Danica has made great strides in only little more than a decade. When the Danish-based holding company decided to take its 20 years of expertise in the thermal insulation segment and apply it to an emerging market of great potential, it immediately thought of Brazil. In 1998, the company purchased a plant in Joinville, Santa Catarina, where it began manufacturing thermal insulated panels and doors for industrial and commercial cold stores. Actually, manufacturing these units was only part of what the company did – it also custom-designed, delivered, and erected them, offering clients a complete turnkey solution while transforming its operation into a totally verticalized production process.
“WHERE’S THE REST?”
“People ask us if we’re a manufacturer or a construction company,” says Steffen Nevermann, Danica’s managing director. “Actually, we’re both. We produce all panels, chemical formulating, doors, hinges, windows, erection accessories, electrostatic painting, and everything we do is 100-percent in-sourced. The fact that we’re extremely verticalized is a big differentiating factor for clients – and a barrier for competitors. Contrary to other parts of the world, turnkey solutions are still very rare in the Brazilian market. Most big companies in this segment are content to just build and deliver panels.”
Clients, however, have responded en masse to the turnkey concept. As a result, times – and market expectations – are already changing. Reveals Nevermann: “Today, when an international company comes to Brazil with big bags of money to invest, the client will say, ‘this is great, but where’s the rest?’”
“Once you’re constructing instead of just manufacturing, the business becomes much more complex. Manufacturing the same panel every day is quite easy, but in construction there are so many variables that could go wrong. Unlike the many international companies that now want to move to Brazil, we’ve spent years setting up this structure,” indicates Nevermann.
EXPANSION AND AGGRESSIVE GROWTH
Indeed, upon arriving in Brazil, Danica hit the ground running. The company immediately began injecting a lot of capital into the enterprise with the aim of quickly conquering the market and achieving – and maintaining – aggressive growth rates. It succeeded on both fronts.
Between 1998 and today, the company opened three more plants and three distribution centers in Brazil, strategically located throughout the country. Aside from its original facility in Joinville, Danica has plants in Taboada, Mato Grosso do Sul (in the Central-West), Lucas do Rio Verde, Mato Grosso (neighboring São Paulo state), and in Pernambuco’s capital of Recife (with prime access to the Brazilian Northeast). All told, the company has 13 units (including offices and distribution centers) employing 850 people. In its desire to service the entire country, there hasn’t been a year since 2001 in which Danica didn’t open a unit somewhere in Brazil’s vast territory.
Expansion has been one of the keys to sustaining remarkable growth rates that average 30 percent a year. “The reason we opened the Mato Grosso plant in 2006 was to take advantage of the sweeping expansion of chicken farming in the region,” explains Nevermann. At the time, Danica entered into a partnership with Brazil’s two largest food giants, Sadia and Perdigão, and within a year, its new plant was supplying seven million square feet of panels and doors for cold storage units. “Brazil is one of the biggest meat manufacturers in the world and we service all the big billion-dollar conglomerates.”
Traditionally, industrial and commercial cold stores (Wal-Mart – with 35 Brazilian super centers – is a major client, representing three to four percent of sales). Until 2008, the industrial segment represented more 60 percent of its business. However, in the past three years, the company has gone on a major diversification spree, adding three new divisions to its stable, with the aim of conquering three of Brazil’s most thriving markets.
Danica’s clean room division makes units for pharmaceutical giants such as Abbott, Pfizer, GlaxoSmithKline, and Sanofi-Aventis as well as an up-and-coming crop of national pharmacy companies that are currently driving the Brazilian market. A naval and offshore division specializes in making accommodation modules and it ships quarters for tankers and oil platforms (in 2009, it supplied work and living units for Mexilhão, the largest boring platform ever produced by Brazilian oil giant Petrobras). There’s also a civil construction division, which was created to tap into the major boom this segment has been experiencing. Indeed, of all Danica’s five divisions, civil construction is the one that’s growing the most rapidly. In 2009, the division was responsible for 19 percent of total sales compared to 34 percent for industrial cold stores; 23 percent for clean rooms; 22 percent for supermarket and commercial cold stores, and two percent for marine and offshore.
While expansion into new regions and markets spurred growth, Danica’s investments in cutting-edge technologyallowed the company to improve quality, decrease costs and pump up production capacity. The creation of the civil construction division – along with belief in the segment’s growth potential – was instrumental in Danica’s decision to invest in a 150-meter, high volume, continuous line featuring completely new technology to complement, and eventually replace, its traditional 30-meter long automatic lines.
AMBITIOUS FUTURE GOALS
The investment is a cornerstone of Danica’s ambitious goals for the future: to double in size organically and increase its margins by “erecting barriers” that consolidate its already impressive domination of the market (currently, the company is undisputed market leader with a 44-percent share). Along with its turnkey concept, the continuous lines are a means of erecting such a barrier. Despite the hefty price tag – outfitting a full line costs US$10-15 million compared to US$150,000 for a 30-meter line – Danica is committed to making the investment (aware of the fact that the investment itself presents a “barrier” to many of its rivals).
“Our big objective is not to just make profits, but to do so by creating innovations that transform the market and offer clients the best available products by completely changing the types of products currently used in Brazil,” says Nevermann, alluding to the fact that thermal insulation panels can be made out of two materials, Styrofoam and polyurethane. Currently, in Europe and all of North America (including Mexico) almost all thermal insulation relies upon polyurethane, which offers better quality and is safer as well as more sustainable (the polyurethane used by Danica to make its completely clean products is pentane-based, which means it doesn’t impact the environment). In Brazil, however, close to 90 percent of insulation panels useinferior and unsustainable Styrofoam.
“Traditionally, the reason for this was largely price,” says Nevermann. “Styrofoam used to be 25 percent cheaper than polyurethane.” Those days, however, will soon be a thing of the past. With the economies of scale, higher output and lower costs that Danica will achieve by adopting high-volume continuing lines, the price difference will only be around five percent – which, according to Nevermann, means “you’ll be able to buy a Mercedes for the price of a Volkswagen.”
Ultimately, Danica is aiming for nothing less than to force the market into converting to polyurethane. “And we’re well on our way,” says Nevermann, “pointing out that in 2009 polyurethane products accounted for 12 percent of the market while 2009 already accounts for 40 percent due to the heavy investments made by the Group. “By 2015, we want this to be 90 percent – and we plan to keep on pushing.”
SUCCESS ABROAD – AND AT HOME
Currently, Danica produces 33 million square feet of panels and door a year, which translates into around 5,000 or 6,000 medium- to large-sized buildings (at any given time, the company has 150 projects in full operation). The company’s actual production capacity however is double these figures – a fact that will prove useful as Danica begins to increase international trade. Although new to exports – in 2008, they accounted for a mere one percent of sales – the company’s success has been such that global trade currently accounts for between 10 and 15 percent of total sales.
“Because of our large scale and low costs, combined with high quality that complies with all international industrial and environmental standards, we can compete better in Europe and the U.S. than many European and American companies,” explains Nevermann. “Since many of our clients in Brazil are multinationals with affiliates all over the world, we often get contracts – we recently built Abbott Labs’ big new site in Mexico – based on the work we’ve done for them here, which then leads to other contracts.”
Meanwhile, things on the home front are also very rosy due to the rising fortunes of Brazil’s C Class (around 40 percent of the population). The growing, stable economy and successful, coupled with social programs, have leveraged many poorer Brazilians into the ranks of the working and middle classes, where they are now enjoying unprecedented spending power. “On average, Brazil’s growth rates are very strong compared to other places, and they’re being driven by this new C Class. Our main growth is aligned with the growth of the middle classes and never before have Brazilians been able to buy so much food, medicine, and housing,” reveals Nevermann.
Indeed, when asked about the future of both Brazil and Danica, Nevermann puts a practical spin on a promising vision: “Just think of it this way: one additional chicken per person translates into a lot of supermarkets.”