EuroBusiness Media (EBM): Mario Guevara, welcome.
Mario Guevara (MG): Thank you for having me today.
EBM: You are the new CEO of Bic, appointed since March of this year. We're going to talk about your earnings announcement and acquisitions, but it's worth noting that this is the first time in the company's history that someone outside of the Bich family has been appointed Chief Executive of Bic. Therefore, let me begin by asking you a quick question about your background as a manager, and whether you see your management tenure as a departure from, or a continuation of, the Bic tradition?
MG: I have been working for Bic since 1992. Particularly in the last two and a half years I have worked very closely with Bruno [Bich], and for most of my years here in the company I have worked directly or indirectly with him, which has allowed me to understand the company from the inside. Let me share with you that I personally work in this company because of the values, the Bic values that are part of the Bic family, but are also part of the Bic company. So, in terms of transition, this transition has been very, very smooth, has proceeded very well with all the Bic employees, which shows the continuity of the strategy that Bruno and I have worked on together for the last two and a half years. As you know, I became a member of the board in 2001, and that has allowed me to develop the current strategy for the company.
EBM: You have just announced the acquisition of Pimaco in Brazil, along with your first-half earnings announcement. What does the Pimaco acquisition represent for Bic, and how does it tie in with your overall acquisition strategy?
MG: Let me start with the last part of your question, the acquisition strategy. Here in the company we have defined a bolt-on type of acquisition, which are the ones we primarily pursue in terms of acquisition. Pimaco fits right into this type of bolt-on acquisition. Pimaco is the leading company in Brazil for adhesive labels for the school market, the office market and the industrial market. So it fits with our class of trade of distribution, and is the addition of two great brands in that part of the globe. So this will allow us to realize important synergies and solidify our leadership position there.
EBM: Looking ahead now, what are the next steps in your acquisition strategy?
MG: As we shared with you, we pursue acquisitions mainly in the stationery category. Stationery is an industry where there are a lot of small family-owned businesses around the world. Having said that, we have recognized and we have experienced that the negotiation process is long. For example, for Pimaco it took us over two years to reach this point successfully. So we will pursue the acquisitions of this type of company. And, by the way, let me share with you that the Pimaco acquisition will allow us to increase our sales in Latin America by about 10%.
EBM: You released your first-half earnings which saw a decline in your margins across the board. What are your comments on the first-half earnings? Should we be concerned? And what is the outlook for the rest of the year?
MG: Our sales grew during the first half of 2006 by 3.1% on a constant currency basis. The margins suffered slightly, but this was a result of our proactive decision to invest more to support our brand across the three categories -- mainly in stationery and shavers. In stationery we decided to increase our brand support and advertising monies, looking into the back-to-school season that takes place in the months of June, July, August and September. So the results of this investment should be seen at the end of the third quarter. For shavers, we did anticipate part of our promotional activities looking at the summer season, when some of the disposable shavers increase their sales in the northern hemisphere. The outlook for sales growth for the year remains around 4%, and we will catch up in terms of income from operations showing a growth faster than sales.
EBM: Bic is facing a number of important challenges in the years to come, for example increased competition from private labels in stationery, fiercer competition from China in lighters, and competition from two global giants in shavers. How can Bic face these challenges in each of its three businesses in the years to come?
MG: O.K. Two of the main strengths we have in the company are, first, our group of dedicated Bic employees that we have all around the world; and, second, the Bic brand that has become known over the last fifty years for high quality products available at a very fair price. We also enjoy a very healthy balance sheet. Our business generates an interesting amount of free cash flow, which allows us to invest in research and development, to be more innovative, to be more creative, to take risks. And, last but not least, we always pursue an increasing productivity to remain cost-competitive. In the last few years, we have reduced our number of factories from 46 to 24. This is an example of the productivity we have generated in the last few years.
EBM: Looking at each of your challenges one by one: let's begin with stationery. How can Bic face the challenge coming from private labels?
MG: We will continue to manufacture and sell high-quality products. Every day, we manufacture 22 million writing instruments, and those are produced with the highest quality. So we will continue down this avenue. We will also continue to support our brand, to differentiate our products vis-à-vis the private labels. As I mentioned to you, our resources allow us to invest more in research and development, so we are developing new, innovative and higher value-added products that we plan to launch in the coming years.
EBM: Looking at lighters now. There seems to be a challenge in Europe where you are facing increased competition from products made in China under white brand, and there is uncertainty about whether E.U. regulations about safety standards is going to be enforced. How are you going to face this challenge?
MG: If we succeed, together with the European authorities, to make the safety standards and the future child resistant standards enforced in the countries that are members of the European community, certainly we will experience a sales increase, as we have in countries like the U.S., Canada, Australia, Mexico and Brazil, where both the safety standards and the child resistance standards are enforced by the local governments. This will allow us to have a level playing field vis-à-vis the Chinese competition.
EBM: And what can you say about Bic's position in shavers where you face serious competition from two global giants - Gillette on the one hand and Schick Wilkinson on the other?
MG: Historically we have always competed against these two giants. Since we created the disposable shavers back in 1973, we have competed with Gillette and in recent years more with Schick. So competing with the giants has come with the history of the company. In the last six years we have made tremendous improvements in our shavers. We have invested heavily in research and development and capital expenditures. Today, 35% of our sales come from triple-blade disposable shavers; in 2001 we had zero. Now, in countries like the U.S., or even in Europe, our market share is comparable to the competitors'. So the platform to grow the business in the future, in my opinion, is much more solid than it was six years ago.
EBM: And, finally, one last question about Asia where Bic has historically had lower market penetration. What steps do you plan to take to increase your market presence in Asia?
MG: Today our sales in Asia are only 2% of our total turnover. We have put together experienced teams that are running our business in that part of the world. As most of you know, we acquired the distribution rights in Japan, and we are now starting to build the foundation to grow the business in that country. We also invested in the development of a factory in China where we began manufacturing writing instruments last November 2005. So this platform of people, good geographical presence and a manufacturing base should allow us to grow our business in that part of the world. Let me remind all of you that the fiercest competition we have experienced comes precisely from that part of the world: from China in stationery, from China in lighters, and in shavers we have a promising future because we can compete with the two biggest brands in the world.
EBM: Mario Guevara, CEO of Bic, thank you very much.
MG: Thank you.
