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Article by the journalist Ivo Ribeiro, published on March 31st in the acclaimed Brazilian business newspaper, Valor Econômico. It covers the process of reorganizing corporate governance and the businesses, as well as the R$ 10 billion investment program from 2007 to the end of 2014 and the new R$ 5 billion investment package up until 2018.
Article by Valor Econômico:
After reorganization, Votorantim chooses Brazil to grow
Company plans to build three new plants in the country as part of an investment package of R$ 5 billion up until 2018
After undertaking a corporate governance and business reorganization process and concluding a R$ 10 billion investment program at the end of 2014, Votorantim Cimentos has just decided on a new investment package that will be in place until mid 2018. The biggest and most profitable company in the Votorantim group expects to lay out another R$ 5 billion, mostly for new cement plants in Brazil.
“Just over a year ago we were preparing the company for a new phase of internationalization and a new growth cycle”, Walter Dissinger, VC’s global president since January 2014, told Valor. Coming from the German chemical operation Basf, where he held a series of positions during 14 years, Dissinger arrived at VC in mid-2103 with the mission of overseeing operations in Brazil.
The executive said that the company’s decision to invest comes after a detailed analysis of the retraction in the consumption of cement and other materials in the building materials industry in Brazil. But he underscores that VC is taking a long-term view of the market. “We believe that this situation will be overcome. Brazil has these cycles and these hiccups in the economy and generally manages to recover because the market is big”.
In the new strategic plan for Brazil that has just been approved by the group and by the company’s board of directors, the priority is the Northeast region, which will receive three new plants. He says there is potential for growth in consumption and that VC wants to ensure its position in this market. There will be two plants in Ceará (in Sobral and Pecém) and one in Paraíba (Caaporã). All are scheduled to come into operation by the second half of 2017.
The focus in the last three years has been on the South, Southeast and Midwest regions. This year a plant is in the final phase of construction in Edealina (Goiás) and another in Primavera (Pará), as well as a mortar unit in Camaçari (Bahia).
With the five new plants, VC is boosting its cement production capacity in the country by 18%, adding almost 6 million metric tons to its current 32 million metric ton capacity, increasing share from 35% to 38% of the market. The strategy is aimed at meeting the increased demand from the North and Northeast regions.
According to the executive, the Brazilian market is experiencing a difficult moment with a projected retraction in the consumption of cement, concrete and aggregates (gravel and sand) this year after the stagnation or slight retraction in 2014. In the first quarter of this year, the impact on consumption lead to an almost two-digit drop in consumption in the real estate and infrastructure works segment.
Meanwhile in the retail segment, the retraction was lower. This consumer segment consists basically of the remodeling and redecoration of residences. At times of crisis, when income is impacted people prefer to take care of the property they have rather than risk betting on another new one.
The company’s new plan also covers operations overseas, such as a new plant in Bolivia.
The executive recalls that VC created structures to enable it to face up to these moments. “We have a nationwide sales network with enormous capillarity and great logistics advantages”. But he is alert to the increase in inflation and higher energy and fuel costs in the country, as well as the impact of the dollar on the imported coke used in VC’s plants. “This generates internal two-digit inflation for us, which VC will have to pass on in order for the business to be viable”.
The decision to continue investing in the country, said Dissinger, was not affected by the decision of the antirust authority Cade (Conselho Administrativo de Defesa Econômica), which fined the company more than R$ 1.5 billion for operating as part of a cartel (together with other companies in the sector). “We do not agree with any of Cade’s positions, but we will continue to invest. Brazil is the company’s birthplace, we have a strong position here and we know the market well.”
The company is contesting Cade’s decision.
VC’s new plan also includes overseas operations. A factory in Bolivia with a local partner, and two in Turkey, where it inherited operations from the Portuguese company Cimpor, now under the control of the Camargo Corrêa group. In the United States, where it has assets in the Great Lakes region, there is a plan to expand the Charlevoix unit.
“The American market is recovering well”, says Dissinger. In the Great Lakes region, growth is 6%, while in Florida, where the company also has operations, expansion is in the double digit range, driven by the real estate boom over the last year. In Canada, growth is around 2% to 3%.
Outside Brazil, projects are going to add 2.5 million metric tons. “Today, VC is focusing its investments on the most attractive and profitable markets. This is the great advantage of having operations in different countries, with a well diversified portfolio”, he states. The company operates in 15 countries, with a production capacity of almost 49 million metric tons a year.
For the future, in the Europe, Africa and Asia region, the company is studying the possibility of expanding in Morocco, with the construction of a new plant beside the existing one. It also sees growth potential in India. However, its assets in China are being prepared for divestment and will be sold off later this year.
In last year’s balance sheet, Brazil accounted for 70% of the company’s R$12.9 billion in net revenues. The country’s share in the company’s Ebitda (earnings before interest, taxes, depreciation and amortization) of R$ 3.49 billion was even higher at 77%. VC’s net profit was R$1.1 billion, half the profit of the holding company, which in addition to cement, has metal, mining, steel and pulp operations.
Dissinger says that VC has a financial position that enables it to continue growing – from 2007 to 2014, it expanded 51%. In terms of leverage, the company ended 2014 with a net debt/Ebitda ratio of 3.4. The average term for the debt is 9.2 years. “We have felt the impact of the dollar, but we are comfortable”, he declares.
Mission to transform VC into a global company
When he joined the Votorantim group in June 2013 to head up the cement operations in Brazil, American executive Walter Dissinger was given a major mission: to command the transformation of Votorantim Cimentos into a truly global company, rather than just a Brazilian multinational. Once on the job, he initiated a transition process, reorganizing the governance and corporate structures, as well as the company’s plans for organic business growth in Brazil and for further internationalizing the organization.
VC, which had just missed a window of opportunity to go public, had already expanded to Europe (Spain), Africa (Morocco and Tunisia) and Asia (Turkey, India and China). It had already been operating in North America since 2001 and had spread its tentacles around Latin America through ownership stakes in diverse cement companies.
Dissinger’s mission was to integrate this portfolio of businesses spread around the world and turn them into a single, unified operation. The organizational structure was divided into three pillars – Brazil, North America and Europe, Asia and Africa. Due to its importance, Dissinger retained responsibility for Brazil, with support from two directors, one for the marketing area and the other for operations. Each one of the other two regions has a vice president. A third vice president responds for the equity stakes held in Latin American operations.
All told there are employees of 15 nationalities in the company’s head office, which was transferred to a new address in the Vila Olímpia district in the south of São Paulo. With its style based on the diverse business segments – ranging from cement to mortar – the languages heard on the different floors, with their large and informal rooms, include German, Swedish, Turkish, Spanish and Italian.
Another novelty was to bring all the Brazilian operation’s previously scattered businesses together in the same building . “The sales teams commercialize cement, concrete and mortar, as well as sand and gravel. Everything that goes into a construction project”, says the executive.
VC also gained a board of directors with three independent members – the chairman, Paulo Henrique de Oliveira Santos (a career employee who headed VC previously), the managing director of Votorantim Industrial, João Miranda, and Marcus Akermann, ex-global president of Holcim. The board is completed by two members of the Ermírio de Moraes family – Fábio and José Neto.
According to Dissinger, the company has not given up its plan of going public. “We are prepared for the moment when a new opportunity arises”.