March 26, 2012 Paving Its Way to Profits

Volume 15 | Issue 1

Brazil has no shortage of land, but it still boasts a shortage of roads. An expanding economy has only emphasized the country’s lack of infr

The biggest developer and manufacturer of equipment for building and repairing roads, Ciber Equipamentos Rodoviários is almost as old as Brazil’s highway system itself. Based in Brazil’s southernmost state of Rio Grande do Sul, the company was established in 1958 by an Italian immigrant by the name of Clemente Cifali. Cifali’s original goal was to produce asphalt for his own needs as a subcontractor. It wasn’t long, however, before this visionary entrepreneur saw the great potential for growth in the major infrastructure projects that were just getting underway in Brazil and other Latin American countries.

“THE ENTIRE PROCESS COVERED”
Clemente Cifali & Filho was the first Brazilian manufacturer of asphalt plants and over the next couple of decades the pioneering company expanded along with Brazil’s road and highway network. Aside from the constantly expanding market, key moments that helped spur growth involved strategic partnerships and acquisitions. In 1974, Cifali partnered up with Mitsubishi Heavy Industry acquiring new technology and expertise that helped it expand throughout Latin America. When Mitsubishi withdrew in 1984, the company was presided over by a board of Brazilian and Japanese investors, who used newly infused capital to enlarge and upgrade its facilities.

The most significant milestone however occurred in 1987 when Cifali entered into a joint venture with Wirtgen GmBh, a leading German manufacturer of road building equipment. In exchange for a percentage of the company’s shareholdings, Wirtgen supplied sophisticated know-how and technology that were previously unknown in Brazil. It was at this time that, in addition to its asphalt plants, Cifali began producing cold milling machines. It also underwent a name change – to Companhia Industrial Brasileira de Equipamentos Rodoviários (CIBER).

In 1996, Wirtgen took control of CIBER – which subsequently became known as Ciber Equipamentos Rodoviários. Under the aegis of the Wirtgen Group, Ciber acquired considerable clout, not to mention access to cutting-edge technology shared between the group’s four German companies, all leading specialists in their field. Aside from Ciber, these include Wirtgen (cold milling machines, soil stabilizers, recyclers, slipform pavers, and surface miners), Vögele (road pavers), Hamm (rollers and compactors); and Kleemann (crushing and screening plants). Says Ciber vice president Luiz Marcelo Tegon: “Each brand has its own area of expertise, but all are involved in the different aspects of road building. Together, we have the entire process covered.”

Ciber’s core business revolves around its asphalt plants, particularly a cutting-edge line of modular plants, Counter Flow Asphalt Plants, whose technology revolutionized the industry when they were launched in 2003. Today, its models range in capacity from 50 to 150 tons/hour (the 50-ton models are portable).Additionally, the company manufactures other Wirtgen Group products under a licensing agreement. These include an 11-ton compactor, and a 1-meter cold milling machine. To complement those pavers made by Vögele in Germany, Ciber also produces pavers with its our brand in Brazil. Apart from the products it manufactures at its 157,000-
square-foot plant in Rio Grande do Sul’s capital of Porto Alegre, Ciber supplies products from the Wirtgen Group’s entire portfolio to the Brazilian market through its own dealer, Wirtgen Brasil, and a network of third-party resellers.

Meanwhile, Ciber’s membership in the Wirtgen Group has also helped to promote its brand name and, in doing so, has opened up global markets for its asphalt plants. As a result exports – to Latin America, Africa, Australia, and increasingly, to South-East Asia – account for 30 percent of its business. In fact, this year, they’ll probably account for 50 percent.

“This is because the credit lines from the BNDES (the federal government-operated Brazilian Development Bank) weren’t available until April, at which point there was a scandal involving the Minister of Transportation,” explains Tegon. “As a result, until September, only 15 percent of the year’s budget for infrastructure had been invested. Fortunately, this was also a presidential election year in Argentina and the Argentine government was eager to invest in infrastructure projects. The upshot was that we had a record year in terms of sales to Argentina, selling 15 asphalt plants instead of the four or five that we usually sell – and which we’ll probably end up selling next year. Then again, next year there will be other countries with presidential elections.”

SPECTACULAR GROWTH OPPORTUNITIES
“The road building business is dependent on governments’ ability to invest in infrastructure,” confesses Tegon. “For this reason, we’d like diversify more globally in order to minimize risk. An ideal situation would be one in which global markets represent 70 percent of business with Brazil accounting for the remaining 30 percent because if Brazil experiences problems, it becomes problematic for us.”

The next several years, however, promise to be anything but problematic for Ciber. Spurred on by the expanding economy, last year the company experienced a record year in terms of sales, racking up revenues of R$270 million (roughly US$150 million) – a 25 percent increase over 2009. Due to the Minister of Transport’s budget problems, Tegon expects this year’s results to be similar to those of 2009. However, next year all bets are off. “To make up for lost time, from next year until 2014 when the World Cup and presidential elections take place, Brazil will be racing to catch up. With the number of big projects on the table, the opportunities for growth will be spectacular.”

Ciber is ideally positioned to take advantage of such opportunities. The company currently dominates all road building segments; with an 80 percent market share in terms of pavers, cold milling machines, and recyclers and 65 percent in terms of asphalt plants. It’s managed to stay miles ahead of competitors by adhering to a business strategy that focuses on supplying high tech products with lots of added value. As such, Ciber’s client list doesn’t include municipal governments whose smaller projects – and smaller budgets – mean they often invest in simpler, less expensive machines. Instead, the company’s bread and butter is the construction of federal highways where cost is less of a consideration than the total acquisition cost, which takes into account not just the unit price but the cost of maintenance, productivity, resale value, brand value, technology, and comfort for the operator.

THE SPECIALIST
“Our clients are looking for specialists and they call us because they understand the value of our products,” declares Tegon. “Our specialization in road building is the best in the world. Nobody else has a product portfolio as dedicated to this market. Other players have a road building line that is one aspect of a solution, but they never invest strongly in this line because for them it’s just a niche market. For us, it’s a core business to which we’re 100 percent dedicated. As a result, we understand how to build the best, most durable, and resistant roads, highways, and airport runways.”

Ciber also understands how to stay way head of the curve by not only staying abreast of trends, but jumpstarting them. For instance, in response to the growing concerns with making roadwork – like any work – as ecologically correct as possible, Ciber not only meets all international environmental standards, but surpasses them to the extent that its asphalt plants boast the lowest pollution levels on the market. “It used to be that you’ve be driving down the road and up ahead you’d see the smoke rising up from a plant and know that road work was being done,” says Tegon. “Well, this isn’t so with our plants because we adhere to a ‘Zero Smoke’ policy. In fact, our overall pollution levels are close to zero.”

Environmental impact is also driving the development of a new prototype, currently being tested for a possible 2012 launch, which allows for the use of recycled materials (i.e. asphalt). “Cold milling machines are used to scrape the asphalt off an old road in order to then lay down a new one,” explains Tegon. “Traditionally, this asphalt was discarded, but in developed countries it’s salvaged and used to build new roads. In Germany, for example cold milling machines are rampant and 100 percent of asphalt is recycled. This isn’t the case in Brazil. There is only one cold milling machine, for example, in the entire state of Pará. If you go to the state capital of Belém, you’ll notice that the city streets are higher than the sidewalks because instead of removing old asphalt, builders just lay down another layer on top.”

Not only does this tendency result in a waste of raw materials, but it’s tantamount to tossing money out the window. Such arguments are clearly making an impact since, last year, Ciber sold close to 120 machines in Brazil (mostly in the South and South-East). However, since construction demands are so high, Ciber came up with two accessories that can be integrated into its asphalt plants: one permits the reuse of 15 percent of RAP (reclaimed asphalt pavement) while the other allows for up to 50 percent of RAP to be mixed into new materials. “Just imagine being able to reclaim 50 percent of your raw material. Aside from ecologically correct, the cost savings are spectacular,” points out Tegon.

Of course, this is merely one example of the level of specialization that has kept Ciber on the road to success. “We offer our clients solutions that incorporate the best technology and the most complete products,” declares Tegon. Our secret is that we’re not content to be a road building specialist; we insist on being the specialist.”

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