Viscofan S.A.

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Viscofan S.A.

C/Iturrama 23 entreplanta
Pamplona
E-31007
Spain
Telephone: +34 948 19 84 44
Fax: 34 948 19 84 31
Web site: http://www.viscofan.com

Public Company
Incorporated: 1975 as Viscofan S.A., Industria Navarra de Envolturas Celulosicas
Employees: 3,573
Sales: EUR 371.3 million ($506.6 million) (2003)
Stock Exchanges: Madrid
Ticker Symbol: VIS
NAIC: 311612 Meat Processed From Carcasses; 221122 Electric Power Distribution; 551112 Offices of Other Holding Companies

Viscofan S.A. is the world's largest manufacturer of artificial casings, the sleeves that hold sausages. Viscofan is also one of the most diversified casings producers, producing four of the six different types of meat casings: edible and inedible collagen; plastic; and cellulose. (The remaining categories are natural and fibrous casings.) By extending its production into multiple casing categories, and by positioning itself as a low-cost producer, Viscofan has captured a global market share of some 40 percent. This places it ahead of its two main competitors, Viskase, in the United States, and Devro, in the United Kingdom. Viscofan's casings are distributed to more than 80 countries worldwide. Based in the Navarro region of Spain, Viscofan supports its international sales through a network of manufacturing plants, including two each in Spain and Brazil, and plants in Germany, the Czech Republic, the United States, Peru, and Mexico. The company also operates sales and distribution subsidiaries in the United Kingdom, Thailand, Canada, Costa Rica, Russia, and Poland. The company's casings production plants are operated by Viscofan itself, and by its subsidiary, Naturin, based in Germany, which specializes in edible and non-edible collagen-based casings. In addition to its casings business, Viscofan also operates IAN S.A. (Industrias Alimentarias de Navarra), which produces and cans asparagus, olives, and tomatoes for pastes and sauces under the Carretilla brand name. Viscofan is listed on the Bolsa de Madrid and is run by founder and Chairman Jaime Echevarría Abona and CEO Juan Ignacio Villegas Díaz. Paper producer Iberpapel holds a 35 percent stake in Viscofan.

Converting to Casings in the 1970s

In the early 1970s, Viscofan was a tiny company based in Spain's Navarro region producing cellulose-based pastes. Yet toward the middle of the decade, the company faced a dwindling market for this product. As the company's founder Jaime Echevarría Abona explained to United Press International: "We were the first in making cellulose paste. When we realized it was an obsolete product, we started making casings."

Casings, the wrappers used for shaping sausages and other meat products, were traditionally made using the linings from animal intestines. Yet natural casings presented large variations in thickness and strength and thus did not lend themselves to automated production techniques. At the same time, natural casings were often in short supply. In the 1920s, the rising industrial food groups began seeking new materials and methods for producing sausages and, in the United States, especially frankfurters. In the 1920s, the later Viskase group developed a method for producing casings from cellulose, which could then be removed from the sausage, resulting in the "skinless" frank.

Echevarría began adapting the technology for producing cellulose casings. In 1975 Echevarría incorporated his company as Viscofan S.A., Industria Navarra de Envolturas Celulosicas. The company, which based its own production process on Viskase's patented methods, nonetheless required several years to perfect its method. As Echevarría pointed out: "It's easy to make a perfect meter of cellulose casing, but it's a whole different issue to produce them by the millions."

Finally, in 1979, Viscofan was ready to launch full-scale production of its own cellulose-based casings. Over the next several years, the company perfected its technology and by the mid-1980s Viscofan emerged as the lowest-cost producer of cellulose casings in the world. Despite the low pricing of its casings, Viscofan was able to generate relatively high margins, in large part due to the efficiency of its production process. These high margins allowed the company to reinvest in boosting its capacity while continuing to improve its efficiency. Into the mid-1980s, the company's sales surged forward, and by the middle of the decade the company was on its way toward claiming a 30 percent share of the global market outside of the United States.

Viscofan capitalized on its growing market position by expanding its operations onto an international scale. The company began opening sales and distribution subsidiaries in a number of key markets, such as Russia and elsewhere in Eastern Europe where sausage sales were traditionally strong. The United States and Canada, however, remained off-limits to the company due to patent restrictions. To fuel its growth, Viscofan went public in 1986, listing on the Bolsa de Madrid.

Viscofan posted impressive growth through the end of the 1980s. From a global market share of just 6 percent in 1986, the company's rise was dramatic. By the end of the decade, Viscofan claimed a 17 percent share of the world cellulose casings market. Yet cellulose casings remained just one of several casings segments which included such newly developed and fast-growing categories as collagen-based and fibrous casings.

At first, Viscofan responded to this situation by diversifying into other product areas. In 1988, the company acquired Industrias Alimentarias de Navarra (IAN), a producer of canned vegetables, especially asparagus and tomato paste and sauces, but also, at the time, artichokes and cooked vegetables. Under Viscofan, IAN refocused its own production around a core of tomato products and asparagus. The latter activity was boosted in 1990 when IAN established a subsidiary in Peru dedicated to the growing and canning of asparagus. The new facility gave Viscofan access to Peru's year-round asparagus growing season.

In 1989, Viscofan added to its new foods division with the purchase of Industrias Muerzas. That company produced a line of canned fruits and preserves under the popular Bebe brand, then the Spanish leader with a 12 percent market share. Meanwhile, IAN also produced and canned black olives through its Comaro subsidiary. Some 95 percent of Comaro's production went toward the export market, particularly to the United States and Canada, Germany, and Japan.

Adding Casing Technologies in the 1990s

Fast-growing Viscofan took a major step toward market dominance in 1990, when it acquired Germany's Naturin GmbH. That company, roughly four times Viscofan's size, stemmed from experiments in the 1920s that sought to produce artificial casings using collagen found in the lining under a cow's hide. The founders of Naturin developed a process for producing a collagen-based gel, which could then be extruded as a casing. Collagen offered a number of advantages, not the least of which was a greater strength and consistency than natural casing. Like cellulose, the original collagen casing was inedible.

By 1933, Naturin had perfected its production process. The company opened a factory in Weinheim, Germany and took on the name of Naturin-Werks Becker & Co. Production started that year. Naturin continued to develop its technology, and in 1962 launched a revolution in the sausage market, that of an edible collagen-based casing.

In the 1970s, Naturin became interested in adapting new materials for its casings production. In 1970, the company constructed a new facility for production of polyamide-based casings. Naturin's research and development efforts paid off again toward the end of the decade, and in 1978 the company launched the first biaxially oriented plastic casing. Into the mid-1980s, further development with collagen led to the début of the first food-industry grade collagen film, in 1983.

Naturin had expanded onto the international market as well, establishing sales subsidiaries in the United States, Canada, the United Kingdom, and Switzerland. Naturin also developed major markets in the Eastern European countries. The company's exposure to these markets brought it into difficulties at the end of the 1980s, however. At the same time, Naturin's technology had fallen behind the industry as whole. Meanwhile, its production lines had increasingly become antiquated.

Viscofan paid DEM 260 million for Naturin. The acquisition quadrupled Viscofan's sales and enabled it to expand its casings range into four of the six casings segments, including a world-leading position in the collagen-based casings market. Following the acquisition, Viscofan began restructuring Naturin. This process, hampered by the ongoing conversion to the free market system in Eastern Europe and by a lingering recession, was only completed by the late 1990s. Nonetheless, the acquisition of Naturin proved to be of strategic importance in Viscofan's rise to global dominance of the casings market.

Global Casings Leader in the New Century

Viscofan turned its attention to the Latin American market—the world's largest market for artificial casings, accounting for some 40 percent of all sales. In 1991, the company established a sales and distribution subsidiary in Brazil, itself the largest casings market in South America. Viscofan soon deepened its Latin American presence, building a cellulose shrilling plant in Brazil in 1993. Shrilling involved a process of compressing and pleating casings so that they could be used in high-speed sausage stuffing equipment.

Company Perspectives:

Founded in 1975, Viscofan Group is the world leader in manufacturing and distribution of artificial casings for the meat industry. Technical innovation, product quality and customer service are our main drivers.

In 1995, Viscofan added a second cellulose casings factory in Brazil, acquired from Hoechst. That purchase gave the company capacity in casings extrusions. In 1999, the company built a third facility in Brazil, adding further extrusion capacity. The new facility not only allowed Viscofan's Brazilian subsidiary to become autonomous, it also enabled the company to claim leadership in the Latin American market.

In the meantime, Viscofan continued its international expansion elsewhere. The ending of patent restrictions in North America allowed Viscofan to begin selling its casings in Canada, followed by the United States, by 1994. The move came at a crucial moment, as Viscofan's two primary competitors in the United States—Devro, of the United Kingdom, and especially Viskase—had both run into financial difficulties. Viscofan's highly efficient, low-cost production allowed the company to undercut its competitors, and the established presence of Naturin in the North American market gave Viscofan a ready distribution network.

Into the late 1990s, Viscofan's operations in the United States had outpaced its ability to import casings. In 1998, therefore, the company established a production facility in Montgomery, Alabama, in order to supply the North American market.

Viscofan also had successfully turned around its Naturin subsidiary by then. Part of this effort came with the relocation of the group's conversion facility to the Czech Republic, a move made with the acquisition of that country's Gamex in 1995. In 1999, Viscofan expanded its Czech operations with the establishment of Viscofan CZ, and the construction of new extruding and shrilling facilities.

Viscofan also boosted its market position through the opening of new foreign sales and distribution subsidiaries. In 1994, the company opened a subsidiary in Moscow, which also provided support for the company's sales in the Far East. In 2000, however, Viscofan set up a dedicated Asian sales subsidiary in Thailand.

Closer to home, the company added a sales subsidiary in Poland in 2002. At the same time, Viscofan continued to develop its presence in the Latin American market. In 1999, the company established a dedicated sales subsidiary for the Central American market in Costa Rica. Meanwhile, the rising demand for Viscofan's casings in the region led it to begin construction of a new production facility, which opened in Mexico in 2003. Viscofan had successfully grown from a small, Spanish-focused producer into the world's leading producer of artificial casings in the new century.

Principal Subsidiaries

Gamex CB S.R.O. (Czech Republic); IAN Peru S.A.; IAN S.A.; Naturin Canada; Naturin GmbH; Naturin Ltd. (U.K.); Viscofan Centroamerica; Viscofan CZ S.R.O. (Czech Republic); Viscofan de Brasil Ltd.; Viscofan Mexico; Viscofan Moscu (Russia); Viscofan Poland; Viscofan Thailand; Viscofan USA Inc.

Principal Competitors

Devro PLC; Viskase Companies, Inc.; Hormel Inc.

Key Dates:

1975:: Viscofan begins developing cellulose-based casings production in Pamplona, Spain.
1979:: The company launches large-scale production.
1986:: The company lists on the Bolsa de Madrid as sales of cellulose casings surge.
1988:: The company acquires IAN and diversifies into canned vegetable production.
1989:: The company acquires Industrias Muerzas and its Bebe brand of conserves and canned fruit.
1990:: The company acquires Naturin, leading producer of collagen-based casings; IAN opens an asparagus production and canning facility in Peru.
1991:: The company opens a sales subsidiary in Brazil.
1993:: The company opens a shrilling plant in Brazil.
1994:: The company begins sales of cellulose casings in Canada and the United States; a sales subsidiary is opened in Moscow.
1995:: The company acquires Gamex in the Czech Republic and Hoechst's cellulose casings business in Brazil.
1998:: A cellulose casings production plant is built in Montgomery, Alabama.
2000:: A new production facility is launched in the Czech Republic.
2001:: A sales subsidiary is established in Thailand.
2002:: A sales subsidiary is established in Poland.
2003:: The company sells the Bebe conserves brand; a cellulose casings production plant is launched in Mexico.