OSCAR ESPINOSA BEDOYA - Director Gerente General de Ferreyros

Press Tribune: In 2006 the Peruvian economy had a growth of almost 8% in its GDP. Did Ferreyros grow at the same path than the economy?

Sr. Espinosa: 2006 was an excellent year for us. We have grown almost three times as much as the Peruvian economy in that year. Our sales last year reached 450 million dollars, a really important figure for the Peruvian market and that places Ferreyros amongst the top 20 companies with greater sales in the Lima Stock Market. Our company sales are tied to several key productive sectors, and this constitutes an excellent indicator of the evolution of the economy. Mainly because we are the main dealer of capital assets for the construction, mining, energy and fish industries, sectors in which we lead the market. Also we supply the transport sector, a sector in which we are acquiring a bigger market share. Usually we are ahead of the economy growth because the primary activities grow before the internal consumption market does. For example, the investment in mining this year is going to generate future income which impact is going to reflect on the GDP. Our perception is that Peru is in the right path for growth.

Press Tribune: Do you see the economy growing at the same rate in the next years to come?

Sr. Espinosa: We have a development program planned for five years, based on our projections on the growth of the economy. We are very optimistic regarding the permanence of the economic growth. Being the main importer of capital assets in the country, those projections tell us that in the next years we are going to keep a high level of imports. The great expansion that happened in some countries has generated a world-wide shortage of machinery supply, which forces us to face in two ways: we must be very careful in the programming of our purchases and, at the same time, very aggressive to keep inventories to supply our customers when they demand. In addition we must anticipate the beginning of new projects to be able to place the orders for machines and to have them at the right time.

Press Tribune: What impact will the FTA have on Ferreyros and its relation with the United States?

Sr. Espinosa: We have been very active in the process that has led to the signing of this agreement with the United States. And we did it for two reasons. First, because of our convictions as Peruvians we have to support what is good for the country beyond our legitimate interest in the benefit of our own business. For that reason, we have actively participated for several years in Peru, as well as in the United States, through Caterpillar, which presides over the group of North American private companies that have been supporting the FTA with Peru. Although it is obvious that as company we will obtain benefits, when costs are reduced for our clients in critical sectors where the cost of the machinery has chain effects on the finished products, these will not be so significant because luckily the cost for machinery in Peru has been reduced systematically and already they are down by 5%. Nevertheless, we think that the greater impact is on the way of thinking: we believe that the free commerce is positive because it opens frontiers and increases efficiency.

Press Tribune. Carterpillar has played a very important role in Ferreyros´ history. You have been working together since the 40´s and today Caterpillar products represent 85% of the company sales.

Sr. Espinosa: That is right. Ferreyros was founded 85 years ago. We feel very proud of our company and its endurance in the time, despite having some difficult times. Secondly, we have represented Caterpillar for 65 years. In the last quarter we hope to receive the visit of some important executives from Caterpillar to inaugurate our new office and to celebrate our relationship, which fills us with pride, a relationship sustained on more than renewable contracts, on the results that we obtain. We have a high market share in Peru, in spite of competing with almost all the machinery brands. Because of that, Caterpillar not only maintains us as their representatives in Peru but constantly shows us their approval and endorsement, fortifying a relation that is more intense than traditional ones that exist between mere partners in a business. Ferreyros is a company of many shareholders, listed in Lima Stock Market since 1973 and conformed basically by Peruvian capitals. We try to lead the company under the principles of good corporative government. The last year we obtained a first prize for applying these practices. We take pride on it because it satisfies us to be recognized among the companies that are distinguished for that reason. We think that the only way to grow in our country, is earning the support of the shareholders and the investors, through a policy of clean corporative government. This gives us great confidence in projecting ourselves towards the future. As long as the mining and the construction continue growing, we are going to require raising resources in the market in proper ways, through the emission of shares or with bonds, as we are already doing. Systematically we are placing bonds in medium term, bonds that do not require guarantee because of the acceptance that the market has for this type of financial tools. And they allow us to obtain resources at very low rates, as we just confirmed with 3-year bonds. That is consequence not only of our profitability, but also that we have a transparent handling of the company. In our Web page you can access to the most recent quarterly general balance, in addition to other information that is appreciated by our over a thousand shareholders. Besides being very proud of our relation with Caterpillar, we also represent other brands although in smaller volumes, that does not mean they are not important. We are leaders in perforation equipment for mining and tractors for the agricultural sector, in which we also have a really high market share. We have an area exclusively oriented to the agricultural sector, which despite its small size, has acquired great importance.

We are supporting agriculture through our strong presence not only with agricultural tractors, but with processing machinery. We offer rice mills, forest machines and all the equipment that agribusiness require for exporting. Even though the volumes cannot be compared with other sectors, that does not mean they are not important for the economy. And our general role is to guarantee the efficiency of our equipment our service and spare parts, 24 hours a day so that in the end we guarantee the productivity of our clients. And finally, we have to offer our clients productivity: that they are going to be efficient, that they are going to be able to compete in the market with their products, as long as they take good care of their machinery. That is our greatest strength as opposed to our competitors.

Press Tribune. Indeed you have a very powerful department of post-sale services and support.

Sr. Espinosa: It is certain, and that is what differentiates us. In the first place, the product that we sell can seem more expensive than those of our competition because we sell "value". At the end of the machinery life cycle (three, four or ten years) the benefit that the client has obtained from our machines is very high, because the operation cost is what really matters, being the initial price one of the smallest elements in its structure. It is more important to have the appropriate spare parts and the service so that the machines do not stop producing. Imagine, for example, that a mining truck that costs million stops producing two days, while the price of the gold that the client exports increases. We have designed support programs post-sale, such as to maintain inventories of components in the great operations of mining and construction. If a motor of one of those great trucks breaks down, in 24 hours another one replaces it. We have replacement components for all sizes, from motors to all the elements that can wear down in a truck or a machine. In the jungle south of Peru, where a highway is being built, we have warehouses of components to be able to replace them and to take the damaged elements to Lima or to Arequipa, where we have two great workshops. Here in Lima we got on a true factory for re-manufacturing components. The motors damaged in the big mines are taken there, disarmed completely, and rebuilt so that they work the following years and return to the mine. We have a stock bigger than any other in Peru and we have made overhaul our industry. We also got salvage factories to recover pieces and that meant important investments and with over 600 mechanics in construction sites and mines, distributed throughout the country that give support to the operation of those machines. On the other hand we have a great inventory of spare parts. 85% of the spare parts demand is taken care out of our stock, which represents a high percentage. The remaining 15% rest is taken care as a direct order or as an emergency order. The flow of emergency spare parts is of such magnitude that every working day of the week we use half of the load capacity of the daily flight of an aviation company from Miami to Lima. For these effects we use the services of a company in Miami of expediting and forwarding that allows to get the spare parts into the hands of the client in less than 24 hours.

That is what has allowed us to have this position as leaders. We take care of clients who are willing to pay an extra, because they know that they will fully recover it in its operations. Although we are conscious of our advantages over the competition, we are aware we need to improve. We know that being leaders forces us to improve. We make a great effort in providing training and qualification of our personnel. Every year we send 70 mechanics to be certified by Caterpillar in the United States after 15 days of training. We have contracted 150 young mechanics that during a year will not do anything but get training, with the purpose of being ready for new mining projects. On the other hand, we have an agreement with TECSUP, an excellent technicians school, who instruct 40 young mechanics per year, only for our company. We are going to continue with this effort, with special emphasis on training and qualification of the personnel to have good mechanics. That is the key to success and the explanation of why we differentiate ourselves from the competition.

Press Tribune. Are you planning for the future, in all aspects?

Sr. Espinosa: Totally. We believe that it is always necessary to be ahead of the demand. The experience has proved us right. Two years before the big boom of mining that started on the mid nineties we began preparing ourselves, training mechanics, investing in a repair center. And it worked. We are constantly thinking where will the country go and to work in the economy key sectors, this will allow us to realize precisely what is happening.

Press Tribune: Can you develop on your concept of synergy?

Sr. Espinosa: What we do is develop synergies to increase the productivity of our clients. Our focus is the capital assets for the economy of the country. For example, the sale of frontal shippers to our clients made us discover the opportunity to count with a line of dump trucks. Today we bring successfully the trucks Kenworth and Iveco. In the same way we can speak of the drillers Copco Atlas for the mining that works with other equipment in this sector. Or of several machines that are driven by Caterpillar engines. Another case is the tire service for the underground mining. There was a company that developed a program for the monitoring and rotation of tires for the small and medium mining "underground" Since this company was giving service to our clients, we decided to acquire it and to integrate it to ours, since then we have increased its sales by 20% in a year. We went from selling spare parts and machines, to the selling integral solutions, required by our clients to be successful.

Press Tribune: PetroPeru is selling lots for exploration and extraction all around. How are you going to face the demand in the energy sector?

Sr. Espinosa: We have a traditional presence in the market, through the sale and rent of generator ELTs. But the location of oil wells is usually outside the reach of the network of national energy, because of that reason, to pump a well or to reinjecting liquid, as established by environmental regulations, energy is required. To this end we have associated ourselves with an international company to create a company that produces and sells energy in that region of the Jungle. This operation has allowed us to venture into an area that was not ours. Once again the concept of integral solutions and diversification is present.

Press Tribune: In regard to your role within the company, what have been your strategies to get Ferreyros to become one of the most successful Peruvian companies?

Sr. Espinosa: I have been general manager and a member of the directory of this company for 26 years. In this lapse we have proven that businesses like construction are cyclical, that the company must be diversified in markets and products. Thus in the beginning of this century, between 2001 and 2002, we faced a serious crisis in the fishing and construction sectors that tested our clients limits. What allow these crises to be surpassed, in addition to the diversification, are a careful financial handling and a quite important seriousness in the management. We transmitted values like fairness and seriousness. We are serious, because we tried to handle the company professionally, in the sense that we maintain a correct behavior with all our shareholders, with our clients, with our workers whose reclamations we take care of with fairness. The fairness and seriousness are two values that have generated a habit of good practices in this company.

Press Tribune: How would you describe the Peruvian economy? Can we talk about miracle?

Sr. Espinosa: I would not talk about a miracle, but about the process by which we are finding our way. Peru is a country that has strolled a lot in its history and that, was exhausting and very inefficient. If something did not work, we used to change the strategy. Walking in the dark or changing paths does not help us meet our objectives. I look at what Peru has done in the last years, it has decided to take a road characterized by economic freedom, the absence of subsidies and protectionism and emphasis on the productive deprived sector, keeping that policy in spite of the changes in government. This continuity, in addition, takes advantage of the potentialities of a country rich in natural resources; it has unleashed forces so that workers and industrialists find their ways to progress. Ferreyros is part of this process. What might have helped us was the fact that we developed a forecast sense and being prepared to accompany the economy in this ascending process. I believe that we are an organization with its objectives very clear, convinced of our values, aware of our reality and that tries to be there at the right time and the right place. We turned 85 that must mean something.