Votorantim: solid but flexible

Brazil’s largest cement producer and a key international player, Votorantim Cimentos embraces the concept of being a solid company that is responsive to change. New global CEO Marcelo Castelli speaks with ICR about expectations for the markets in which it operates, changes to its business model in terms of portfolio diversification, and achievements under the company’s strong commitment to sustainablity and tackling climate change.

Previously leading Votorantim Celulose e Papel and Fibria, the Brazilian conglomerate’s paper and pulp businesses, Marcelo Castelli made the switch to the group’s cement division earlier this year.

ICR: Have you found the transition from Votorantim’s paper and fibre business to the cement industry to be a steep learning curve?
Marcelo Castelli (MC): I started at Votorantim Cimentos on 1 February 2019. Since then, I have undergone an intensive integration and immersion in the company’s businesses in Brazil and abroad. My career was built in the pulp and paper sector, so this transitional moment is a great challenge and a learning opportunity for me as an executive. Votorantim Cimentos is full of people who are passionate about what they do. The company is ready for the challenges of growing and for the recovery of the Brazilian economy, and is attuned to business opportunities. Our presence and consistency in the construction industry is unquestionable. It is in our name and in our origin. But while we leverage our solidity, we are also flexible and dynamic enough to look ahead and go beyond, to always innovate.

Domestic cement market 

ICR: The Brazilian market has experienced a tough few years with demand falling 1.2 per cent to 56.69Mta in 2018. However, after the strong final quarter of 2018 and a new administration in Brazil, there is a sense of expectation going forward. What is your outlook for the year ahead?
MC: The last few years have been a period of great challenges for the construction sector in Brazil. Our outlook for 2019 is positive and we remain confident in the future of the market. As an industry, we believe in the gradual recovery of the Brazilian economy, which will bring us new opportunities and provide better market stability. The National Union of the Cement Industry, SNIC, estimates three per cent market growth in 2019, expected to result in 54.4Mt of cement production in Brazil.

ICR: What are the major construction projects and government initiatives that will create cement demand for Votorantim in Brazil in 2019-20?
MC: Brazil has a number of infrastructure projects that are important for the country’s development and that we hope will receive increasing government attention, such as ‘Minha Casa, Minha Vida’ and general infrastructure projects, including highways, ports, airports, railways and basic sanitation. Some banks estimate that infrastructure investments will represent 1.6 per cent of the Brazilian GDP in 2019, but our expectation is that only in 2020 will we have a more significant demand. 

ICR: Which are Votorantim’s main markets in Brazil and how does the outlook differ for each one in 2019?
MC: We participate in all markets in Brazil. Our markets are divided by regions, considering the size of the country: south, southeast, centre-north and northeast. Each region has its own dynamics, but we do not predict major growth differences in 2019.

We will continue to modernise our cement plants and invest in new agricultural input and mortar operations. Our goal is to continue to grow and maintain our leadership in cement and to expand other businesses, such as mortar, grout and agricultural lime, diversifying our portfolio. We are increasing the agricultural lime capacity of our Nobres plant (in the state of Mato Grosso). We acquired a port terminal in Manaus in the Amazon, expanding our access to the north of Brazil. We are building a new distribution centre in Santarém in the state of Pará, scheduled to be completed in the 2H19. We recently announced a BRL200m (US$52m) investment in the expansion of our cement plant in Pecém, in the state of Ceará, northeastern Brazil.

ICR: The domestic cement market enjoyed higher average prices last year. What drove this trend and do you expect prices to improve further in 2019?
MC: In 2018 the domestic market was impacted by factors such as increased fuel and electricity prices and a trucker’s strike, which required price increases to maintain our margins. The market environment still imposes a low utilisation rate on the industry. In 2019 we expect slow and gradual growth, resulting in higher demand. Pricing will continue to be linked to the cost structure due to the aforementioned idleness.

Our investment strategy will focus on increasing the competitiveness of our plants, as well as on reducing the cost of serving the markets in which we operate.

ICR: How are energy prices impacting the cement sector? Do you expect them to fall in 2019?
MC: We have improved our thermal and electric energy efficiency in all of our plants.

Optimising the use of renewable and traditional fuels is one of our priorities. In 2018 approximately 30 per cent of the energy we consumed in Brazil was generated by renewable sources (such as hydroelectric), compared to 25 per cent in the previous year. We expect that in 2019 electricity prices in Brazil will remain in line with 2018. As for fuels, we will see cost increases more due to exchange rates than the price of the commodities per se.

ICR: At the end of last year both Vicat and Buzzi Unicem entered Brazil’s cement sector. Does Votorantim expect more foreign ownership in future?
MC: The Brazilian cement market is competitive and its structure is in transition due to the arrival of additional global players.

To us, this is a natural process. But as leaders, we also continue to selectively invest in our operations in Brazil, strengthening our position in the markets where we already operate.

It is hard to say if this trend will become more prominent in the near future, especially given the current business environment in Brazil.

ICR: Overcapacity remains a feature of the industry. Do you see any structural changes or a period of consolidation that could improve industry structure going forward?
MC: The crisis of recent years has produced a few changes in the ownership of local companies. There has not yet been a consolidation or reduction in the number of players — so no structural changes in the industry so far.

We are implementing changes in our business models in terms of the diversification of our portfolio, through an approach that is innovative and connected with the market. They include new products, solutions and formulations, which increase the added value of our brands and customer loyalty, optimise our production costs and confirm our commitment to minimising environmental impacts. In 2018, 25 per cent of our results came from complementary businesses, such as agricultural solutions for soil correction (gypsum and agricultural lime), mortars, and the co-processing of alternative fuels and municipal waste. In other words, we want to maintain our leadership in the cement industry and go beyond, by being a company that delivers minerals, materials and solutions to our customers.

Global portfolio 

ICR: The company has a total cement capacity of approximately 52.8Mta as of 3Q18 with 35 per cent of this capacity outside Brazil. What is Votorantim looking to achieve in terms of a balance between the share of its foreign and domestic cement operations?
MC: We have invested in our units outside of Brazil to foster value creation and competitiveness. Last year, our most significant investments were in Charlevoix, USA, and in Olavarría, Argentina. As part of our internationalisation strategy, we performed the corporate reorganisation of our subsidiaries, which included the creation in October 2018 of a new international company named Votorantim Cimentos International (VCI), which consolidates all of our investments outside of Brazil. Based in Luxembourg, the company aims to facilitate the continued international expansion of Votorantim Cimentos, in addition to enabling even more efficient capital management.

ICR: The Turkish market has had its own challenges in 2018, particularly with the devaluation of the lira. How do you see the local construction sector performing in 2019?
MC: The construction sector has been impacted by the decreased level of economic activity since the 4Q18. The economy has been facing several challenges in 2019. Since March concerns about monetary and fiscal policies, combined with political turmoil, have contributed to the depreciation of the currency against the dollar.

In this scenario of uncertainty, the demand for cement is expected to decrease in 2019, reaching 42Mt (versus 67Mt last year). To reduce the contraction trend, the local government is starting to provide incentives such as easy access to credit, which could help in the recovery of the housing market.

The key question continues to be related to the path of economic recovery this year, with some opinions pointing to a more favourable environment in 2020.

Our long-term expectation for Turkey continues to be positive, since the country is the most important cement market in Europe.

ICR: In both Uruguay and Bolivia, where Votorantim operates through the Cementos Artigas SA and Itacamba subsidiaries, respectively, extra competition is foreseen as more capacity enters the market. Is Votorantim in a good position to defend its market share in these countries?
MC: In Uruguay the newly-installed integrated cement plant in the Treinta y Tres region will lead to an increase in overcapacity in the country. However, our plants are located in or close to the main markets in Uruguay. Approximately 80 per cent of Uruguayan cement is consumed in Montevideo and the south coast of Uruguay, areas where we are very competitive.

In Bolivia, Itacamba operates a new, state-of-the-art plant with a very good performance. The company is located in the east of the Santa Cruz province with its main market in and around the city of Santa Cruz. It is also well positioned to serve future major infrastructure projects like Puerto Bush. The new Ecebol facilities in Oruro and Potosí are located in the most western provinces of the country.

Recently-announced government initiatives on concrete road constructions are also expected to boost the domestic cement market.

ICR: Morocco and Tunisia similarly have more new capacity coming on-stream, where Asment de Temara and Société des Ciments de Jbel Oust operate. How important is it for Votorantim to keep a foothold in north Africa?
MC: Keeping a strong foothold in north Africa is key to Votorantim Cimentos, since Morocco and Tunisia are two very important markets. Morocco has been a solid, highly-profitable contributor to Votorantim Cimentos Europe, Asia & Africa (VCEAA) for many years. In Tunisia Votorantim ranks first in the cement industry with the best business performance amongst its peers. The positive returns go beyond cement sales and have motivated us to expand our aggregates business in both countries, to capture more value in healthy markets.

ICR: Votorantim has successfully operated in North America for a number of years. What are your expectations for demand in 2019 and beyond?
MC: Votorantim Cimentos North America (VCNA) expects the US Great Lakes cement market demand to grow in 2019. The latest PCA Spring forecast (May 2019) has US Great Lakes demand growing at 1.5 per cent in 2019. VCNA expects flat to slightly-positive growth in 2020 and a slight decline in market demand in 2021. For 2020 and 2021, the PCA Spring forecast for the US Great Lakes shows a market change of 0.2 and -0.4 per cent, respectively.

ICR: The Indian sector is still very much an emerging market and Votorantim decided to sell its stake in Shree Digvijay Cement last year. Are investments closer to home more attractive at this time?
MC: In the last few years, we have reaffirmed our position of operating in markets in which we have a relevant presence and where there is greater potential for value creation. As a result, in 2018 we decided to sell our stakes in Cementos Portland, Peru, and signed an agreement for the sale of Shree Digvijay Cement Co in India, which was completed this past April.

Further capex plans 

ICR: Votorantim has pursued an expansive capex policy in recent years. Will this continue? Where will the main capex be spent in 2019-20?
MC: In 2018 we created our Global Capex Committee, which evaluates all capital expenditures to ensure that the allocation of resources is aligned with our strategy, prioritising investments according to the return they will provide. In 2018 Votorantim Cimentos invested BRL1.1bn in capex across all operations. The allocation of resources led us to realise that we have reached the end of an expansion cycle and are now focussing on modernisation and efficiency gains.

ICR: The St Mary’s Charlevoix plant expansion in the USA was completed in 2018 – what were the main upgrades carried out to increase capacity by 0.6Mta?
MC: With investments of more than US$180m, the expansion project of the Charlevoix plant included the main industrial processes and equipment, such as limestone grinding, kiln and cyclone towers, and cement grinding. The additional 600,000tpa of capacity started operating in June 2018. We also began to prepare the plant for the installation of a system that will enable us to increase the processing of low-carbon fuels from five to 40 per cent, using mainly industrial and construction waste and plastic. Moreover, we continue to invest in water transportation at the Charlevoix unit to carry the additional volume produced by the plant. In early 2019 VCNA expanded its fleet with the launch of ‘Commander’, a barge with a 14,000t capacity per trip.

ICR: Votorantim has expansion projects at Cementos Avellaneda’s Olavarría plant and the San Luis plant in Argentina – what is the status of these projects?
MC: In Argentina, we inaugurated a new line of calcined clay in Olavarría, increasing the capacity of the unit by almost 200,000tpa. And the San Luis project to expand capacity by 0.7Mta is still underway and expected to be completed by the 2H19.

ICR: In what ways is the company working towards a digital future for its cement business? Do you see artificial intelligence and digitalisation as a game changer?
MC: We believe that digital transformation breaks down physical barriers, makes operations more efficient and brings us closer to our customers, contributing to better product results and efficiency. With that in mind, we put a lot of effort into the development and implementation of structuring projects. We designed and implemented a new IT architecture, with a focus on cloud systems and services – key steps to remain consistent, sustainable and agile in this movement of digital transformation.

We carried out structuring projects using a new agile methodology and development architecture, such as VC Mining, a mining process management platform that integrates IoT connectivity solutions with the computers of our mobile assets and analytics. We have other important projects using artificial intelligence, such as VC Maps, a digital solution to manage our land and mines more efficiently, developed by a start-up during the first cycle of our open innovation program, VC Connect, and Spectrum, to help us monitor assets in the area of maintenance.

In 2019 we are continuing to follow our roadmap of Industry 4.0 initiatives, as well as executing major structuring projects, such as the Omnichannel solution, which will replace our multi-channel CRM, external sales force and URA Contact Center solutions, providing a unique experience to our customers.

Sustainability 

ICR: Votorantim recently came out equal top in CDP’s ranking on companies tackling climate change with a rating of A-. How was this success achieved and what does it mean for the company?
MC: Votorantim Cimentos was the best evaluated cement company in Brazil and one of the top three companies worldwide in the Climate category. We were the only Brazilian company recognised for climate change management. Receiving this unprecedented recognition for our leadership in climate change in the 2018 reporting cycle of the Carbon Disclosure Project (CDP) is extremely important to the company, since it confirms our efforts and initiatives to reduce CO₂ emissions and our impact on climate change. One example is our investment in projects and initiatives related to waste co-processing and the use of biomass in substitution of fossil fuels in the cement production process. In 2018 our thermal substitution rate in Brazil was 30 per cent. In addition to industrial waste and tyres, we introduced new types of waste, such as açaí seeds, babassu coconut and urban waste. We are pioneers in co-processing in Brazil and will further increase our performance in this area in the coming years.

ICR: What are your targets for AF utilisation going forward?
MC: Our global goal is to achieve a 40 per cent thermal substitution rate by 2020. In 2015, we created an Alternative Fuels and Raw Materials (AFR) department, with the goal of seeking new fuel and alternative raw material options. In 2018 we achieved an AFR substitution rate of 18.5 per cent worldwide. Our investment in AFR was one of the most important ones we made in 2018, with resources of BRL85m for the acquisition of new equipment, development of new suppliers and customers, quality control of new inputs and changes in production processes.

ICR: Are there any plans for alternative energy projects, ie wind farms or solar power, to supply Votorantim’s cement facilities?
MC: At Votorantim Cimentos, we work tirelessly to adopt clean and renewable energy in our plants, while also optimising consumption through more efficient systems. Regarding the use of electricity, in recent years we have implemented projects to increase the use of waste heat recovery (WHR) technology, through which we produce electricity using the residual hot gases from our kilns. In 2017 we completed a WHR project in our unit in Tunisia, reducing the unit’s electricity consumption by approximately 30 per cent through the use of these residual hot gases.

As part of our search for renewable energy sources, the company has invested heavily in the co-processing of biomass such as açaí pits, babassu coconut, rice hulls and wood chips. In addition to biomass, we also co-process used tyres and other industrial waste, while always following safety and quality regulations and complying with legislation. This is an economical and sustainable alternative to produce energy that enables the substitution of fossil fuels and raw materials that are traditionally used in the cement production process. Regarding the use of wind energy, in Morocco, 77 per cent of the energy consumed in the Asment de Temara plant in 2018 was from wind energy sources.

ICR: What are the main ways that you see cement producers improving their climate change records in the next 5-10 years?
MC: Climate change is a major issue for the cement industry. In Brazil cement companies are committed to sustainability and have taken measures to minimise their environmental impact through the end of the production process by reducing CO₂ emissions.

The cement industry has modern industrial parks, operating at high levels of energy efficiency, which results in lower use of fuels and, consequently, lower CO₂ emissions. The use of renewable energy sources has been receiving more attention and is increasingly present in the production of cement through the co-processing of waste (tyres, plastics, etc) and the use of biomass (rice husk, açaí pits, etc), which emit less CO₂ than traditional fuels. This ensures environmentally appropriate waste disposal and reduces the use of traditional non-renewable fuels such as petcoke, fuel oil and coal.
In the next few years, we believe that the cement industry will continue to invest heavily to make its production processes highly sustainable and to build the infrastructure necessary for its development, while maintaining lower CO₂ emissions.

ICR: Can you outline the major achievements of Votorantim’s CO₂ reduction strategy? What role will carbon capture and utilisation play in Votorantim’s future CO₂ reduction strategy?
MC: We are fully aware of our responsibility to minimise the impacts of our production process. Therefore, we see sustainability both as a strategy and a continuous process that is part of our business management, considering the needs and expectations of our various stakeholders. Therefore, we are committed to reducing CO₂ emissions by 25 per cent by 2020. To do so, we have reduced our clinker/cement factor globally from 77 per cent in 2016 to 76.6 per cent in 2017. This brings Votorantim Cimentos closer to our 2020 target of having a clinker/cement factor of 72 per cent in our operations and prioritising the use of alternative fuels. Today, we co-process in 29 of our cement kilns globally. Overall, in 2018 we used 676,800t of biomass, tyres and waste, which resulted in a 554,800t reduction in CO₂ emissions. In North America where we are investing in new strategic projects, we co-processed 7000t in 2018. In Spain the co-processing of solid and liquid waste achieved high substitution rates in our local plants, while in Turkey we co-process tyres and waste.

In addition to co-processing, Votorantim Cimentos is using supplementary cementitious materials (SCMs) to reduce the use of clinker in cement. For several years we have used calcined clay, basic slag, fly ash, limestone, natural pozzolans and other cementitious materials, with a high degree of success. This is another key step in reaching our CO₂ reduction targets by 2020. Thanks to a major investment plan in recent years, including new production plants using cutting-edge technologies, thermal and electric energy consumption is also being reduced, helping to reduce CO₂ emission.

Past and future

ICR: The Votorantim Group celebrated its centenary in 2018 – what are some of the major highlights and achievements in the company’s history?
MC: Throughout the 100-year history of the Votorantim Group, Votorantim Cimentos often played a pioneering role, such as in the group’s internationalisation process, which started with our North American operations in 2001. We celebrated our 100th anniversary with all of our colleagues in the 11 countries where we operate. In Brazil our special contribution was to actively participate in the challenge of implementing the Partnership for the Enhancement of Education (PVE, for its initials in Portuguese), a programme that aims to contribute to the improvement of public education, in 25 of the 104 Brazilian municipalities where the PVE was implemented in 2018.

ICR: How do you expect the company to evolve over the coming decades?
MC: Votorantim Cimentos is going through a transformation that goes beyond the construction sector, also working in minerals, materials and solutions. The concept we embrace is that of solidity with flexibility: we are a solid company that is also flexible to change. We have solidity to deliver with excellence whatever we set ourselves to do, to perform globally and to be a national leader in cement. And we have the flexibility to adapt to the new needs of society, by leveraging trends and technological developments to make better use of resources, evolve processes and positively impact people’s lives.

We believe that in the future we will achieve our growth ambitions while taking into account the current and future needs of society. This means offering more eco-efficient and innovative products and services to our customers, acting ethically, transparently and in compliance with laws and regulations, providing a healthy, safe and inspiring work environment for our employees, and promoting the development of the communities where we operate so that they may prosper. To this end, we adapt, invest in innovation, develop new business models and apply the concepts of a circular economy, advancing in the delivery of solutions to our customers and to society.

This article was first published in International Cement Review in August 2019.