A Business Analysis of Votorantim a Brazilian Cement Company

Votorantim is a Brazilian family-owned industrial conglomerate. It has benefitted from Brazil’s emerging global stature, with the country rising to one of the largest cement consumers internationally. The cement company is not only significant to the group’s accounts but also holds a considerable market share in the Brazilian market at a time when business is booming. The company has expanded moderately outside of Brazil, but the country remains its key market. Votorantim was founded as a textile mill in the Sao Paolo region in 1918.

It quickly widened its economic footprint, with cement production beginning in 1933. Votorantim became the first indigenous company to produce aluminum via Companhia Brasileira de Alumínio in 1955. The 80s saw expansion into a pulp and financial services. Now the company operates in over 24 countries worldwide. The company’s main market remains in Brazil, however. Votorantim Cimentos (VC) is the lynchpin of the Votorantim Industrial offering. The company deals with cement, concrete, and aggregates. Its initiatives and position in the Brazilian market have propelled it to global stature.

It provides a significant proportion of the entire industrial group’s revenues, making it crucial to the current success. Its wide presence spans the entire Brazilian state, with 60 production facilities and 100 cement centers. The company also produces over 40 products catering to complementary products too. VC is the group’s strongest asset, responsible for over 60% of its earnings before interest and tax. It commands 40% of the Brazilian domestic market and is one of the largest global producers. The segment has contributed increasingly to the conglomerate’s revenues since 2008, jumping from 33% to 41%.

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In EBIDTA, cement is even more significant, accounting for 60% in 2012, compared to 32% in 2008. The Brazilian operation’s annual production capacity was 30.1 million tons. In terms of actual cement sales, 2012 increased 5% from 2011 to 27.3 million tons of cement.

Concrete is one of the most prolifically used raw materials on the planet, and Votorantim is exploiting its position in one of the largest cement-consuming markets. Insular to foreign competition and with the country carrying out major infrastructure projects, VC’s premier position in the market may secure it for many years to come. The Brazilian market is also advantageous to cement producers given the climate and future economic developments. Brazilian cement consumption has grown strongly in the last decade, standing at 69 million tons in 2012. Between 2003 and 2012, this represents a 98.7% increase in consumption according to Sindicato Nacional da Industria do Cimento (SNIC). Driven by demand in the construction industry primarily, there has been a fresh impetus for the market with new infrastructure spending. Whilst previous Brazilian infrastructure drives have always been frustrating for the central government due to sluggish progress, the impetus of two major international events is spurring progress. The primary stimulus factor is Brazil’s hosting of both the FIFA World Cup in 2014 and the Summer Olympics in Rio de Janeiro in 2013. Further, Brazil has discovered massive pre-salt oil reserves off the coast in the Libra oil field. When the auction is completed, there will be a fresh impetus to construct the necessary offshore platforms, which will require cement to construct Furthermore, Brazil’s geography causes damage to the buildings. A hot and humid climate, sea salt in the air near coastal areas, high precipitation levels, and shifting soils accelerate the depreciation of buildings, requiring many buildings to be replaced or constantly maintained. VC holds a premium position within the domestic market, holding a market share much larger than any of the bigger multinationals or local companies competing. SNIC’s latest data (for 2011) place VC at around 36.5% for production, and 36.2% for shipping in terms of Brazilian cement market share. Other large multinationals are present, such as Lafarge and Holcim, but their presence in the market is a fraction compared to the incumbent Votorantim. Other global players, such as CEMEX and Heidelberg currently have no fully integrated facilities within Brazil. In terms of domestic competition, other indigenous competitors do not match the scale of Votorantim, constrained to regional competition. Some are conglomerates diversified similar to VC, such as on company Camargo Corrêa with its cement offering Intercement which holds a 10% market share.