Molinos Río de la Plata S.A.

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Molinos Río de la Plata S.A.

Uruguay 4075 (B1644HKG)
Victoria, Buenos Aires
Argentina
Telephone: (54) (11) 4340-1100
Fax: (54) (11) 4340-1413
Web site: http://www.molinos.com.ar

Public Company
Incorporated: 1931
Employees: 2,150
Sales: 2.01 billion pesos ($601.8 million) (2002)
Stock Exchanges: Buenos Aires; OTC
Ticker Symbols: MOLI; MOPL F
NAIC: 311211 Flour Milling; 311212 Rice Milling; 311222 Soybean Processing; 311223 Other Soilseed Processing; 311225 Fats and Oils Refining and Blending; 311411 Frozen Fruit, Juice and Vegetable Processing; 311423 Dried and Dehydrated Food Manufacturing; 311611 Animal (Except Poultry) Slaughtering; 311612 Meat Processed from Carcasses; 311615 Poultry Processing; 311822 Flour Mixes and Dough Manufacturing from Purchased Flour; 311823 Pasta Manufacturing; 311920 Coffee and Tea Manufacturing; 311941 Mayonnaise, Dressing and Other Prepared Sauce Manufacturing

Now a century old, Molinos Río de la Plata S.A. is one of Argentina's largest food companies. Its products have long been staples in Argentine household kitchens, and it is the market leader for a number of food products, including flour, cooking oils, pasta, and sausages. It is also the leading Argentine exporter of branded food products, with a presence in 45 countries worldwide. Molinos leads the world in the manufacture of sunflower oil and is the leading exporter of refined and bottled sunflower oil.

Undisputed Argentine Food Products Leader: 1902–79

Molinos Río de la Plata was, until the very last years of the 20th century, the most important Argentine holding of the Bunge multinational business empire. This enterprise was established in Amsterdam in 1818 as Bunge & Cia. and moved its headquarters to Antwerp in 1850. The firm imported tropical products from Africa and southeast Asia. The Argentine branch of this enterprise had its origins in 1876, when Ernesto Bunge moved there from Belgium. Four years later he founded a bank whose objective was to finance Argentine wheat farmers who would sell their harvests to the firm for export to Europe. Jorge Born, Ernesto's brother-in-law, soon joined him, and Ernesto Bunge y Jorge Born S.A. was founded in 1884. This firm and two other foreign-owned ones controlled 80 percent of Argentina's wheat exports in 1910.

Bunge & Born exported the wheat to Belgium for processing until 1897, when it established its first flour mill in Argentina. The second was founded in 1902, the year a presidential decree gave the firm the exclusive right to build a mill and grain elevator in the port of Buenos Aires. A Belgian-chartered company, Río de la Plata Flour Mills and Grain Elevators, was established that year to store and mill the grain in the port. (It was incorporated in Argentina under its present name in 1931.) The company grew rapidly. In 1910 it acquired three of the biggest flour mills in Argentina and installed others in Brazil and Uruguay. A former employee told a congressional investigatory commission in 1919 that Molinos paid high prices for wheat and sold the flour cheap in order to ruin local millers. Profits rose from 173,223 gold pesos in 1909 to 2.17 million in 1917.

Molinos started to mill Argentina's cotton crop for cottonseed oils in 1925 and soon added sunflower, peanut, and flax oils, contributing to the development of northern Argentina. In 1940 it produced tung oil for the first time anywhere in the world at a plant in Puerto Vilelas, Chaco. By then it had added a rice mill (1933) in Tucumán and one for olive oil (1936) in Mendoza.

Jorge Born was in charge of Bunge & Born's Argentine operations until his death in 1920. Ernesto Bunge succeeded him, serving until 1927, when he returned to Belgium. Under Alfredo Hirsch, who succeeded Bunge and served as Bunge & Born's president until his death in 1956, Molinos's array of products came to include pasta and yerba maté tea (1942), enriched feed for cattle and fowl (1951, at Mendoza), vitaminfortified semolina flour (1955, at Labouleye, Córdoba), selfrising-flour (1956, Buenos Aires), cake premixes (1959, Buenos Aires). Margarine (1960, at Avellanada, Buenos Aires), soybean oil (1962, Puerto Vilelas), and hydrogenated fishmeal (1966, Mar de la Plata, Buenos Aires), followed in the next decade. Mayonnaise and other sauces were added by a 1968 acquisition.

With 27 factories and 4,600 workers in 1968, Molinos was undisputedly the biggest food company in Argentina, its flours and oils meeting one-quarter of the nation's consumption. It was completing the largest grain elevator in South America that year in Buenos Aires. Subsidiaries marketed its products in Brazil, Uruguay, and Peru, while another Bunge & Born company still exported as much as one-third of Argentina's grain harvest to Europe. Eight years later, Molinos still accounted for 23 percent of all cooking oils sold in Argentina; 21 percent of all flour; 20 percent of all rice; 19 percent of all yerba maté tea; and 15 percent of all enriched cattle feed.

Bunge & Born was the largest private enterprise in Argentina as late as 1974, when Jorge Born III and his brother Juan were kidnaped by leftist urban guerrillas. Jorge was freed two months later but Juan was held for almost a year, until the firm met their demand of $60 million in ransom, distributing of food and clothing to the nation's most needy, the publication of a manifesto in major world newspapers, and the placement of busts of Juan and Eva Perãn in all buildings of the group. In the wake of this incident Jorge Born II, who had succeeded Hirsch as president of the firm, decided to leave Argentina, moving company headquarters to Brazil. But as late as 1979—following acquisition of Matarazzo, S.A. the previous year, thereby adding pasta to the company's range of products—Molinos was the ninth largest company in Argentina, its sales accounting for 40 percent of Bunge & Born's Argentine total.

Growing Competition in the 1980s and 1990s

Beginning in the 1980s, food companies—both national and international—began to provide growing competition for Molinos, modernizing their existing plants and building new ones to augment their productive capacity. Liberalized trade laws now allowed foreign flour, pasta, and oils—previously denied admission—to be exported to Argentina. Although the company's commodities—its raw materials—still accounted for 40 percent of its sales and 72 percent of its exports in 1997, these were giving ground to new lines of added-value products. Between 1992 and 1997 Molinos invested $210 million in productive capacity while reducing employment from 6,000 to 4,300. Annual revenues rose from $765 million to $1.26 billion in this period, and the company's participation abroad grew from 17 to 43 countries.

Molinos extended its range to meat products in 1990, when it acquired the Frigorifico Tres Cruces slaughterhouse. That year the company added regular and stuffed fresh pasta, pizza breads, and pie and pastry shells under the Matarazzo brand name. Matarazzo frozen ready-to-eat pasta dishes and pizza were introduced in 1995, the year Molinos acquired Pindapoy, importer of refrigerated fruit juices from Brazil. In 1997 the company entered the frozen food market by acquiring the Granja del Sol lines of hamburgers, breaded chicken, vegetables, and fish.

Some 250 products were introduced to the market by Molinos during the early and mid-1990s, and by the end of 1997 Molinos enjoyed 40 percent of the national market for frozen foods. Conversely, in that year the company withdrew from soybeans, even though it had become Argentina's main farm export and accounted for $150 million of Molinos's annual exports. The judgment was that the company could make a much larger profit by devoting its soybean-processing facilities to the production of bottled sunflower oil. At the same time Molinos decided that its 26 categories of products should be placed into four groups—flours, oils, dry foods, and refrigerated and frozen products—in the interests of assuring greater efficiency and profit. The company was seeking to raise its average profit margin from about 3 percent to 5 percent, which was about the industry average. In 1998 Molinos began marketing ready-to-eat bakery products under the Exquisita Bakery name.

By 1999 traditional commodities accounted for less than 20 percent of company revenues, compared to 47 percent in 1996. Exports accounted for 43 percent of total revenue in 1997, nearly triple the level in 1993. The year 1998 was not a good one, however, for Molinos. Following five consecutive years of profits, the company lost almost $40 million as a result of increased competition, falling prices for its commodities, and recessions in Russia and Brazil, two of its largest export markets. At the beginning of 1999 Bunge International sold its controlling interest in Molinos Río de la Plata to the Pérez Companc family, whose holding company had been previously concentrated in the energy sector. Through a company based in the Cayman Islands, Pérez Companc paid almost $400 million to purchase 60 percent of Molinos. The purchaser also assumed $364 million in debt, of which about $200 million was longterm, in the form of bonds and other loan instruments. In 2001 an affiliate of this company owned 40 percent of Molinos' common stock; J. Gregorio Pérez Companc, now head of Molinos and believed to be the richest man in Argentina, owned another 24 percent.

Company Perspectives:

Molinos Rίo de la Plata is a consumer-focused company based on three main pillars: leadership by continuous improvement in costs and productivity; brand leadership by innovation and quality; and leadership by excellence in performance.

The key to our Company's success is the undertaking, identification and loyalty to our values and principles.

Molinos in the 21st Century

Competition continued to challenge Molinos' effort in the following years to increase market share and profit margins. The growth of supermarket chains made it easier for these powerful retailers to pick and choose among their suppliers and to buy cheaper products from Molinos' competitors abroad, or even to issue their own private-label food products. Responding in 1999 to changing conditions, Molinos formed a strategic alliance with Cargill S.A.C.I. in the industrial flour market, taking 35 percent of the subsequent joint venture, Trigalia, S.A., and acquired Cargill pasta and household-flour brands. The company closed its deficit-ridden subsidiaries in Chile and Uruguay and entered distribution agreements with Empresas Carozzi and Carrau & Cia., respectively, instead. The dressings and seasonings brands first introduced in 1985 were sold, but the company enhanced its market leadership in premixes by acquiring the Betty Crocker license.

Molinos entered agreements with two new Brazilian distributors and launched several new products: flavored yerba matétea, a balsamic vinegar, a cake margarine, and a new pasta in four varieties. The company also sold its Buenos Aires headquarters building and moved to Victoria in the province of Buenos Aires, where it already had a distribution center.

In 2000 Molinos acquired Fagnani Hnos S.A., the company manufacturing and marketing Don Vicente pasta products. This made Molinos the leader in premium dry pastas. The company introduced yerba maté in collectible cans, a ricotta pasta line, a homemade pizza bread mix, and an aromatic olive oil. Molinos also launched an Internet shopping service during the year to reach retailers directly. In 2001 the company purchased the Lucchetti brand of dry pasta and introduced 11 new products: a gnocchi mix, Lira-brand olives and vinegars, two more yerba maté brands, Vitina baby food and oats, new varieties of Matarazzo, Don Vicente, and Favorita pastas, and Granja del Sol Milanese (superfrozen breaded meat). In 2002—its centennial year—Molinos introduced new quick-preparation cake mixes, Cocinero vinegar, lemon juice, all-soy oil, Granja del Sol soy Milanese, and stone-hearth Granja del Sol pizza. Also in 2002, the company acquired Molfino Hnos. S.A., the thirdlargest dairy company in Argentina, with two plants and annual sales of $120 million. The following year, however, it sold Molfino to the Canadian firm Saputo Inc. for $68 million.

During the year 2002, Molinos was the market leader in Argentina in traditional and special oils; flours, including premixed flour; dry pastas; premixed cakes; batter; sausages; and semolinas. It ranked second in baby food; yerba maté, rice, margarine, premixed desserts, and hamburger. The company owned ten industrial processing plants in Argentina and six distribution centers. But the financial collapse of Argentina in 2002 affected even companies such as Molinos that were engaged in the sale of basic products. It sustained a loss of 80.24 million pesos ($24.02 million) on sales of 2.01 billion pesos ($601.8 million). The company earned a small profit during the first nine months of 2003, however.

The company's main brands for oils at this time were Cocinero, Lira, Patito, Ideal, La Patrona, Gallo, Fritolim, and Reno. Among dry pasta, the brands were Matarazzo, Lucchetti, Favorita, La Bella, Regio, Olimpico, and Don Vicente. For fresh pasta, the main brands were Matarazzo and Favorita. For pizza mix it was Favorita, for semolina, Vitina, and for prefried foods and frozen vegetables and fish, Granja del Sol. The main brands of yerba maté tea were Nobelza Gaucha, Chamigo, and Pico de Oro. For hamburgers, brands included Good Mark, Granja del Sol, and Wilson, and for frankfurters, Vienissima, Wilson, and Hamond. For flour the main brands were Blancaflor, Favorita, and Letizia, and for margarine, Manty, Delicia, and Blancaflor. For tapas the main brands were Blancaflor and Favorita, for breadings, Preferido and Favorita, for rice, Maximo and Condor, and for biscuits, Exquisita and Favorita. For premixes Blancaflor was foremost, and for cold cuts, Tres Cruces.

Key Dates:

1902:: Molinos wins the right to erect the first grain mill and elevator in Buenos Aires.
1925:: The company's mills begin producing a variety of vegetable cooking oils.
1951:: Rice, pasta, and enriched cattle feed have been added to Molinos's products by this time.
1968:: Molinos Río de la Plata has 27 factories and 4,600 employees.
1979:: Molinos has added pasta and is Argentina's ninth largest company in terms of sales volume.
1990:: Molinos adds prepared meats to its product line.
1997:: The company adds frozen foods by acquiring the Granja del Sol line.
1999:: The Pérez Companc Family Group buys the majority stake in the firm.