Eucatex, which turned 60 last year, aims to place Ectx on the São Paulo BOVESPA Stock Exchange’s ‘New Market’ (Novo Mercado) in the hope of attracting fresh investors and new capital.
The São Paulo-based group recently invested heavily in launching its first MDF line, as well as expanding output of its range of finished panel products. Restructuring, it believes, will help it to weather today’s rocky market conditions and embark on its next phase of business development.
In another significant move designed to free up cash flow, Eucatex has rescheduled its short-term debts. It has extended the payback time on this borrowing through the public issue of five-year non-convertible secure debentures valued at around US$37.5m.
"If you compare the level of debt that we have against the amount of cash we generate each year, we are not in a bad situation," the group’s executive vice-president José Antônio Goulart de Carvalho told WBPI in São Paulo in July. He estimated its total debt at the time at about US$115m.
"However, before the debenture issue, the amount of debt we had due [for settlement] in the short term – 12 months – was hitting our cash flow. [The issue] is something very important because it takes the pressure off and enables us to make better deals on a daily basis so we can negotiate from a stronger position," the executive explained.
He added that Eucatex wants to list Ectx on the Novo Mercado because its corporate governance regulations are tighter than for the traditional São Paulo market. Quoted companies are required to be more ‘transparent’ to investors; all shareholders have voting rights; and the board must have independent members and an auditing committee to oversee the accounts.
"You have a better environment in terms of regulation. That’s something that will give confidence to smaller shareholders and the perception of the company in this market goes up," he pointed out. Eucatex is already listed on the traditional São Paulo exchange.
Concentrating all Eucatex’s operations in Ectx is aimed at rationalising and simplifying areas of its back office, leading to greater efficiency and substantial savings.
One example is in the IT area. Instead of three spare parts databases, each one linked to one of the firm’s three plants, the new subsidiary will have just one database holding all components.
All this restructuring is part of the Brazilian group’s strategy to deal with the current economic downturn and difficult market conditions. "Nowadays, the [business] environment is tough. Companies are merging and there’s idle capacity. What we’re doing is learning how to work in this kind of environment," commented the executive vice president.
Eucatex does not fit neatly into the usual mould of Brazil’s larger wood panel manufacturers. Rather than becoming a commodity board producer, the group is committed to creating a wide variety of distinctive decorated panel products designed to meet the demands of particular niche market applications.
"We don’t intend to get [much] bigger in the wood segment. We do intend to get a good product and the best part of the [panels] market," admitted Eucatex executive president Flavio Maluf, whose family control the business.
Since the start of 2011, the group has invested around US$40m in developing new products, through new finishing lines and boosting its production of panel based doors, wall partitions and laminate flooring, according to the executive president.
Eucatex is renowned for its wide range of decorative panels, including its now wellestablished high-gloss-finish products. It has continued to strengthen its finishing capacity, adding a new 2.5 million m2/month Italian CML painting line back in April at Salto.
Today, the firm operates four of the long painting lines with another, capable of turning out 1.5 million m2/month of finished board, set to start up in March 2013. Eucatex will probably keep four lines running, closing one of its older units next year, Mr Maluf told WBPI in July. Eucatex’s overall painting capacity will be around 100 million m2/year.
The group also recently doubled its output of doors and wall panels at Salto by adding a second line. This will allow it to achieve an overall capacity of 400,000 pieces per month, or almost five million annually.
Even so, much of the group’s attention in the panel area is still focused on maximising its market impact in the manufacture of thin board. Eucatex is ramping up production on its Dieffenbacher MDF/THDF line at Salto, which was expected to reach maximum effective capacity of 275,000m3/year in its first three years.
Fully operating from January 2011, the line achieved its first-year ramp-up goal of almost 160,000m3/year. This year it is due to reach an effective capacity of 220,000m3/year and aims to top 280,000m3/year in 2013, explained Mr Maluf.
At that time, around a third of its output on average was thin MDF and two thirds regular MDF. Mr Maluf forecast a 50:50 production split between thin and regular board, probably by the end of next year, prompted by continuing demand for thin panels.
However, the MDF line has not been without some teething troubles. Earlier this year, Eucatex was forced to halt production for maintenance when defective press belts led to it turning out lower quality board.
Now the company has been installing new technology which, it says, will cut resin costs substantially and significantly increase the new line’s capacity. Eucatex reported it is working with two new pieces of equipment, though it has remained silent on the details.
Back in 2010, its executive president told WBPI he believed that, thanks to his company’s 60 years’ experience of producing wet process hardboard, it could cut its use of resin in its MDF by as much as one third. That could ultimately see the new board using as little as 6% resin.
As for the other new equipment, reporting its first half year results in August, the group said it expects to increase its board capacity, mainly for standard thickness MDF, by at least 20%. Trials taking place in October seemed to indicate that it had already boosted the line’s output by appreciably more than expected.
Eucatex has now entered a period of consolidation after several years of major investment. It wants to take advantage of the fruits of its spending and to generate more cash flow to reduce its debts, which have risen sharply in the past year.
Although major projects tailed off in 2012, Eucatex has continued to spend where it sees market opportunities. One such area is its laminate wood flooring business, based at the Botucatu plant, where it has invested around US$7.5m to double production capacity to 12 million m2/year. The second line is set to go on stream by the end of 2012.
In the second quarter of 2012, Eucatex experienced lower growth for its flooring operation, despite a drop in imported products. It admitted it was hit hard in the marketplace by a national competitor, Arauco do Brasil, after it teamed up with the established European Unilin flooring business.
However, with the seasonal flooring market usually more active during the second half-year, the group was confident it would grow stronger on the back of its range of new products.
In September, Eucatex was also busy polishing its sustainability credentials with an expansion of its waste wood recycling plant at Salto. As a result of doubling its waste material cleaning capacity, the firm expects to raise its recycling capacity from 10,000 to 15,000 tonnes/month.
Established eight years ago, this plant draws increasing supplies of old pallets, packaging, wood slabs and strips of MDF from a growing number of companies and authorities located up to 150km from the Salto site. In the first half of 2012 the plant consumed 47,000 tonnes of waste wood.
Once the expanded facility is fully operating, Eucatex will start using the higher quality wood fibre for its hardboard and MDF making process. Until then, the recycled material is employed as biomass fuel for site energy.
Earlier this year, Eucatex reported it is still investing in expanding its own forest resources with around 4,500ha due to be planted this year. It currently relies on 45,000ha of forest, mainly eucalyptus, although it says it may still have to buy in up to 50% of its needs from the open market.
Hardboard remains a significant part of the group’s panel portfolio, and some may still wonder how it can apparently compete against itself in the market by also turning out Thin HDF (THDF).
Flavio Maluf is firm in his response to that suggestion: "Hardboard is a premium product. There is no competition between hardboard and THDF. Hardboard is a more expensive product in the market than HDF," he said firmly.
He agreed that either HDF or hardboard can be used on the backs of furniture, but claimed that 2.5 or 3mm thick hardboard is more stable than HDF in the same thickness.
After years of producing and exporting the firm’s profitable eucalyptus based hardboard, Mr Maluf remains an implacable champion of the wet process fibreboard panels.
Group exports overall rose this year by 80% against those in 2011, albeit from a low base, boosting its competitiveness abroad. This rise was certainly helped by a 15% devaluation of Brazil’s currency.
At its plant in Botucatu, Eucatex’s highly productive Bison Hydro-Dyn MDP line, with a maximum 430,000m3/year output, was operating at an average of around 83% of capacity in the first half of 2012. Almost all the board produced was finished in some way or another.
Like some other Brazilian industry players, the São Paulo group has been studying the steady rise in furniture and panel consumption in the country’s distant northeast region. Development there has been rapid, creating a new lower middle class now able to afford new homes and furniture.
Most big players are not yet ready to invest in the construction of a new regional panel plant, but are keen to avoid the high cost of having to truck panels huge distances from their southern mills. Instead, some have begun to build new local distribution centres up north.
Eucatex is completing construction of a US$5m wider distribution base, not only to stock its panels and paints, but also to feed growing retail demand in the region for board. The 6,000m2 unit, located in Ribeirão, near the coastal city of Recife, will carry a regular stock of up to 2,000m3 of panels after it opens in January 2013, according to Mr Maluf.
Unlike some other Brazilian wood panel makers, Eucatex group already gets a significant proportion of its business from the wider civil construction sector. This it views as a great strength and it is committed to broadening its activities through related opportunities in this direction.
The group sees further market openings at the downstream end of the construction process, which it wants to exploit. Just one example is a recent deal Eucatex did with the old-established Japanese Tajima group to distribute its range of vinyl flooring products in Brazil.
"This is a very small example of how we can diversify. In this case, we are not acquiring anyone nor adding something in terms of our production.
"But, we are adding a new product to our portfolio, using the same workforce and our commercial channels while making more money," explained Mr Goulart de Carvalho.
Eucatex seems to have become the Brazilian panel industry’s great survivor. Having successfully emerged from the country’s equivalent of Chapter 11 protection in the past decade, the group is adapting to the latest economic crisis with the instinctive skills of a chameleon.
The group remains one of the sector’s most experienced and creative players and there are few signs that it is now about to go under, despite some of the toughest market conditions ever.
