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Meeting The Challenge

Even In Tough Times, Puerto Rico’s Locally Owned Businesses Succeed Through Resourcefulness And Perseverance


November 7, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

2002 CARIBBEAN BUSINESS Top 300 locally owned companies: Banks, healthcare providers, health insurers, and supermarkets did so well—despite the slow economy—that total revenues rose to $22.8 billion in 2001, a 6.6% increase over 2000

The old boxing maxim "You can’t keep a good man down" (or a good woman, of course) applies to this year’s CARIBBEAN BUSINESS list of Top 300 locally owned companies. Although the local and national economies were down—the stateside economy had three of four quarters of negative growth—local companies kept their gloves up.

In fact, more than half of the Top 300 locally owned companies saw revenues shrink or remain flat. But they never lost the fighting spirit and kept at it. A few companies, among them banks, healthcare providers, health insurers, and supermarkets, did so well despite the slow economy that they made the aggregate revenues of the Top 300 in 2001 jump 6.6% over the previous year.

CARIBBEAN BUSINESS has been monitoring locally owned business since 1988. In many ways they are the backbone of our economy. They employ more than 10% of the total jobholders and 15% of all the private-sector workers. What’s more, unlike national and international companies that can move anywhere anytime, locally owned businesses, with their roots firmly entrenched in Puerto Rico, are here to stay.

They are also valiant. To remain locally owned is a challenge. Successful companies make good takeover targets for offshore investors.

Cesar Castillo Inc., distributor of consumer and pharmaceutical products, typifies the resourcefulness, staying power, and entrepreneurial spirit of the top local companies. The firm’s revenues jumped 80% last year, mainly as a result of entering the wholesale prescription drug business three years ago.

The mergers of the big drug makers made it more difficult to acquire new distribution lines, so Castillo moved into wholesaling. Castillo also has become more aggressive in selling its logistics services, handling the warehousing and distribution for client companies. In a slowdown, this company adds sales people rather than cuts staff, said Raul Rodriguez Font, vice president of finance for Cesar Castillo Inc.

Our Top 300 is a compilation of the largest and most successful locally owned firms, many of them entrepreneurs like Castillo who have forged their companies from sweat, audacity, resourcefulness, and sheer perseverance. They are the heroes behind the statistics.

The survey results provide a gold mine of information that suggests where we are doing well, what we are doing right, and where we might change. The CARIBBEAN BUSINESS Research Department has organized these statistics, gleaned from this year’s survey in a series of charts on these pages.

In Puerto Rico, where the unemployment rate averaged 11.4% last year, job creation is critical. While revenues are important, the number of jobs and payroll paid may be more important to the economy than the amount of revenue generated, said Fernando Zalacain, economics professor at Inter American University.

The job market, which as a whole lost 24,000 net jobs in 2001, got a boost from the biggest locally owned firms that year, rising almost 7% to 121,524, compared with 113,700 in 2000. Even so, 2001 employment by the Top 300 lags behind the record 123,600 reported by the companies in 1999.

In terms of revenues, last year’s aggregate sales totaled $22.8 billion, an addition of $1.4 billion over 2000. More than 50% of the increase in revenues went to financial institutions, healthcare providers, and health insurance companies combined. Banks generated more than $250 million in additional revenues in 2001.

Local healthcare firms’ collective revenues rose 11.4% last year, buoyed by increases in government Health Reform premiums. Together with health insurers, these companies took in approximately $400 million in additional revenues in 2001.

Among the fastest growing companies are three in the health field: Medical Card System Inc., Preferred Health Inc., and Servicios de Salud Episcopales Inc. (see chart).

"The local Health Reform has impacted the whole economy," said Carlos A. Muñoz Bravo, president of Medical Card System (MCS). Instead of getting medicines and laboratory tests at a public clinic or public hospital, the medically indigent today buy medicines at their local pharmacies and have tests done at freestanding laboratories. The Health Reform has bolstered the income of pharmacies, labs, hospitals, and other healthcare providers, and has created jobs in the private sector.

In 2001, MCS’ revenues jumped 115% to $305.6 million, pushing the health insurer to No. 12 from No. 32 the previous year, when the company made its debut on the Top 300. More than three-fourths of last year’s income came from the company’s Health Reform contracts. In 2000, MCS grossed $141 million thanks to its first Reform contracts, which amounted to $99 million. This year, MCS expects to gross $460 million, of which about $400 million will come from the Reform.

Triple-S Management Corp., the second biggest locally owned company, became a giant as a result of the government’s shift from providing healthcare services for the medically indigent to contracting with private health insurers. In 1995, Triple-S won its first contract, worth about $200 million, to cover a 12-town area in northern Puerto Rico. The company’s yearly premium income for 1995 rose roughly 40% to $700 million. Last year, Health Reform contracts accounted for $454.9 million of the $1.2 billion in healthcare premiums. Triple-S also owns a life insurance unit and a property & casualty subsidiary.

Four large supermarkets rang up $140 million in increased sales, equivalent to one-tenth of the total revenue growth among the Top 300 companies last year. A lot of this growth was fueled by the new federal regulation that requires local Nutritional Assistance Program (PAN by its Spanish acronym) beneficiaries to spend no less than 75% of their benefits on food items.

The biggest companies grabbed the lion’s share of total revenues both this year and last. The top 10, 3% of the total companies, generated one-third of the revenues in 2001 and in 2000.

For the second consecutive year, half of the first 10 slots are filled by financial institutions, which generated 20% of the Top 300 gross income in 2001. They are led by perennial first-place Popular Inc., which reported $2.5 billion in revenues, down 1% from the previous year.

Popular’s dip in revenues is the result of a dozen interest rate cuts by the Federal Reserve during 2001. While lower interest rates benefit the banking industry, Popular, which derives 70% of its revenues from interest income, ended the year with slightly lower revenues, said Jorge A. Junquera, senior executive vice president.

Other banks on the list with high concentrations in mortgage lending showed substantial jumps in revenues because of the boom in mortgage financing and refinancing, fueled by the prevailing low interest rates. Doral Financial Corp., for instance, reported a 17.7% rise in revenues to $577 million, while R&G Financial Corp. posted a 20.6 % jump to $379.6 million.

Banco Popular also has seen a tremendous increase in mortgage lending, but the bank is more diversified and its income grows more conventionally, Junquera said.

A low interest rate environment helps a bank’s bottom line, as long as the institution can lower its cost of funds, Junquera said. Popular sailed through 2001 with a 10% jump in profit to $304 million. While revenues are important, they aren’t a measure of an individual company’s profits.

The island’s largest residential mortgage lender, Doral Financial, moved up from No. 6 to knock Supermercados Amigo out of the No. 3 spot in revenues. Amigo dropped to No. 5, pushing the island’s largest wholesaler, V. Suarez, to No. 6. First BanCorp, owner of FirstBank, held steady in fourth place. R&G Financial Corp. moved up a notch to No. 8 and W. Holding Company Inc. moved up one to No. 9. Empresas Cordero Badillo dropped from No. 8 to No. 10.

Three firms increased revenues by more than 100%. Sales of a small construction company, Vives Construction Inc., ranking 288, leaped 139% from $5.3 million in 2000 to nearly $12.7 million last year. One contract can make a huge impact on the revenues of a company that size.

F&R Construction Corp. & Affiliates reported a 47% jump in revenues, attributed mostly to many projects that were completed last year. A project planned one year may be built the next, despite a weakening of the economy. In general, though, local construction contracted last year, hurt by an immensely bureaucratic permitting process and the government’s holdback in public works spending, which continue to hamper contractors.

Winning a slot on the CARIBBEAN BUSINESS list of Top 300 locally owned companies became a couple of hundred dollars tougher in 2001, as the cutoff rose to $11.71 million from $11.5 million in 2000.

Twenty-three companies were dropped from the list, mostly because of a decline in revenues. Such was the case with Avant Technologies Inc., CMA Architects & Engineering LLP, Cidra Excavation SE, Computer Paradise Inc., Foam Pack Inc., Innova Inc., Jimenez & Rodriguez Barcelo AIA, Junco Steel Corp., Kupey Auto Distributors Inc., M.A. Esteves Inc., Prota Construction SE, Simon Drury Ltd., UltraPure Systems Inc., West Electric Corp., and Zorrilla Commercial Corp.

Puerto Rican Cement Co., which ranked No. 30 last year, was acquired by the Mexican cement maker Cemex SA and therefore ceased to be locally owned. Orange Crush of P.R. Inc., which placed No. 262 in 2000, was purchased by Coca-Cola. Redondo Construction Corp., once a large government contractor but banned from bidding on public projects, filed for Chapter 11. Redondo ranked 42 in the 2000 Top 300.

CARIBBEAN BUSINESS ranks companies on the basis of revenue, a yardstick used by other publications, such as the construction trade magazine ENR (Engineering News Record). BusinessWeek, another McGraw-Hill publication, uses a composite of eight criteria, from sales to profit growth to return on equity, in its performance rankings of the S&P 500.

Since more than 98% of the Top 300 locally owned companies are private companies, a limited amount of information is available to the public. At the end of June, the CARIBBEAN BUSINESS Research Staff sent more than 1,300 questionnaires to individual companies selected from the newspaper’s database. The staff also uses financial data from Dun & Bradstreet as well as industry sources to capture companies that aren’t in the database or to prepare estimates in case a company doesn’t answer the questionnaire.

This Caribbean Business article appears courtesy of Casiano Communications.
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