Italy’s Prysmian expands Brazil factory, opens LatAm HQ

Italian cabling and fiber optics company Prysmian invested 150mn reais (US$39mn) to expand its Sorocaba factory in Brazil’s São Paulo state and open a Latin America operations headquarters in the city.

With the expansion, Prysmian says it has increased capacity at the plant by 25%, or by 500,000km of cables, to 2.5mn kilometers a year. The factory is the only one of its kind in Latin America with an end-to-end production cycle of fiber optics, Prysmian telecom business director Marcelo Andrade told BNamericas.

According to Prysmian CEO for Latin America, Juan Mogollon, Sorocaba is also one of the group’s four “centers of excellence” in manufacturing, the others being in China, Italy and the US.

The Latin America HQ follows the acquisition last year of General Cable, which gave Prysmian a significantly larger footprint in the region, company executives said.

The launch was marked by an event on Wednesday in Sorocaba attended by Prysmian's global CEO Valerio Battista, Mogollon and Brazil country manager João Carro Aderaldo.

The launch also comes as Prysmian completes 90 years of operations in Brazil. 

The company’s history in the country began in 1879, when Pirelli created a sector dedicated to energy cables. Around 50 years later the firm started manufacturing cables in Brazil.

In 2005, Pirelli’s cabling division was spun off worldwide, creating Prysmian. In 2011, Prysmian bought the Draka group and, last year, General Gable.

LATIN AMERICA FOOTPRINT

Prior to the incorporation of General Cable, Prysmian Brasil and Prysmian Argentina reported directly to Europe, while Prysmian Mexico reported to the US. Hence the need for a restructuring with a LatAm CEO and a LatAm HQ.

With the sites inherited from General Cable, the Prysmian group now has 16 manufacturing plants in Latin America: seven in Brazil, four in Mexico and one each in Costa Rica, Ecuador, Peru, Chile and Argentina.

“The reason for so many plants is that cable companies need to be closer to customers,” Battista said at the event.

Prysmian also recently concluded the expansion of its factory in Durango, Mexico that is dedicated to telecom cables and which according to Andrade now has half the capacity of the Sorocaba plant.

The company also has three R&D centers in the region: two in Brazil and one in Chile, for the production of cables for the mining industry.

In Chile, Prysmian is also a supplier for the Fiber Optica Austral (FOA) submarine project to connect the far south of the country, Andrade said.

Overall, 4,100 people work for Prysmian Latin America, 1,500 of whom are in Brazil.

The country was responsible for 1.9bn reais in revenues last year, or some 40% of the LatAm total.

Worldwide, Prysmian reported 11.5bn euros (US$12.9bn) in sales in 2018, with Latin America accounting for some 9%. Europe, Middle East and Africa (EMEA) 54%, the US and Canada 28% and Asia Pacific 9%.

According to Battista, the revenue per geography is consistent with each region's potential except for Asia Pacific, where he said it is too low.

In terms of investments, the company allocated 250mn euros for capex and 105mn euros in R&D expenditures last year. It also launched 150 new products.

“Energy is a very conservative market. Innovating in telecom is better because the market is not so regulated as the others and we're able to develop innovations much faster,” said Battista.

For 2019, Prysmian plans to up investments to 273mn euros, mostly due to an increase in fiber optics development and production.

Prysmian’s main rival in Latin America is Furukawa, which has a slightly larger market share, according to Andrade.

MERCOSUR-EU AND IMPORT TAX CUTS

Questioned by BNamericas, Mogollon said the company saw no immediate positive or negative direct impacts for Prysmian's business from the recently brokered Mercosur-European Union trade deal, which is still pending details and depends on ratification by each country.

But Mogollon admitted he was “worried, although not scared” about the Brazilian government’s decision – now suspended – to reduce and eventually eliminate import duties on IT and electronic goods, which some fear might lead to an influx of cheaper foreign products, hurting local manufacturing. 

And the executive downplayed the potential effects of changes to the rules that grant fiscal breaks for companies investing in R&D in Brazil, something also being considered by the government.

“We're not located in any state where we use tax incentives that would impact us if they changed overnight. Some of our competitors are taking advantage of this. We're not. So we're not concerned.

“Prysmian group has been around for 90 years in Brazil. The group has been able to navigate through the ups and downs in companies in Brazil and [elsewhere] in Latin America.”

He promised the company would stay at least another 90 years in the region, referring to a 90+plan.

“I know it sounds like a slogan but we're really committed to the region and we're not scared by the political turbulence some of the countries in Latin America go through.”

However, according to CEO Battista, the financial and political turbulence in Latin America “obviously scares” a lot of industries, but Pirelli and Prysmian have a lot of experience in dealing with that.

Battista highighted the Argentine case.

“Some of our competitors are leaving or have left Argentina. We want to stay there, even if there's a very complex financial situation. But sooner or later it will improve, similar to Brazil in the past two, three years. We need to be able to survive during the storm and when the storm is over it's a good market.”

CIVIL CONSTRUCTION, ENERGY

Country manager Aderaldo said the local civil construction market is still struggling from the 2014-16 crisis. The segment is an important client for the group’s equipment.

He said the problem is related to a lack of confidence, arguing that “there is money available in banks.” This lack of confidence can soon change if the pension reform and other macro reforms are passed, according to Aderaldo.

The energy sector, on the other hand, is doing well. Generation and transmission are currently the main segments driving the company's investments in Brazil, he said.

"The energy market continues to grow in Brazil and we believe this trend will stay in coming years. Some investments are happening even independently of energy auctions."

Prysmian expects renewables growth to be faster in countries like Mexico, Brazil, Argentina and Chile.

Solar plant

One of Prysmian’s major projects in Brazil is the construction of the largest solar plant in the world, to be completed next year by Italian firm Enel Green Power and EPC company Tozzi in Piauí.

Prysmian collaborated with Enel and Tozzi on the early stages and on the design and specification of the cables to meet Brazil and European standards, said Battista. When completed, the plant is due to supply over 13mn homes.

Another key project in the country is high voltage underground cables linking two substations in São Paulo: Piratininga and Bandeirantes.

TELECOM

As for telecom, Prysmian expects triple digit growth in the internet service providers (ISP) segment to continue through 2022.

According to Aderaldo, ISPs are taking 50% of the fiber produced by Prysmian in Brazil, with large telecom groups accounting for the rest.

The company leverages the expansion of broadband to remote areas by ISPs, as large operators are not capable of – or not interested in – serving these regions.

“For a country with 210mn people like Brazil there's a gap in broadband to homes that needs to be addressed,” said Mogollon.

In order to support the expansion of infra, Prysmian allows ISPs to finance part of the fiber with a special card issued by a partner financial institution.

“There are several sources of government funding for ISPs to purchase networks and equipment. In any case, we have partners who work with us to offer these sources of funding, whether public or private,” Aderaldo said.