03PLATFORM FOR THE NEXT 70 YEARS
STRUCTURED PLAN FOR EXPANSION AND DIVERSIFICATION
With 71 years of operation, and market leader in the cement roofing, wall panel and slab markets, Eternit believes that in order to maintain its rate of growth, it needs to diversify and introduce innovations to its business. In other words, it is necessary, in a market dominated by one-product companies such as Brazil, to become the first large diversified company. To make this strategy possible, in 2007 the Company created its Structured Program for Expansion and Diversification, through which it intends to consolidate its position as a provider of products and solutions for the building industry and increase gross sales from R$ 500 million to R$ 1 billion by the end of 2011. This target was actually reached in 2010 (click here).
To put this program into practice, at the end of 2007 Eternit's created the Department for Development and New Business, also responsible for the Company's Strategic Planning with the mission to provide the guidelines for investment in expansion. This department acts on three fronts: organic growth, diversified organic growth and inorganic growth.
The funds to finance this move were mainly obtained from the Company's own cash generation and only at the end of 2009 did the Company carry out a private share subscription to raise R$ 107.4 million. Its funds were raised with the purpose of providing the necessary financial flexibility to maintain the Company's investment in organic growth, as well as permitting acquisitions in the future.
In the first half of 2011, Eternit will evaluate the results obtained from the program and will be presenting the market with a new plan for expansion and diversification, this time with targets for the next five years.
ORGANIC GROWTH
Growth is planned through the investment in new machinery at the existing plants and by increasing production capacity at SAMA, in accordance with the demand growth prospects and the positioning strategy of the manufacturing units throughout Brazil. Optimisation will also be carried out in terms of resources and the production chain.
To this end, Eternit has been inaugurating new production lines every year since 2008. At the end of 2010, 3 fibre cement plants had had their production capacity expanded. They are: Goiânia (GO), Colombo (PR) and Simões Filho (BA). This latter, which came on stream in 2010, will be manufacturing four millimetre tiles, thus increasing the volume produced of this product – in high demand in the Northeast – and freeing up other equipment for the production of five and six millimetre tiles. In 2010 the Tégula plant, in Atibaia, will also receive investment in the automation of its processes, another measure aimed to gear up production.
Also in 2010, the Company chose the port of Pecém (CE), close to Fortaleza, for the installation of a multi-product industrial complex, providing greater access to the Northern and Northeastern regions of the Country. It is already known that this location will include, among other products, the manufacture of vitreous chinaware and fibre cement products. Adding this new fibre cement unit to the production lines already inaugurated, and those due to be inaugurated, Eternit should achieve an installed capacity of 1.2 million tons by the end of 2013.
DIVERSIFIED ORGANIC GROWTH
This is based on the development and launch of new products and the entry into new business segments, using Eternit's existing structure, or the idle capacity of third parties. The driver for this growth front will be the Technological Centre for Product Development based at the plant in Colombo (PR).
An example of work carried out by the Technological Centre was the creation of fibre cement tiles without the use of chrysotile ore, which although carrying a less accessible price for the population, and having inferior quality and durability characteristics than those of tiles manufactured with asbestos fibre, are a necessary addition to the Company's portfolio in order to meet the demand of part of the market. The Technology Centre constantly seeks to perfect this technique, having developed equipment for this purpose to carry out tests known as Mini Hatscheck. Currently, only three of these are in operation in the world.
In 2010, coloured tiles were launched, with the profiles: Tropical, Ondulada (corrugated) and Eterville. The idea is to provide a differentiated roofing product, combined with the cost/benefit of fibre cement. Eternit has also entered the concrete tile market, using the technology and production capacity of Tégula to produce the "Big" tiles.
Metallic tiles, filters for piped water, vitreous chinaware and lavatory seats are all produced by third parties. In relation to these last two, there are many pieces that were already being produced by Eternit's partner, as well as pieces developed by the Company itself, with a differentiated design, an example being coloured wash basins.
Completing the diversified portfolio is the line of construction systems, such as the Eterplac cement slab, available in the standard as well as the textured version, and Practic Wall, which in 2010 was produced in new coloured and textured versions. These products are likely to become the trend in the market, for their practicality of installation and economic cost.
For 2011, the Company plans to enter the synthetic marble market, with production being at the plant at Anápolis, and the metal bathroom fittings market, with production outsourced through strategic partnerships.
INORGANIC GROWTH
This consists of acquisitions and mergers. In February 2010, the Company took a significant step in this direction, acquiring Monier Tégula Soluções para Telhados Ltda. for R$ 34 million, net of cash. This company is the leader in the concrete tile segment. This operation, considered to be a benchmark in the sector, increased Eternit's profitability and market position by about 35% in the concrete tile segment and 16% in the roofing segment, while however maintaining a share of 31% in the fibre cement. As a consequence, Eternit consolidated its position as the largest and most diversified roofing company in the Country, in addition to gaining greater access to the Brazilian luxury market, and a vast team of engineers and architects. These professionals are part of the Architects Club, an initiative by the company to exchange experiences and opinions with respect to Tégula's products, including specifications and innovations in the building sector.
The acquisition of Tégula is also resulting in a series of extremely advantageous synergy savings for Eternit. The "Big" tile, for example, was developed based on Tégula's technology, enabling the Company to also offer concrete tiles to the low-income segment of the population.
Tégula also contributed significantly to Eternit's sales in 2010. This result was only possible because the Company, in contrast to most acquisition processes, decided to maintain Tégula's Executive Board and its corporate culture, as well as investing in the company. Investments have already been made to increase the production of the "Big" tile, and in the hiring of a national sales manager. Also planned is the automation of the plant at Atibaia, with the creation of new moulds for various products, in addition to the purchase of equipment and the hiring of personnel for the installation of a sixth plant, in São José do Rio Preto (SP). Eternit has also approved a five-year strategic growth plan for Tégula, which includes the installation of new plants in various locations in Brazil, and the obtaining of ISO 14,001 certification, for environmental management, by July 2011, for the plant at Atibaia and subsequently for the other manufacturing units. EN14
As inorganic growth is a significant part of Eternit's expansion and diversification strategy, the Company is continually looking at new acquisition opportunities that meet its business criteria, as well as its ethical and sustainable approach, in order to become the largest and most diversified industrial company in Brazil's construction materials segment.
Receiving of raw material (cement) at the plant in Goiânia
Sales Strategy
Eternit today has more than 14,000 sales outlets, and its target is to have 15,000 active clients by the end of 2011. Strategically, the Company serves all types of resellers, from Home Centres to small stores, known as "neighbourhood stores", with the aim of having a presence throughout Brazil and being accessible to all social classes. As part of this strategy, the Company seeks to focus on the client, in other words understand the needs of the sales outlet, what type of product are consumed in the region, among other aspects, in order to help the client to supply the market better, increase sales and consequently, profitability. This is a differentiated tactic in the market, because the other companies for the most part do not operate in this way, focusing more on pure sales.
Eternit's marketing follows the same line of thinking: it seeks to identify the needs of the client, respecting the peculiarities of the various regions in Brazil. Having done this, initiatives are developed so as to promote Eternit's products within the stores and the local market, contributing to higher turnover for its resellers and in the region.
As part of this marketing drive, of particular note are the marketing campaigns in various regional magazines that specialise in the sector, publicity material, product displays, sales promoters, among other initiatives.
With respect to the media, Eternit has started to create more exposure for its brand name, publicising its product lines. Of particular note, the Company has been participating in the Construindo um sonho (building a dream) program as part of the Domingo Legal program, broadcast on the SBT TV channel, in which houses are chosen at random and undergo complete remodelling, with the costs, project, construction and labour, as well as the products to be used, all covered by the TV company. In this partnership, Eternit has already provided various products from all its lines, including vitreous chinaware, tiles, cement slabs, water tanks and wall panels. The Construindo um sonho program reaches an average of 6 million residences among, reaching approximately 20 million consumers. This provides great exposure for the Company's brand name, and has proved itself to be an initiative with an excellent cost/benefit.
Also with respect to the media, of particular note has been Eternit's participation in the sporting programs on radio Transamérica FM SP, through the Papo de Craque Program. This is a program focused at a public audience which likes football, having a large audience among construction material store owners. In 2011, this partnership will be also extended to Rádio Record AM, with transmission throughout Brazil. It should be pointed out that none of the Company's marketing or promotion initiatives infringe regulations or voluntary codes for marketing communications. PR7
To access all its sales outlets, Eternit maintains a sales force consisting of 160 professional staff, of whom 43 are "sales specifiers" (employed by Eternit on an exclusive basis), with 103 being representatives (not employed by the Company, and not exclusive). This team has grown by 22% in the last few years, including levels of management, supervision and coordination. In 2010, the number of sales supervisors was increased in order to improve the work of salesmen and representatives. Tested in the state of Mato Grosso, this tactic has helped to triple sales in the region.
The sales force is constantly trained to carry out its function in an excellent manner, being up-to-date on the arguments and information with regard to the legal issue of chrysotile ore. The diversification of the product portfolio has required more intense efforts with regard to this aspect. Access to these products at the sales outlets, however, has been helped greatly by Eternit's tradition in the market and by the Company's differential in terms of logistics.
With respect to Tégula, this company which formerly operated using direct sales and sales to construction firms, has now also developed a retail channel. The "Big" tile has been of great help to Tégula in dealing with this challenge.