Tuesday, January 17, 2012

Tuesday, January 10th

Tuesday, January 10th

Today is our business visit day. Our first stop is to Dole, the fruit company. This was one of my favorite presentations since we’ve been here. Doleis a U.S. company based in California and is the largest distributor of fresh fruits in the world. In Chile, they grow apples, stone fruits, pears, grapes, etc. They implemented a counter cyclical cycle, so one area produces apples and then the other area doesn’t. Then when that area can’t produce a certain product (ex: change of seasons) it changes to a new area that can.

Dole is mainly known for bananas and pineapples, but they aren’t grown here in Chile. Chile does have great grapes in the north. The Chile branch of Dole was established in 1981 and is in 58 countries. There are 10 packing and cooling plants in Chile. Dole uses mostly independent growers but they do set certain quality standards that all of their growers have to abide by. Dole has been very successful with fresh cut salad domestically, but they can’t export it because it will go bad by the time it is delivered.

Dole definitely focuses on quality products. One example would be that they use juice, not syrup, in their fruit cups unlike other companies. Reliability is also very important. They make sure that their customers are getting the same quality of fruit by implementing regulations with their growers. The customer is the most important thing. They have specific sizes, colors, and specifications that Dole always follows. Machines that have an optical reader can now spot fruit by the size and color and sort accordingly.

After discussing some of the background about the fruit, we talked about the financial aspects of the business. Economic fluctuations occur during the month can lead into losses even though you didn’t do anything. Receivables cause this problem. The exchange rate is important because it will help them determine how things are going to vary. On the balance sheet, the trade receivables and inventory are the highest areas. They have been trying to make estimates for production and turn it over to sales in order to get clients. If there is a shortage one year, then they may have to go out and buy fruit from other independent growers and then sell it.

When there is a high supply, this causes the price to be lower and then the customer has an advantage. Right now, blueberries are really popular because they are very healthy so demand is increasing, therefore creating more of a market. Dole is very into health. Their executives have even implemented a research center to help the community and also to help Dole make a profit.

Dole has been implementing new products, such as grenadines and blueberries. Typically they avoid berries because they are hard to package and ship, but blueberries have been becoming increasingly popular. Dole exports a lot of the fruit to the U.S., but there is a fairly equal split between the U.S., Latin America, Europe, and Mid/Far East. They have a wide diversification of markets as you can see by their wide variety of customers. They don’t try to time the markets like mutual funds do.

Dole is starting to expand into the Asian markets. Asia has doubled their demand in the last 3 years for grapes and cherries. The U.S. and Europe have experienced recessions in the past few years and have turned more to domestically grown fruits. Dole’s response is to go to emerging markets, such as India, Argentina, and China. In the past, these markets have bought from local merchants but Dole takes advantage of when these growers are out of season. If they only can grow oranges during a 3 month period, then Dole will come in during the off season because they have operations worldwide. At this point in time, Chilean labor is scarce because the wages are higher for mining than for growing fruit.

Peru is the fastest growing country in Latin America according to their GDP rate. Dole is looking to expand after seeing these market indicators. In the future, Dole is looking to improve the plant packing lines and invest in new machines. Their philosophy is to reinvest in equipment as much as it depreciates each year.

Dole has also seen a higher demand for organic bananas. Dole’s biggest customers are Dole USA, Dole non-USA, Walmart, and Sharbatly (Saudi Arabia). There isn’t one dominating customer. They want to continue to add value services to Dole and give the best customer service possible.

The speaker then gave us some advice to succeed with an international company. You must be interested in other languages, be tolerant of others, be adventurous, have a supportive spouse and find a supportive group in your new location.

One question that we had was is there competition between the wineries and Dole for grapes? The truth is that there is no competition. They use 2 very different kinds of grapes. Dole wants the vines to develop a canopy around the grapes and they are manually harvested. These are great for table grapes.  Wineries just want the grapes in order to smash them up.

The marketing for Dole (U.S. vs. Chile) is very similar. The labels are in English and they have the same campaign and logo. They both focus on quality and on health as well. I thought it was interesting that their marketing strategy could work so well with so many different countries. It was neat that they have a global brand.

One fact I thought was funny was that Chileans don’t actually eat a lot of fruits and vegetables because their diet consists of meat and potatoes! How funny.

Before we left, we got a big bag of Dole fruit including bananas and pineapples! Deliciousssss. 

After our Dole visit, we went and ate lunch at the presidential palace in the basement where they have an art museum and restaurant. I got the Chilean Sea Bass, which was awesome. They are known for it! I felt so authentic.

Our next visit was to Banco Santander Chile. They used the same presentation from November 2011, which was shared to their shareholders. They recently sold 7.8% of the company to stakeholders. It is a Spanish owned bank and SAN is the ticker symbol. They are the strongest bank in Chile with over 12,000 employees worldwide. They are a subsidiary, not a branch of Banco Santander Spain. They are much more profitable than their competitors and are known as the best bank in Latin America. They are also known as the safest bank in Latin America.

In Chile, banks have 95% of the mortgages and Santander is #1 in the country in this area. Some of their strategies include to limit their treasury part because this reduces the risk of a loss. They get the most money from retailers and wholesalers. Their return on equity percentage is 22.9% and their efficiency ratio is 38.4%. This makes them #1 in the efficiency ratio area and they have an A+ rating according to the S&P.

Santander Chile is fairly independent from its parent company. Spain can’t easily take money away from the Chile bank. They would have to sell stock, borrow, etc. in order to get the money. Eight out of the eleven board members are unrelated to Grupo Santander, which makes them even more independent. Owners are liable with their own personal wealth if anything goes wrong. The bank is regulated by three different groups (including the SEC).

Chile’s GDP is $203 billion USD and copper is 50% of the exports. They export most of their items to Asia. A lot of the extra funds that the bank gets are used in case of a natural disaster or a recession to ease the pain. Chile is in a low risk environment, which is reassuring. On average Chile has been growing 4-5% each year. Local energy prices have caused inflation in the past and they do whatever it takes to keep inflation at 3%.

I thought it was interesting because the bank uses IFRS instead of US GAAP. As an accounting major, this interested me because I know that the U.S. has looked into changing to IFRS. Within the next 10 years, it wouldn’t surprise me if they made the change. The bank has 100% shareholders voting equity, which is labeled as “pure capital” and they expect the GDP to grow 5% in the next year.

One of their strategies is to gain new clients and get involved in more cross-over selling to increase the product usage. Cross-over selling is when you have different methods of financing and savings, such as a person having a checking and savings account and a debit and credit card. They want their customers to use various products. You can earn points when you have various products of the bank. It is better for the bank if their customers are cross-over customers instead of just a single account holder. At this point, the banks have a very low rate for lending and these are unsecured loans.

Overall, Chile doesn’t have a lot of debt. Only 16% of the workforce has a mortgage in Chile. They are hoping to see an increase in deposits in the next few years and they focus on paying long term loans with long term resources (and vice versa). Some of their strategies are to deepen their focus on commercial banking, improve client relationship management, expand efficiently and manage risk conservatively. They also want solid growth and a sustainable return on equity. One area that they know they need to improve on is customer relations.

The bank is hitting the breaks on loaning money to low income people because they are riskier and they are shifting their focus to people who save more. The bank is increasing the presence of ATMs, distribution centers, and call in centers. One question I had was what happens if you are unable to collect? The bank’s strategy is to get ahead of other creditors by keeping up relations with the clients and getting to them sooner to collect the money. They have also implemented risk management tools and set their prices according to the risk premium.

It costs a branch about 3 years to break even, so this is why they are building more ATMs versus actual branches. They have seen a huge jump in online banking. Older customers don’t trust banking on computers so they still have the traditional banking methods. Customer deposits can be insured or uninsured.

The main goal of the bank is to raise money in order to lend it out. The bank is primarily a business and is responsible to its shareholders.

Santander presentation shown above

Our next visit was to the Santiago Stock Exchange. It is called the Bolsa Comercio Santiago and is Chile’s primary exchange. At the beginning of the presentation, they showed us a safety video in case of an emergency. When we first entered into the building, we had to go around back because the front entrance was closed. Students who were protesting about the high tuition costs had come in to hang signs about how tuition wasn’t traded. They were going to keep the front locked until things settled down.

The stock exchange was established in 1893 and it was mostly comprised of mining companies until the 30’s. This is a meeting place for buyers and sellers to engage in mutually beneficial transactions. Securities are sold in order to raise capital. Stockbrokers act as agents and act in the best interest of the customer. Retailers grew through these stocks.

The superintendencies of securities ensures that every transaction is handled correctly. The most common thing to be seen in this exchange is stocks. There are still debt securities, which provide a fixed rate of return. Negotiations between brokers are submitted electronically so no one is really actually in the physical room unless they just want to use the computer systems instead of their own personal computer. This advanced internet system helps brokers trade in real time and the stock exchange ensures that the trade occurs on the terms agreed upon.  The stock exchange index tracks changes in the price of the stocks and displays them on the large board. The stock exchange has received many awards over the years. They increased 250+% and have 164 new stocks registered.

The issuers are the public corporations and the investors are institutional investors and individual investors. The intermediaries are the brokers and are the only people who can legally trade. There are 232 stocks listed but there are also money market instruments, which is 60% of what is traded. There are also fixed income instruments. The stock market competes in both debt and equity markets and they have 48 shareholders and 32 brokers. The house of brokers consists of 21 independent brokerage houses and 11 institutional brokers owned by banks. The exchange is a listed company.

We then got some background information about Chile. The population is 17 million and they export $71.1 billion in copper, fruit, wine, fish, chemicals, paper, etc. The IPSA is the most important index and lists the top 40 companies. The IGPA are more general and contain about 100 companies and the Inter-10 index shows foreign companies. During the subprime crisis, the IPSA dipped down. One of the most traded companies is Santander, which I thought was funny since we were just there.

In 1917, everything used to be done verbally. In 1995, everything changed because there was a section of the trading room that was open to the public and another section for the traders. Now the traders don’t come here anymore (typically) and they trade from their own computer in their office.

One really interesting discussion point was when they discussed the MILA ,which is an integrated market that tries to make transactions easier between Chile, Peru and Columbia. It is very new and they are very excited about it. They are not working on an agreement with Argentina or Brazil because they are too big and it wouldn’t be good for them. Mexico is going to be joining because they are similar in size.

Each stock is in the national currency so you have to be able to make your own conversion. The exchange doesn’t manage the final investor, just the superintendencies. The market doesn’t currently trade commodities because there is so much excess supply that it is almost all exported. In a few years, they believe that the Santiago Stock Exchange will be the only exchange there.

Alison and I got home to the hotel and decided to go to an open market down the street. I got a purse and a cup and bought a nativity set for my parents. We walked by the library and then to Starbucks so Alison could see if she could find a Chile mug for her collection. Then we decided to go back to the hotel. It was really weird because we kept getting whistled at around town even though we were covered up. Very strange indeed!

Tonight we ate at a Peruvian restaurant at the Patio Bellavista. I got the “spaghetti” with seafood and it was more like lo mein. Absolutely DELICIOUS! Probably one of my favorite meals so far. We had a grand ol’ time at dinner, grabbed a drink at the bar and took a taxi home.

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