The Eternit way of building
Outlook
In line with the economic scenario marked by uncertainties, waning consumer confidence and contracting industrial activity, the consensus forecast for GDP growth in 2016 is for contraction of 3.6%, according to the central bank’s Market Readout of March 18, 2016. Meanwhile, Construction GDP is expected to contract by 5.0%, based on the central bank’s Inflation Report for December 2015, which reflects the contraction in the homebuilding industry, which has been affected by credit restrictions and high inventories of finished units.
Brazil’s housing deficit, which is estimated by the João Pinheiro Foundation at 5.4 million units (2011-2012), is formed by families excessively burdened by high rents and cohabitation of families, which represents over 75% of the country's housing shortage, followed by precarious living conditions and excessive density in rented homes. Although the federal government’s housing program “My Home, My Life” has reduced this housing deficit, according to a study by the Fundação Getulio Vargas (FGV) in 2014, estimates indicate that in 2024, considering population growth, Brazil will have approximately 16.4 million new households, of which 10 million will have household income of up to three minimum wages.
Job creation, better income distribution, increased credit and higher investments in infrastructure and in the units built under My Home, My Life will help reduce the housing problem, which will have a positive impact on the Company's business, given the stronger demand for the products in our portfolio, which primarily target self-managed construction projects.
For the construction materials industry, conditions such as fear of unemployment, lower household income and low business confidence should continue into early 2016, according to the Brazilian Construction Materials Industry Association (ABRAMAT), which should be aggravated in the months of January and February, when families tend to accumulate additional expenses, such as property tax (IPTU), vehicle tax (IPVA), etc. In view of this scenario, ABRAMAT believes that only as of April or May could the industry stage a recovery, since measures such as increasing credit supply, new infrastructure works and the resumption of My Home, My Life (Phase 3) are implemented. Accordingly, it forecasts a contraction of 4.5% in real sales for 2016 compared to 2015.
Application of Olinda fiber-cement roofing panel
Also according to the association, the substitution of imports and higher exports, driven by the weaker local currency, could also contribute to a more positive scenario than in 2015. However, it notes that the situation is worrisome and calls for urgent measures to support a recovery in economic growth.
Eternit believes it is important to take into consideration the following challenges facing the country and its industry: the competitive conditions of Brazil’s industrial sector, given the infrastructure bottlenecks, tax aspects and weaker local currency, maintenance of employment and income levels, sustainable economic policies and increase in business and consumer confidence. For the fiber-cement segment, Eternit will use the strength of its brand and network of more than 15,000 points-of-sale to minimize the effects of the crisis and operate its plants at maximum capacity utilization rates. For the other segments, chrysotile mining and concrete roofing tiles, capacity utilization will accompany market demand. The efforts will focus on reducing operating costs and expenses, optimizing distribution logistics and boosting competitiveness to meet the more intense competition during this moment marked by the low utilization of installed production capacity.
In the middle of the second half of 2015, in keeping with its strategy of diversified organic growth, the Company began testing equipment at its unit for the research, development and production of construction material inputs in the city of Manaus, Amazonas, and produced and sold the first test batches of polypropylene yarns with applications in fiber-cement on an industrial scale.
Meanwhile, the bathroom chinaware unit in the state of Ceará surmounted important bottlenecks over the course of 2015, such as the reduction in lower-value imported goods to complement production and meet demand, the conclusion by the public utility of the natural gas line and the start of supply to its production site and the progressive improvement in production indicators. In 2016, this business segment should have a more diversified portfolio to enhance the profitability of the business.
With regard to legal aspects involving chrysotile mineral, the Company believes the courts will consider the technical and scientific evidence in the actions pending trial and, if necessary, it will take all applicable legal measures.
Management continues to closely monitor the developments and impacts of the current economic scenario in Brazil and its industry and to conduct its operations with financial discipline and a focus on business sustainability to consolidate Eternit’s position as the leading supplier of raw materials, products and solutions for the construction industry.
Regardless of the aforementioned challenges, the Company believes in a recovery in the Brazilian economy and, especially, in its industry.