Grupo Cydsa, S.A. de C.V.

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Grupo Cydsa, S.A. de C.V.

Avenida Ricardo Margain Zozaya 325
San Pedro Garza Garcia, Nuevo Leon 66220
Mexico
Telephone: +52 8 152 4500
Toll Free: (888) 848-5117
Fax: +52 8 152 4813
Web site: http://www.cydsa.com

Public Company
Incorporated: 1945 as Celulosa y Derivados, S.A.
Employees: 10,652
Sales: 7.73 billion pesos ($813.89 million) (1999)
Stock Exchanges: Mexico City
Ticker Symbol: CYDSASA
NAIC: 551112 Offices of Other Holding Companies; 325211 Plastics Material and Resin Manufacturing; 326122 Plastics Pipe and Pipe Fitting Manufacturing; 32511 Petrochemical Manufacturing; 325998 All Other Miscellaneous Chemical Product Manufacturing; 313111 Yarn Spinning Mills; 31323 Nonwoven Fabric Mills

Grupo Cydsa, S.A. de C.V. is a Mexican holding company that, through its subsidiaries, manufactures in four areas: chemicals and plastics, fibers and textiles, flexible packaging, and water-treatment plants. Its products include acrylic fibers, yarns, textiles, and textile products, and polyvinyl chloride (PVC) resins and products, including pipes, fittings, and irrigation systems. Cydsa has more than 20 subsidiaries and manufacturing plants in eight Mexican cities. It exports its products to more than 50 countries.

Chemicals, Plastics, Packaging, and Fibers: 1945–80

Celulosa y Derivados, S.A., better known by the acronym Cydsa, was established in Monterrey in 1945 to manufacture rayon. Miguel G. Arce Santamarina, an engineer who had been working as a superintendent for a Mexico City rayon plant, organized the company after he left his previous employer when it was acquired by Celanese Mexicana, S.A. “Simply put,” he later told the Mexican business magazine Expansion, “I didn’t want to work for a foreign enterprise.” Ten investors put up the initial capital of 500,000 pesos ($103,250). Among them was Andres G. Sada of the powerful combine of the Sada and Garza families known as the “Monterrey Group.” The company lost money until September 1948, after which it was never in the red again, according to Arce Santamarina, who later became director general of the company.

Cydsa started making rayon cord for automobile tires in 1947 and viscose rayon for the manufacture of clear cellulose film in 1955. It added a chlorine and caustic-soda plant in 1958 and a carbon bisulfide plant in 1959. In 1961 it formed a partnership with Allied Chemical Co. to produce coolants under the Genetron name. In 1965 Cydsa established a packaging and wrapping plant, and with the French firm Rhone-Poulenc S.A., which made acrylic yarn. The company purchased a second chloride and caustic-soda plant in Pajaritos, Veracruz, owned by Petroleos Mexicanos (Pemex) in 1967. Between 1965 and 1969, Cydsa’s sales grew, on average, by 34 percent a year, while net profits averaged a gain of 26 percent. Management sought an annual return of 20 percent and to pay a dividend of 12 percent.

By 1971 Grupo Cydsa consisted of 16 companies in Mexico and one in Costa Rica. Its three divisions—chemistry, synthetic fibers, and films and packaging—had combined annual sales of 1 billion pesos ($80 million). The plants in Monterrey and Guadalajara manufactured synthetic fibers consisting of six types of nylon and rayon, three of polyester, and two of acrylics. Polyester and acrylic fibers were being marketed under the Terlenka and Crysel names, respectively. This division was second only to Celanese Mexicana in quantity of synthetic fibers produced in Mexico, but Arce regarded the market as almost saturated.

Cydsa’s more than 20 basic chemical products, with special emphasis on refrigerants and propellants, hydrofluoric acid, and potassium salts, were accounting for only about 20 percent of Cydsa’s sales. Arce Santamarina, however, considered the company’s future in petrochemicals as practically unlimited. The company was building new plants to produce sodium sulfide and hydrosulfide, plus caustic potash and potassium carbonate, of which Cydsa would be the first Mexican producer. Petrocel S.A. had been established in 1970 to produce DMT and TPA for use in filaments of synthetic fibers, especially polyester. Cydsa had signed a number of technical-assistance and joint-venture pacts with foreign companies. In addition to its ties with Allied and Rhone-Poulenc, it had established agreements with Morton Salt International of the United States, AKZO N.V. of the Netherlands, and British Cellophane Ltd. With B.F. Goodrich Chemical Corporation, Cydsa in 1971 acquired a controlling interest in Policyd, S.A. de C.V., a producer of polyvinyl chloride resins.

In 1973 Cydsa began offering its shares on the Mexico City stock exchange. That year Andres Marcelo Sada Zambrano, eldest son of Andres G. Sada, succeeded Arce Santamarina as director general. Educated as a mechanical engineer at the Massachusetts Institute of Technology, he had worked for Cydsa for 20 years, most recently as director general of its synthetic-fiber division. A year later, he was named Cydsa’s chairman of the board as well. By 1975 Cydsa had added plastics and international divisions, and in that year, as a joint venture with the German firm Bayer AG, it opened a plant for the manufacture of toluene di-isocyanate (TDI), the only one in Latin America for this product used by the plastics industry. Sales in 1974 came to $2.485 billion pesos ($198.8 million), and employment reached 8,214. The Cry sel plant in Guadalajara for the manufacture of acrylic fibers was the largest in Latin America, and the PVC plant in Mexico City the largest of its kind in the country.

Seeking New Areas of Growth: 1980–92

Cydsa’s sales reached 8.62 million pesos (about $376 million) in 1980. The following year it acquired Plasticos Rex, S.A. de C.V., which was manufacturing PVC pipe and connectors and pressurized drip-irrigation systems. In 1982, however, world oil prices suddenly dropped, ending a decade-long Mexican boom. Overspending, both public and private, had resulted in debts that could not be met and Cydsa, like other enterprises, spent much of the decade trying to put its finances into order. By 1985 its sales had passed 130 billion pesos (about $420 million), and in 1987 it ranked tenth in sales among reporting Mexican companies (compared to 18th in 1974). The company acquired full ownership of Policyd—by now the leading PVC producer in Latin America—in 1988 and established a division for environmental services in 1990, represented by its subsidiary Atlatec, S.A. de C.V. This division’s focus was on the design and production of water treatment plants, as well as on consulting.

Cydsa’s efforts in the latter field had originated with the design and construction, in Monterrey in 1956, of the first water-treatment plants for industrial reuse in Mexico. Other companies and municipal bodies in northern Mexico subsequently hired Atlatec for this purpose. In Nuevo Laredo, for example, Atlatec constructed the largest wastewater-treatment plant in Mexico, 70 percent financed by the U.S. federal government. Between 1978 and 1987 Cydsa tried to change its internal culture and attitudes with regard to environment and safety, eventually adopting a master plan to deal with its problems in complying with the Mexican government’s standards for air, water, and hazardous waste. Where environmental changes were not economically feasible, the company later closed plants making carbon disulfide, sulfuric acid, and rubber chemicals. Cydsa also converted from diesel- and bulk-oil fuels to natural gas to heat its steam generators.

By 1990 Sada Zambrano had been succeeded as director general of Cydsa by his close collaborator, Fernando Sada Malacara. His task in the early 1990s was to address the decline in profits that began in 1988, even though sales rose to 2.69 billion new pesos ($892.24 million) in 1991. Sada Malacara turned the company’s focus from intermediate to consumer products by means of vertical integration and especially to exports, which had declined from a peak of 29 percent of company sales in 1987 and 1988. One measure taken toward this end in 1992 was to acquire Grupo San Marcos, owner of 12 textile plants. This consortium was Cydsa’s leading Mexican consumer of acrylic fibers and yarns and the nation’s leading manufacturer of acrylic products such as bedspreads, blankets, towels, tablecloths, and curtains. Cydsa also invested about $100 million in Masterpak, its holding company for the packaging division, in order to acquire machinery and reconvert its plants—which specialized in cellophane and bio-oriented polypropylene films—to more sophisticated products, such as toothpaste tubes and folding cartons. With negotiations that culminated in the North American Free Trade Association (NAFTA), underway, he looked to the United States and Canadian markets in founding a manufacturer of acrylic sweaters and forming a joint venture with Royal Plastics Group Ltd. to produce window frames.

Company Perspectives:

Cydsa fosters an environment of continuous improvement in the organization as a whole, with every employee committed to striving for better ways in which to provide increased customer satisfaction. Cydsa’s more than 10,000 employees are aware that we are the ones who spark this value creation process. Each one of us understands that we must not only fulfill but exceed all our clients’ and customers’ expectations. We are devoting all our resources of creativity and talent to this purpose. We are in the process of transforming ourselves into a modern, international, customer-oriented, high-tech company that avails itself of the foremost management techniques of today. In short, we are building a World Class Corporation.

Cydsa also divested itself of enterprises that didn’t offer great opportunities for growth and profit. Accordingly, it sold its participation in companies such as Novaquim, a producer of specialty chemicals, and Plasticos Laminados, manufacturer of PVC and polyurethane laminates. It also closed the installations of Quimica Organica de Mexico, which was producing agro-chemicals in Mexicali, Baja California. “We analyzed in depth all our businesses as they exist now,” Sada Malacara told Javier Martinez Staines of Expansion, “and projected the future of each one in candid discussions. We found we had products that even if profitable today, wouldn’t be in a totally competitive environment.” Cydsa management was concerned, for example, about company manufacturing plants that consumed large quantities of electricity. In some of these facilities, electricity—more expensive than in the United States or Canada—represented 40 percent of all general operating costs.

Mixed Results: 1993–99

Although Cydsa’s profits increased slightly in 1992 (on lower sales), in 1993 the company recorded a net loss of 41.3 million pesos ($13.1 million). The following year Tomas Gonzalez Sada succeeded Sada Malacara as director general and Sada Zambrano as chairman of the board. The drastic fall of the peso in late 1994 turned what would otherwise have been a profit for the year into a loss, but in 1995—in spite of a severe recession in Mexico—Cydsa registered the first of three consecutive years of profit. Exports were now accounting for about one-quarter of all sales, with acrylic fibers; yarns, blankets, and sweaters; PVCs; and flexible packaging films leading the way. Crown Crafts, Inc. had become the commercial agent for San Marcos products in the United States and Canada. To free funds to pay down debt and finance priority enterprises, Cydsa sold Bonlam, S.A. de C.V., a producer of nonwoven fabrics; Colombin Bel, S.A. de C.V., a manufacturer of polyurethane foam; and Genetec, S.A. de C.V., its agency for the exclusive distribution of Macintosh computers in Mexico, in 1994. Accordingly, the number of employees dropped from about 12,000 to about 10,000.

A sister enterprise, Vitro Corporativo S.A. de C.V., sold its 49.9-percent holding in Cydsa (valued at $250 million) in return for the proceeds from 47.6 million of its own shares, or 13.2 percent, that was held by Gonzalez Sada and his family. The Gonzalez Sada shares themselves were sold the next year. (Tomas Gonzalez Sada was a cousin of Federico Sada Gonzalez, the chief executive officer of Vitro.)

Cydsa lost money in both 1998 and 1999 on lower sales. Of the company’s net sales of 7.73 billion pesos in 1999 (as adjusted for purchasing power on the last day of the year, and equivalent to $813.89 million), chemicals and plastics accounted for 47 percent; fabrics and textiles for 30 percent; packaging for 19 percent; and water-treatment plants for four percent. Exports came to 25 percent of sales. A solid profit of 171.17 million pesos ($18.02 million) in fabrics and textiles was more than obliterated by a loss of 519.3 million pesos ($54.66 million) in chemicals and plastics, and the company as a whole registered a net loss of 143 million pesos (about $15 million). The long-term debt came to 4.29 billion pesos ($448.7 million).

The products of the chemical division in 1999 were chlorine, caustic soda, sodium hypochlorite, hydrochloric acid and derivatives; refrigerant, foams, and propellant gases; toluene di-isocyanate; refined salt and salt with lemon for cocktails; polyvinyl chloride, homopolymer and copolymer, suspension and dispersion resins; PVC pipes and fittings, irrigation systems, and polyethylene pipes and tanks for water storage; and chemical products for water treatment. The packaging division’s products were regenerated cellulose film, bio-oriented polypropylene film, printed and laminated films, and folding cartons. (Masterpak, the holding company for the packaging division, sold its Celorey plant for regenerated cellulose film to UCB Films, Inc. in 2000.) The environmental division was designing, constructing, and financing industrial and municipal water-treatment plants, offering environmental consulting and laboratory services, and operating and maintaining water and wastewater systems and water-treatment plants.

The fibers division was manufacturing acrylic fibers for textile products and rayon textile and industrial filament. The yarn spinning and apparel division was producing acrylic yarns, acrylic blends with both natural and synthetic fibers, fancy yarn, knitting specialties, sewing threads, sweaters, and knitted garments. The home textile division was manufacturing blankets, bedspreads, comforters, quilts, throws, bedroom sets, towels, tablecloths, rugs, and curtains.

Principal Subsidiaries

Atlatec, S.A. de C.V.; Celulosa y Derivados, S.A. de C.V.; Celulosa y Derivados de Monterrey, S.A. de C.V.; Derivados Acrilicos, S.A. de C.V.; Hometex Products, Inc. (United States); Industrias Cydsa-Bayer, S.A. de C.V. (60 %); Industrias Quimica del Istmo, S.A. de C.V.; Masterpak, S.A. de C.V.; Operadora de Servicios de Agua, S.A. de C.V.; Plasticos Rex, S.A. de C.V.; Policyd, S.A. de C.V.; Quimica Ecotec, S.A. de C.V.; Quimobasicos, S.A. de C.V. (51%); Sales del Istmo, S.A. de C.V.; San Marcos Textil de Mexico, S.A. de C.V.; Ultracil, S.A. de C.V.

Principal Operating Units

Chemical; Environmental Services; Fibers Division; Home Textiles; Packaging; Yarn Spinning and Apparel.

Principal Competitors

Alfa, S.A. de C.V.; Celanese Mexicana, S.A. de C.V.

Key Dates:

1945:: Cellulosa y Derivados, S.A. (Cydsa) is founded to manufacture rayon.
1947:: Company begins making rayon for use in automobile tires.
1958:: Cydsa adds a chlorine and caustic soda plant to its facilities.
1961:: In a partnership with Allied Chemical, Cydsa begins making Genetron brand coolants.
1971:: Cydsa has annual sales of about 1 billion pesos ($80 million).
1981:: Cydsa acquires a manufacturer of plastic pipe and irrigation systems.
1990:: The company adds a division dedicated to environmental services, including water treatment plant design and consulting services.
1992:: Cydsa acquires 12 textile plants.