues in the task of following the path of better results and it has been like this for the last two years,” according to the company.

“We also hope that the new national government will resolve the vicissitudes of textile-clothing policy so that Colombia can have more and better jobs in a sector capable of exploiting its advantages, having an integrated production chain from spinning to clothing.

“The textile offer that we have developed for the satisfaction of clients and consumers revives the Colombian textile industry with the consequent impact on the reactivation of our country,” while Fabricato’s separate real-estate business “is also developing and is generating the expected results,” the company added.

“The second quarter of 2022 maintained a positive trend of economic reactivation,” according to Fabricato. “It was lower than that registered in the first quarter, but it is growing compared to the same quarter of 2021.

“International logistics is still in the process of normalization. This has facilitated imports between January and June, which leads to a growth of 33% for the textile and clothing sector compared to the same period in 2021.

“Exports also had a positive performance, growing by 52% compared to of the same period of 2021. The denim-and-poplin segment is the one with the highest increase.

“The main markets for the exports of Fabricato during 2Q 2022 were Ecuador, with 48.3%, followed by Peru and Mexico, with 18.27% and 13% respectively.

“High volatility and uncertainty persist regarding the price and availability of the main raw materials. The raw material with greater volatility and greater impact on cost increases has been cotton, as its price ended on 2021 at US$1.10 per pound and closed on June 31 2022 at US$0.98.

“However, during the second quarter, cotton reached prices of US$1.46/pound, an increase of 32%. We achieved internal efficiencies by reducing the impact of this increase.”

Meanwhile, “we are focused on obtaining new clients in markets that we must attend, seeking to reach directly to manufacturers and micro/medium sub-distributors through a permanent service and supply strategy.

“The market maintains high product inventories, as a result of processes of supply by reactivation.

“We maintain a portfolio of products with permanent supply, with circular economy and sustainability approach. In addition, we accompany Colombian exporters with the supply of fabrics where the certificate-of-origin allows them to be competitive,” the company added.

“Natural fibers other than cotton are being ‘cottonized,’ which allows Fabricato to be at the forefront of product development with other natural fibers.

“’Cottonizing’ is an industry term that prepares natural fibers other than cotton to incorporate them into the production of fabrics, with sustainability and quality advantages,” the company explained.

Medellin-based paints, chemicals and hardware multinational Grupo Orbis – now a division of Netherlands-based AkzoNobel – on August 12 reported a first-half (1H) 2022 net profit of COP$19.3 billion (US$4.6 million), down from COP$22.9 billion (US$5.5 million) in 1H 2021.

Gross income was basically flat year-on-year, at COP$897 billion (US$215 million), according to earlier-published company statistics from 2021.

The Pintuco paints division reported a 28% year-on-year growth in sales, at COP$556 billion (US$133 million), while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 35%, to COP$53 billion (US$12.7 million).

The “Mundial” home-and-garden division saw sales rise 17%, to COP$89 billion (US$21 million), while EBITDA grew 13%, to COP$1.5 billion (US$360,000), according to the company.

Meanwhile, the “Andercol” (Colombia) and “Poliquim” (Ecuador) chemicals division saw peso-denominated sales rise 54% year-on-year, to COP$340 billion (US$81.6 million) thanks to price increases. However, “increases in the prices of raw materials have not been fully transferred to the market -- in order to maintain competitiveness of our products -- slightly affecting gross profit,” according to Orbis.

“A strict control of expenses allows a good operating performance, obtaining an EBITDA of COP$24.6 billion [US$5.9 million], 80% more than the previous year,” while chemicals-division net profits rose 21% year-on-year, to COP$12 billion, (US$2.88 million) the company added.

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Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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