03PLATFORM FOR THE NEXT 70 YEARS
OUTLOOK
GDP growth in Brazil, sustained by the buoyancy of domestic demand and with an emphasis on investments and family consumption, as well as continuing favourable conditions in the labour market, levels of consumer confidence and expansion in the availability of credit, all provide a favourable environment for continuing economic growth over the coming year, consolidating the recovery in the Brazilian economy.
For the building industry, the favourable outlook is based on the sharp resumption in investment, the increase in the availability of real-estate credit, and the works being carried out as part of the PAC (program for accelerated growth) and MCMV (“ my house, my life ”), for which new versions were introduced in 2010. PAC-2 will receive government subsidies of R$ 71.7 billion for the construction of 2 million homes by 2014. While MCMV2, should contribute a further 2.5 million homes, aimed at that portion of the population that earns up to 10 minimum salaries. The increase in the availability of financing lines for the purchase of building materials is a practice supported by Eternit, because fibre cement products are in strong demand from the low-income population due to their excellent value for money.
In view of the good moment being enjoyed by the building sector, and the buoyant real-estate market, Eternit plans to increase its level of business with construction firms, which represent a good growth opportunity for the Company. Today, the majority of Eternit's revenues are from resales, of which Eternit has already won a large proportion – with 14,000 sales outlets spread throughout the Country. Therefore, to serve the construction firm segment implies significant growth potential for the Company.
In addition to the PAC and MCMV programs, there are also forthcoming mega-sporting events: the World Cup in 2014, and Olympic Games in 2016. With a view to taking advantage of the opportunities generated by these events, Eternit has created Product Specification department, whose mission is to adapt portfolio specifications, today focused on small and medium-sized projects, to medium and large-sized projects on a grand scale, such as, in this case, changing rooms, bathrooms, hotels and service outlets.
In view of this scenario, Eternit's management believes that 2011 will be in a year of consolidation and taking up the slack in existing production capacity created as a result of investment over the past few years. To stimulate organic growth, no investment is planned in 2011. For diversified organic growth, a new synthetic marble production line will come into service at the unit at Anápolis, which will initially have a relatively small participation in a promising area in the economy homes segment. With regard in organic growth, some acquisitions may take place. The combination of these factors means that the Company expects its growth in 2011 to be in line with that of the building sector.
To meet this new demand expected for 2011, in October 2010 Eternit inaugurated another fibre cement line, this time in the unit at Simões Filho/BA, increasing its annual production capacity from 850,000 tons to around 1 million tons. The acquisition, in February 2010, of Tégula Soluções para Telhados Ltda., the leading company in the concrete tiles segment, enabled Eternit to achieve a market share of approximately 16% in Brazil's roofing market, being 35% of the concrete tiles market, and 30% of the fibre cement market. The Company's share of the metallic tiles segment is not yet significant. As a consequence, Eternit has consolidated its position as being the largest and most diversified industrial roofing company in Brazil.
With respect to Tégula, the expectation is to take up the idle capacity of this company, maximising synergy with Eternit. Since the second quarter of 2010, the Company has been intensifying its investments in Tégula with a focus on the purchase of moulds for the "Big" tile, to principally cater to the works under the Federal "My House, My Life" program. The substantial level of business carried out in 2010 demonstrated that this tile is an excellent option for this segment. Within a period of five years, the Company plans to double the size of the recently acquired Tégula.
Also in 2011, the Company expects to begin work on the construction of a new multi-product plants in the Northeast. This is a project for the short, medium and long-term. The first plant to be built will be for vitreous chinaware.
Despite the very favourable scenario in the construction sector, the management consider the following challenges to be important: competitive conditions in national industry as a result of infrastructure bottlenecks and appreciation in the exchange rate; availability and training of labour; improvement in productivity in the construction chain; and the question of housing with respect to the cost of land, which could suffer from excessive appreciation and inhibit investment. With regard to the Company's challenges, the main one is diversification in terms of volume, margin and investment in the marketing of new products, as well as the Company's position with regard to the legal question of chrysotile ore.
Eternit is confident in the growth of the Brazilian economy, particularly in the sector of which it is a part. Having a satisfactory capital structure, low debt and investment consistent with its expansion and diversification plan, the Company is well positioned to make the most of opportunities in the sector. From this moment, its medium and long-term objective is to become the largest and most diversified company in Brazil’s construction materials industry, with approximately 50% of its sales coming from diversification.