Vicunha Těxtil S.A.

views updated

Vicunha Těxtil S.A.

Av. Sargento Herminio 2965
Fortaleza, Ceará 60350-502
Brazil
Telephone: (55) 85 499-1000
Fax: (55) 11 2187-2399
Web site: http://www.vicunha.com.br

Public Company
Incorporated: 1949 as Těxtil Elizabeth S.A.
Employees: 12,645
Sales: BRL 1.57 billion ($535.84 million) (2004)
Stock Exchanges: São Paulo
Ticker Symbol: VINE3; VINE5; VINE6
NAIC: 313111 Yarn Spinning Mills; 313210 Broad-woven Fabric Mills; 313241 Weft Knit Mills

Vicunha Těxtil S.A. is, in terms of annual sales level, the largest Brazilian enterprise in the textiles and clothing sector. Vertically integrated, Vicunha is engaged in spinning, weaving, and knitting textile fibers, dyeing and printing fabrics, and making garments. Its products consist of filaments, yarns, denim fabrics and twills, natural- and synthetic-fiber knitted fabrics, synthetic woven fabrics, and ready-made articles of clothing. Each one of these areas constitutes a business unit. Vicunha has offices or subsidiaries in the United States, Europe, China, Argentina, and Colombia and exports its products to 80 countries.

TEXTILE INDUSTRY GIANT: 1946–88

Vicunha's origins go back to 1946, when Sam Rabinovich founded a small weaving plant in Saão Roque, Saão Paulo. Two years later, Fiação e Tecelagem Campo Belo S.A. came on stream. This facility is credited with introducing natural and artificial and synthetic-fiber blends into Brazil and contributing in a decisive way to numerous advancements in fabric-dyeing processes. In 1949 Mendel and Eliezer Steinbruch, who were related by marriage to Rabinovich, began running the Saão Roque weaving mill, which had 27 looms and was named Těxtil Elizabeth S.A. Under the Elizabeth trademark, this company gained prominence in the production of circular-knit and flat-woven fabrics—especially those in nylon. Campo Belo provided Elizabeth with yarn.

The Rabinovich and Steinbruch families joined forces in 1966 to build their first joint enterprise, the Brasibel textile company, which began operating with leased machinery and facilities. Like Těxtil Elizabeth, Brasibel produced 100 percent woven polyester-filament fabrics. The following year the owners acquired what, at the time, was the largest worsted mill in South America, Lanifício Varam, which also was known for its traditional woolen yarns. The name of this business was changed to Vicunha in 1969 because one of its worsted brands used the wool of this highly prized Andean animal.

The next step in the growth of what was now called the Vicunha group came in 1970, when the Rabinovich and Steinbruch families joined with two groups in the state of Ceará, the Otoch and Baquit families, to found Fiação Nordeste do Brasil S.A. Finobrasa in the city of Fortaleza. The significant increase in production capacity allowed the Vicunha group to increase its share of the domestic market and begin to compete aggressively abroad. Another partnership, in 1972, this time with the Renner group of the state of Rio Grande do Sul, resulted in the creation of Těxtil RV Ltda., a clothing firm. In 1974 Vicunha acquired the Textília and TBT weaving mills.

The Vicunha group acquired Fibra S.A., the national leader in synthetic and artificial yarns for the textile industry, from an Italian group in 1982. This addition, which included the company's plant in Americana, Saão Paulo, broadened the group's production of artificial and synthetic fibers. By 1988 Fibra was responsible for one-third of Vicunha's annual revenue. Vicunha, in 1984, acquired the Renner group's interest in Lee S.A., the principal Brazilian subsidiary of the U.S. jeans manufacturer Lee Apparel Co., Inc. During the same year, Vicunha expanded its activities in northeastern Brazil by establishing Vicunha Nordeste S.A. It founded, in 1988, Elizabeth Nordeste S.A., a spinning mill, subsequently adding a knitting facility. During this period Vicunha also purchased a securities dealer that it named Fibrasa and founded a bank it named Banco Fibra S.A.

FACING FOREIGN COMPETITION BEGINNING IN 1990

The revenues of the Vicunha group came $700 million in 1988 and $1.2 billion the following year. By 1990 the group was a complex of 26 companies employing 26,000 people and producing everything in the textile sector. But in legal terms, it did not exist at all. Some of the companies, like Campo Belo S.A., belonged entirely to the Rabinovich family; others, like Elizabeth S.A., belonged entirely to the Steinbruch family. Still others, such as Fibra, the group's biggest enterprise, and Tecil S.A. Comércio de Tecidos, a fabrics retail chain with 18 units, were owned jointly. Jacks Rabinovich, who succeeded his father, collaborated closely with Mendel Steinbruch in group matters. They formed a formidable team, with the former, an engineer, concentrating on production, and the latter, a born salesman, on commerce. What they had in common was a determination to avoid borrowing money and instead to plow their profits back into the various enterprises of the group. Benjamin Steinbruch, Mendel's eldest son, was his heir apparent and director-superintendent for the group's joint holdings. Fibra and Elizabeth were registering annual earnings of 40 percent or higher on revenues, and Elizabeth was honored by the business magazine Exame in 1990 as company of the year.

The early 1990s were a period of crisis for the Brazilian economy, and even more so for the textile sector. Because of newly adopted free-trade policies, cheap textiles from the Far East were now entering Brazil and undercutting domestic manufacturers like Vicunha, which saw its revenues fall to $1.1 billion in 1991 and its profit to practically zero. As an alternative to laying off employees, the company reduced working hours in its 37 plants. It looked for new retail outlets for its clothing and found one in the DB Brinquedos chain, which began carrying its Lee Kids jeans. Vicunha also opened ten stores in shopping centers. But revenues were no higher in 1992, although the company founded its first international branch, Brastex S.A., in Buenos Aires.

COMPANY PERSPECTIVES

With the aim of constantly improving and innovating in its production methods, Vicunha Těxtil consistently invests in technology and training its professional staff to ensure its modern industrial facilities' continued effectiveness. All this dedication is reflected in the company's competitiveness, in the quality of products which it manufactures and its progressive expansion into international markets.

Faced with stagnation in their core line of business, the Vicunha partners cast an eye on the enterprises being privatized by the Brazilian government in the early 1990s. In 1993 they landed one of the biggest—Companhia Siderúrgica Nacional (CSN), Brazil's largest steelmaker. Vicunha paid $160 million for 9.1 percent of CSN, with the major part of the purchase financed by the government development bank BNDES. Soon after, Vicunha became CSN's major shareholder. This proved to be an extremely lucrative investment for Vicunha and also brought to national prominence Benjamin Steinbruch, who succeeded his father as Rabinovich's partner on Mendel's death in 1994 and a year later was able to make himself president of CSN. The partners also invested Vicunha's money in four CSN-related companies: an electricity distributor and three railways, and even in a cellular telephone company. Steinbruch's boldest step came in 1997, when he and other investors secured a controlling interest in newly privatized Companhia Vale do Rio Doce (CVRD), the world's largest producer and exporter of iron ore. Control over the combination of CVRD's iron ore and CSN's steel and related power and transport facilities made Steinbruch for a time the most powerful businessman in Brazil and, in 1998, boosted the net worth of the Vicunha group to BRL 3 billion (about $2.5 billion).

The Vicunha group was not doing nearly as well in textiles. Nevertheless, it continued to hold a powerful presence in this sector, fielding four of the eight largest Brazilian textile firms in terms of revenue. The biggest, Vicunha Nordeste, was the second largest textile enterprise in Brazil. Its three factories produced blue denim and employed 5,800 employees. Fibra ranked sixth among textile firms. Fibra DuPont Sudamerica S.A., a joint venture with Du Pont do Brasil Ltda. organized in 1994 to manufacture nylon and merging two Fibra plants in Brazil with a DuPont plant in Argentina, ranked seventh, and Elizabeth was eighth. In addition, Vicunha acquired, in 1996, the controlling interest in Hering Těxtil do Nordeste, a knitted undershirt manufacturer—the largest in Brazil—owned by rival textile firm Companhia Hering.

Yet, in terms of combined annual revenue, Vicunha's textile holdings remained stagnant—even though it had spent nearly $1 billion modernizing its plant and equipment during the last ten years. Its fabrics and clothing were still losing ground to the cheaper goods of its Asian competitors. Accordingly, the company was shifting its operations based in the state of Saão Paulo to northeastern and west-central Brazil, where labor was cheaper. One new Vicunha operation in the northeast was Fibrasil. A 150,000-square-meter plant was opened about ten miles from Recife, Pernambuco.

The economic problems that resulted in the devaluation of the Brazilian unit of currency, the real, in early 1999 raised the Vicunha group's debt, which was in large part dollar-denominated, to BRL 1 billion (about $500 million). Steinbruch retained his command of CSN only by selling Vicunha's participation in CVRD. Meanwhile, under his younger brother, Ricardo, Vicunha's textile area was being reorganized, with concentration on the cotton segment and the further movement of facilities to the northeast, where costs were lower. The intention was to integrate all factors of production vertically: fibers, fabrics, and clothing. By 1999 Vicunha accounted for 6 percent of world production of fabric for blue jeans and was expected to earn $150 million that year, after losing money since 1994. Nevertheless, this did not come to pass.

KEY DATES

1946:: Sam Rabinovich opens a small weaving plant in the state of Saão Paulo.
1948:: The creation of Campo Belo S.A. introduces a variety of textile-fiber blends to Brazil.
1949:: The weaving mill, run by two Steinbruch brothers, becomes Těxtil Elizabeth S.A.
1966:: The Steinbruch and Rabinovich families open their first joint enterprise, Brasibel.
1967:: Acquisition of a large worsted mill leads to what becomes known as the Vicunha group.
1970:: Vicunha takes a half-share in Finobrasa, adding to the group's productive capacity.
1982:: Vicunha purchases Fibra S.A., the national leader in yarns for the textile industry.
1989:: The group, consisting of 26 companies, reaches annual revenue of $1.2 billion.
1993:: Vicunha invests in CSN, Brazil's largest steel-maker, and soon is the leading shareholder.
1994:: Vicunha forms a joint venture to make nylon with DuPont do Brasil Ltda.
1996:: Vicunha fields four of Brazil's eight largest textile firms but loses money in textiles.
2001:: All of the group's textile operations are folded into a new company, Vicunha Těxtil S.A.
2003:: Sale of two units enables Vicunha to make its first profit in a decade from textile operations.
2004:: Vicunha accounts for about 40 percent of Brazil's production of blue denim for jeans.

RETRENCHING AND REFOCUSING: 2001–04

All the textile enterprises were united in 2001 into Vicunha Těxtil S.A., with ownership divided equally between the Steinbruch and Rabinovich families. Ricardo Steinbruch became chairman of the board, while Pedro Felipe Borges III, vice-president of Vicunha Nordeste—the parent company's only profitable unit—was appointed president. Before the year had ended, six of the 21 remaining factories had been closed and 3,000 employees had been dismissed. In 2002 the production of blue jeans fabric and synthetic knitwear, the company's areas of greatest volume and profitability, were chosen to be its strategic focus. Accordingly, Vicunha stopped selling filaments and fibers to others, and the division remained in business only to supply Vicunha itself. The company's efforts to make and sell a range of clothing within Brazil were abandoned; this division was confined to the manufacture of basic goods such as T-shirts for export. More than 1,200 additional workers were let go. With most of its debt of BRL 450 million (about $150 million) coming due in 2003, Vicunha sold its half-interest in the Fibra DuPont joint venture in early 2003 and its sewing threads division to a Scottish company, Coats Corrente. Reversing nearly a decade of red ink, Vicunha earned a net profit in 2003 and 2004.

With these changes Vicunha retained four divisions, but the textile division concentrated on producing blue denim. The yarn division turned to synthetic knitwear. The fibers and clothing divisions remained the same. The challenge was to work coordinated and to end the fiefdoms of the past. This was an admittedly slow process, given the sprawling corporate culture of the firm. A company executive told Cristiane Mano of Exame, "We are in an atypical situation, in which the system of each unit speaks a different language"—or what Mano called "a technological Tower of Babel, with a dozen distinct systems." One important step was to combine the two logistics areas—in Saão Paulo and the Northeast—in Fortaleza. Three factories that were practically neighbors in Itatiba, Saão Paulo, were combined into one.

Vicunha had 13 factories in five Brazilian states in 2004. The company accounted for about 40 percent of Brazil's production of blue denim that year. Its clients in this field included Calvin Klein, Diesel, DKNY, Gap, Guess, Levi's Docker's, Liz Claiborne, and Tommy Hilfiger. Synthetic fiber production was aimed at bettering the company's position in markets such as activewear and industrial fabrics. Its garments, all in cotton, were being sent overseas for private labels. The company also was selling the polymers, methanol, and sodium sulfide and sulfate byproducts that resulted from its fiber and yarn treatment processing. Textília S.A., a holding company for the Steinbruch and Rabinovich families, had the controlling interest in Vicunha Těxtil.

PRINCIPAL SUBSIDIARIES

Finobrasa Agroindustrial S.A.; Maracanaú Comércio e Representação Ltda.; Nova Marajo S.A.; Vanini Nordeste S.A.; Vicunha S.A.; Vicunha Europe S.A.R.L. (Switzerland); Vicunha Overseas, Inc. (U.K.).