A company that keeps busy23 April 2007
With 34 panel manufacturing plants in nine countries and four continents, a total production capacity of around 10 million m3 and estimated turnover of close to e1.7bn for 2006, Oporto, Portugal headquartered Sonae Indústria is always going to be at or near the top of the list of the world's panel makers. However, Sonae's ceo, Carlos Bianchi de Aguiar, is quite relaxed about that ranking. "We are not in a competition to be here or there in the league table of panel makers, we are in business to be profitable and sustainable," he said when interviewed at Sonae's UK particleboard plant in Knowsley, Liverpool in February. As far as profitability in a notoriously competitive market goes, Sonae seems to have few worries; its EBITDA margin stood at 13% for the first nine months of 2006. The company has manufacturing operations in Europe in France, Germany, Portugal, Spain, Switzerland and the UK, and in Brazil, Canada and South Africa. These factories variously produce particleboard, MDF, OSB, hardboard, melamine faced panels and laminate flooring, as well as other value-added products. Sonae was founded in 1959 in Maia, near Oporto in northern Portugal and still retains its headquarters there. It began life as a manufacturer of high pressure decorative laminates under the Laminite brand name, which it still uses - it also still uses the multi-opening HPL press from 1959. It seems the company began an unstoppable path of expansion with its takeover of Novopan, a particleboard maker near Oporto, in 1971. This coincided with the installation of the company's first melamine surfacing line and the production of components for the furniture and interior decoration industries. In 1975, Sonae moved into the production of melamine and phenolic resins, followed by formaldehyde and urea resins in 1982. Meanwhile the company continued to expand its capacity for components and melamine surfacing. Growth by acquisition continued with the purchase of Agloma in Portugal in 1984, making Sonae portugal's leading particleboard maker. In fact, the company had excess capacity and had to export 50% of production, mainly to the UK at that time. In 1987 to '89 it bought particleboard makers Siaf and Paivopan in Portugal and, for the first time, ventured abroad to buy Spanboard's particleboard line in Coleraine, Northern Ireland to give it a foothold close to the mainland UK market. The success of this purchase really kick-started the group's international expansion, said the ceo. Under Siaf the group built a greenfield, MDF production line in Mangualde, Portugal, which started up in 1990. In 1993, things gathered pace as Tafisa of Spain joined the group, making Sonae the market leader in Iberia. The following year, Sonae started up a greenfield particleboard plant in Canada, at Lac Mégantic. In 1995, a second MDF line was installed at Mangualde and a new MDF line was built at Valladolid, Spain, in 1998. In the same year Sonae entered South Africa and Brazil, installing a particleboard mill in South Africa which started production in December 1999 and a particleboard line in Brazil, while simultaneously building its first particleboard mill in England, formally opened by His Royal Highness the Duke of Edinburgh in mid-2000. A second MDF line was built in Brazil, also in 1999, while particleboard capacity at Lac Mégantic was also increased. Not to mention a new resin factory built in Sines, Portugal, to supply all Sonae's panel factories in Iberia. This was certainly a busy period for the group as it acquired, through Tafisa, 85% of the German-headquartered Glunz group in 2000 (an acquisition process which started in 1998), bringing with it mills in France (Isoroy) and some new products in the form of OSB, softboard and plywood. It was then that Sonae first became the world leader in wood based panels. Again in 2000, the group acquired Sappi Novoboard in South Africa, making it the largest particleboard producer in that country and increasing its range of products. Sonae now has three locations there, in George, Panbult and White River. The following year saw another new MDF line, this time at Le Creusot, and a new particleboard line at Lure (both under the Isoroy banner). Meanwhile, in Germany in September 2001, a new factory site started up at a greenfield site in Nettgau, under the Glunz name, initially producing particleboard and later, OSB. As if all this was not enough, Sonae's interests in retailing and shopping centres throughout Portugal blossomed during the 1980s. The panel and retailing interests were separated into two companies in 1991, by which time Sonae had become the largest non-financial group in its 'home' country. Later, in 2005, the group was to be reorganised again, with the de-merger of Sonae Indústria from Sonae SGPS. Telecommunications, food and non-food retail, shopping centres and services came under the SGPS banner, while Sonae Indústria got Tafisa and SIR, together covering the wood based panels and related businesses. All that acquisition and expansion activity in such a short space of time must have put considerable stress on the group as between 1999 and 2001, the company invested e1.2bn, including the Glunz acquisition, the new lines and other acquisitions, and refurbishment of some of the acquired production lines. This led to some rumours about Sonae's finances around the industry. Evidently, those rumours were unfounded. "In 2002 and 2003 the market was not one of the most brilliant in our business," admitted Mr Bianchi de Aguiar. "We and some of our competitors brought a lot of new capacity in and that led to some problems, but we were successful in taking market share at that time and 2004 saw improvement - it was not such a bad year - 2005 was good and so was 2006. "In 2004 we increased our share capital by e200m and paid the remaining debt owed to SGPS. Our finances improved and we started growth again after a period of consolidation and improvement. We coped well with the increases in costs experienced by everybody in 2006, which is a sign of the control we have over our business." After a period of consolidation and a 'breathing space' for the group during this more difficult period, Sonae again launched into a vigorous expansion phase. In 2005 it formed a joint venture with Tarkett, the Paris-headquartered global supplier of flooring in vinyl, engineered wood, parquet and laminate flooring. "Until this time, we were not being very successful in flooring and decided to get together with an expert in this field who understood sales and distribution, while Tarkett wanted to be in the full value chain from HDF manufacture to finished laminate flooring," explained Mr Bianchi de Aguiar. The joint venture is linked to Sonae's Eiweiler plant in Germany for sourcing, but sells the flooring worldwide. As part of this development, Sonae invested e60m to add a flooring line and automated warehouse and moved six million square metres of laminate flooring capacity from its Ussel plant in France to Eiweiler, creating a 25 million m2 annual capacity there. Last year, Sonae took another major step in expanding its panel business by buying three Hornitex mills from the receiver of that company for e60m for the equity, including e55m of debt at Beeskow. Hornitex had been in receivership since 2000/2001. These German mills, at Beeskow, Horn and Duisberg, brought Sonae additional capacity of 320,000m3 in MDF and 1,130,000m3 in particleboard, as well as 38MW of energy generation through biomass plants and a turnover of e69m. Sonae anticipates synergies worth around one million euros per month following the acquisition, through raw material purchasing, customer relationship management and IT integration. Why did Sonae finally decide to make this purchase after Hornitex had been in receivership for six or seven years? "Everybody started looking at buying Hornitex and talking to the receiver in around 2000 and almost all players in this industry came close," admitted Mr Bianchi de Aguiar. "The receiver listened and asked what the prospective buyers would do with the business and, as a result, did a lot of restructuring itself. But sooner or later, the company had to go to someone; the receiver had done as much as it could and so entered into negotiations for the assets, people and so on. "The locations fitted in well with our existing mills, with Beeskow close to Poland and the others close to the Netherlands and Belgium for the MDF market and so they strengthened our position in central Europe." The Horn plant brought one multi-opening and one continuous press, a direct paper printing line, melamine facing, HPL and CPL, and kitchen worktop production, while Beeskow brought two single-opening particleboard and one continuous MDF lines, plus a melamine facing line installed during the receivership period. Duisberg contributed a continuous particleboard line. "There is a lot of experience in Hornitex - especially in direct printing - and from the logistics point of view, it will save us money," said Mr Bianchi de Aguiar. "Although the plants were in receivership for some years, they were well maintained and so there is no need for massive investment - we are improving the efficiency but are not making major investments at this time. And although continuous presses came in about 20 years ago, discontinuous pressing can still be efficient in certain applications such as thicker or high-density board." Key Hornitex managers have joined the central European executive management team of Sonae. "The Hornitex design centre has become our centre of excellence for melamine papers and a permanent exhibition of developments for our central European operations," said the chief executive. Although Sonae will keep the former Hornitex brand names, in line with its general policy, it has not bought the Hornitex name as such. "We bought the assets of the business not the company itself," explained Mr Bianchi de Aguiar. "However, we always try to keep brand names where we feel it adds value to the business. For example we still have the Glunz, Isoroy and Tafisa names. People identify with product brands rather than company names." Also in 2006, the company invested e45m in a new 350,000m3 a year continuous line for particleboard at its White River site in South Africa. The existing line will be converted to produce around 70,000m3 of MDF and the new line is expected to come on stream in the second quarter of this year. South Africa is Sonae's most profitable panel market. In Canada, melamine facing capacity was increased with a Wemhöner short-cycle line in October 2006 at a total cost of e8m. Another acquisition made in 2006 was that of the Darbo particleboard line at Linxe in southwest France. This represented e30m investment in equity and e3m net debt. It brought Sonae 450,000m3 of particleboard capacity and seven million square metres of melamine facing and is being integrated into Sonae's Iberian management structure as the closest market. Interestingly, this plant was first bought from US company Weyerhaeuser by Spanish panel maker Finsa in December 2005, together with an MDF plant at Morcenx, also in France, but it decided to divest the particleboard business as not being core to its activities. Finally, 2006 saw the beginning of procedures for Sonae to purchase the remaining minority of shares in Tafisa which the group did not already own. As a result of all the acquisition and investment activity we have listed, Sonae Indústria's installed capacity grew by 82% between 1999 and 2006, going from 5.3 million to around 10 million m3. That is comprised of 6.9 million m3 of particleboard, 2.5 million m3 of MDF and 594,000m3 of OSB. More than 50% of that is transformed into value-added products by the company, including laminate flooring, melamine faced board, HPL and acoustic panels. Some plants are dedicated to valueadded production. For instance Tavannes, Switzerland, produces speciality products based on MDF, such as acoustic panels, veneered boards and architectural products, while Kaisersech in Germany not only has a multi-opening particleboard line but also makes melamine-faced particleboard components for the furniture industry. An impregnation line is also being added there. With such a widespread geographical base, how, I wondered, does the group administer the business? "We are a multi-regional company but this is a very regional business," said Mr Bianchi de Aguiar. "There are of course some global activities such as technology, information systems, human resources, but the purchase of raw materials is very regional and you have to understand each of those markets. "That's why our management board is composed of people of different nationalities - Spanish, Portuguese, Scandinavian, German and Canadian. It takes time to grow to this size and, being Portugal-based, we needed outside expertise. Having achieved that growth, we are now concentrating on people and the environment and that is an important part of the organisation. We take best practice from inside and outside the group and in terms of health and safety, for example, we aim to be the best in class in terms of compliance and expect to be among the best in terms of 'world best practices'." Several of the group mills are PEFC (Programme for the Endorsement of Forest Certification schemes) certified, some are FSC certified and several have ISO 14001 environmental certification, while the vast majority are certified to ISO 9001 for quality. Further certification of mills is ongoing. Sonae is also a member of the World Business Council for Sustainable Development (WBCSD), on which Mr Bianchi de Aguiar is the representative. Sonae Indústria employs around 7,000 people in 10 countries and that is a lot of people to look after. Indirect employment is estimated at 5:1, or around 35,000! Of course a business the size of Sonae's is never going to be entirely accident-free. A severe fire in Lac Mégantic's biggest panel production line last April required a full press replacement and it is not expected to be back in production until August this year. A spark in the dust extraction is believed to have initiated the fire with an explosion which damaged the structure of the building and cut off the water supply to the extinguishing system. Then a second explosion occurred in the forming area. The factory had full spark detection/extinguishiing systems, but if the water supply is cut, there is not much anyone can do. Sonae UK in Knowsley also experienced a large fire in the dry area in June 2002, resulting in a 12 week shut-down of the factory and another fire occurred there on February 20 this year (see news pages). "Innovation is an important part of our business," said the chief executive. "and that is not only in R&D. You can be innovative in many other processes too, such as in how you manage the companies, by consolidating accounts procedures, internal audits, capital investments in different regions, legal matters.We have a number of innovative initiatives to improve the performance of the organisation. But innovation is only really any good if it is for the benefit of the customer and not for its own sake. For instance we developed products with Swedwood [the industrial side of IKEA], which is a very demanding customer in terms of quality. "But our first priority is profitability - market share and profitability - and the more profitable markets are generally outside Europe today, such as Canada and South Africa.Western Europe is a mature market and we are not expecting major growth there, although there is potential in the eastern European countries. South America is a growing market too." Looking to the future, Mr Bianchi de Aguiar admits there are difficulties. "Raw material costs [wood and resins] are an uncertainty and may impact profitability, but we remain confident that underlying volume sales in our main markets will sustain our good performance. "The problem of biomass use for energy generation in western Europe is frightening, particularly in Germany where incentives to private house owners to burn wood are likely to have more effect than power generators. But in general, I think the consensus is that there is enough wood for everybody. "For now, we will be focused on the full integration of the Hornitex and Darbo acquisitions and on our investment in the new production lines in South Africa and Canada, as well as developing our joint venture with Tarkett.What is for sure is that we will be very busy!"