Overview of GGD Metals: Steel and Metal Distributor in Brazil

Interview with Eduardo Dias, Purchasing Director at GGD Metals

Can you give us an overview of the steel and metal sector in Brazil?

I think that this sector suffered a lot due to the economic crisis of 2008 and 2009 which was a period when the majority of sectors here in Brazil suffered a great deal. There was a lot of devaluation of stocks and of the most part of the materials needed for the production of steel. However the sector picked up again in 2011, in fact this sector picked up before all of the other sectors here in Brazil. The tendency now is for growth. Our evaluation is that Brazil is really lacking in infrastructure and everything to do with infrastructure requires steel and many metals. For that reason the tendency is for good growth. The largest factories in Brazil are preparing for this growth and demand. We are increasing our productive capacity, and we are preparing ourselves to be able to compete more effectively with foreign companies. With the crisis that we have all experienced, in particular in Europe, and with the drop in world demand we have started to find lots of cheap steel being imported into Brazil from all over the world. Therefore all of the national companies are getting ready to be able to compete with the foreign companies, particularly in terms of acquiring the right equipment and expertise.

Overall, I would say that the outlook for the sector at the moment is good and is even better for the future.

Your company came about as a fusion of three large companies, can you tell us a bit more about the group and your employees?

We were three different companies: RCC, Açometal and Domave. Each company was focused in a different area, for example RCC was focused in special types of steel for tools, Açometal was focused in nonferrous metals and Domave was focused in structural steel. Therefore all of these companies were complete engineering companies but each with its own speciality and markets. Over time we realized that it would be a good idea to join the three companies together not only for the logistical and administrative benefits but mainly to increase our purchasing power. When you purchase the same material but as different companies you lose purchasing power, therefore by joining together the three companies we were able to greatly increase our purchasing power. It was a challenging time because we were joining brands that were well known, particularly RCC and Açometal who were very well known already. It was a challenge to create a new brand that wouldn’t lose the reputation for quality and credibility that the companies had before. We used a marketing team that was trained in the United States; at the time the leader was the marketing manager of Apple in Brazil, and we hired him to work for us. He really helped us in terms of the marketing of the fusion of these companies so that we wouldn’t lose the strength that the individual companies had before. I think I can say that now, 5 years after the fusion we have a stronger brand than other companies that have been on the market for 10 or 15 years. I think the marketing job these guys did was really successful. We sponsored the Ivete Sangalo trio in the Carnival of Salvador when they were really popular. We also sponsored Bruno Rezende, a Brazilian volleyball player when he was in the spotlight as a national team player. We think that we have made some good marketing moves in this way. Today, GGD is a really strong brand. It’s a really well known company; you can be talking with friends and they will all know about and have experience with GGD. The brand and company is really consolidated now even though it´s only 5 years old. We also managed to transfer all of the qualities of reliability of the three companies to GGD Metals.

Now that you have joined together these three companies that each had a different focus, what is the main focus of GGD?

Today, to be honest our main focus has changed. RCC as I said before used to focus on the tools sector but now GGD´s focus has changed to attend each client. It is really common for GGD to attend a client such as General Motors in terms of tools, so when GM wants to make an alteration to their factory or if they want a new piece of equipment on their test track etc. it is natural that GM looks to GGD for this because we have already supplied the steel and tools for them. In the past, we would have had to say that we didn’t have the stock to attend to them but now we have a complete line and we are the most diversified distributor in Brazil. Now we are able to supply this demand so our focus now is to attend to our clients. Today we are seeing new demand for new material. The research staff at GGD are travelling the world and investigating new steels and investigating which steels suit the Brazilian market, etc.

It is really interesting when we have our annual meetings to discuss the following year. Obviously in these meetings we talk about turnover and income expectations, but mainly we ask ourselves what we are going to do internally in terms of logistics, factories, deliveries, etc., and ultimately we ask ourselves what we can do to increase our income. We have gone through a very good period over the last year for example, but we weren’t increasing our revenue or sales because of matters of limitations in logistics and that kind of thing. So we looked at what we could do this year to improve these areas. We have started developments in order to be able to attend to an increased demand.

In terms of Brazil, we have to look at the situation from a macro point of view. Brazil is a country that is lacking a lot in good companies and in good services and so if we offer a good service and we attend to our clients in an excellent manner we are going to stand out from the rest. Even though there are many other companies that are competition for us, GGD is still able to stand out. Last year we broke records for increased growth and turnover: we increased our turnover by 20%. This is despite the market being difficult at the moment. One of our direct competitors closed down two branches which shows you that the market is not in a good state at the moment. We have to increase our services as this is what the clients are demanding. Today GGD´s focus is not the market but rather the clients.

How do you manage to add value to the products that you offer today?

The steel that we sell is the same steel that our competitors sell, it is manufactured by the same company, often it has the exact same technical specifications, it is worked under the same conditions and it will work in the same way. However, if my client needs to buy X amount of kilos of steel they know that they can come to me and purchase X amount, but if they go to a competitor they will have to purchase more than X kilos. What sets us apart is that we try to meet the exact needs of our clients. You can only do this when you have managed to acquire the volume of clients that GGD has today. Often our competition have a smaller number of clients and so they can´t attend to each client in this manner because the spare amount of steel that the client didn’t need is going to be hard for them to later sell to another client. GGD has the courage because of its previous experience to be able to ask for higher prices when a client asks for something that is outside of the normal measurements. We know that previously the clients were willing to pay more to get exactly what they needed but there was no one that would attend to their needs. GGD now offers them this option. We are now known for being a brand where you can buy exactly what you want in the measurements that you need. Our material losses are few because we have as many large orders as we have small orders. We have our own delivery team which is a huge advantage. There are very few competitors who have their own delivery service. Our prices are often not the cheapest but as we have our own delivery service we can deliver at no extra expense to the client, which makes the overall costs to the client cheaper than if they were to purchase cheaper metals from our competitors. This is one of the main factors that helped GGD grow and was one of the main factors in capturing so many new clients. The ten most important clients of our company correspond to 20% of the company’s turnover. In the majority of companies in our sector, the ten most important clients are going to be representing at least 50% of the turnover. This also helps to make us stand out.

Can you tell us a bit more about your main clients?

Our main clients are in the automobile sector, clients such as GM, Volkswagen and Fiat. Not always directly because they often tend to outsource many services and so we serve these clients indirectly. The automobile sector went through a boom and so we grew a lot alongside this sector.

Are you open to national or foreign investors?

Yes we certainly are. GGD has been set up as an S.A corporation, so all of the accounting aspects have been set up in the most clear and defined manner to make it easy if in the future opportunities arise for new partners or companies that are interested in investing and joining us. This has added a lot of value to the brand; there are not many companies like GGD in Brazil that have such clear accounting that follows international standards. I believe that today GGD is prepared for a partnership or fusion but I think that in any case in two or three years´ time the value of the brand is practically going to double. We are in full expansion, we are growing in many ways, and we are concluding certain developments that are sure to improve our productivity and profitability.

We have spent the first five years setting up the company, we put a lot of investment into marketing, events, trade fairs, etc., and we have had good profits as a result. Now the next two or three years,is the moment when we achieve much greater profitability. This is obviously one of the main areas of interest for any foreign potential investor, they want to know how lucrative an investment would be for them. Now is the moment that we are going to start seeing this profitability. The first five years were investments in processes, like computer technology, the brand etc. and all of that is well set up now. GGD is not the most profitable company in the market today, but without a doubt it is the strongest brand in the steel distribution market.

With this process of expansion the challenges increase, can you tell us about the main challenges that GGD faces?

The main challenge for GGD at the moment is the matter of exchange rate variations. We have a plan for imports and international purchases but when you start to have a large exchange rate variation and you see all sorts of different information from different banks and economists about their expectations it becomes much more difficult. This is a really big challenge for us. It is hard to know how to adapt your stock and prices to the exchange rate variation. It makes it harder to close a contract. We work with lots of contracts that are closed annually so on a contract that was closed in January, by August because of the exchange rate we found ourselves with a 15% differential. That is a very large variation and our company is not capable of administrating that very well whilst still complying with the contract and serving our customers. This is our greatest challenge at the moment and we don’t quite know when or how this is going to stop being a problem. In my opinion our currency is very over valued in relation to the dollar and euro. I think that the real needs to be devalued. I think that we need new policies and clear rules, we need the government to say that they are going to increase the value of the dollar within a certain level, then the internal market would be able to position itself and see how it organises itself to continue and to adjust its investments to be able to work in a more stable way.

You said that the first five years were about the formation of the company, so what do you see for the next five years?

I think the next five years are going to see GGD go through a strong period of modernisation and increased creativity. Ten years ago the Brazilian work force was much cheaper compared to America, Europe or other developed countries. Today the market is starting to change, our workforce is still cheaper but the difference is not nearly as great anymore. The investments made over the next five years are going to be in modernising our equipment to be able to produce twice as much with the same amount of workforce. This is a step we want to take in order to increase the company´s profitability. Our next challenge is to increase the productivity of our company.

What is your dream for the company in 5 years´ time?

We want to double our share of the market in terms of tools. At the moment our tools represent about 10% of what is on the market, we want to reach 20 or 25% of market share. Our main dream is obviously to have a more profitable company whilst still respecting our employees, their salaries, the environment etc. With the strong history that this company has and the structure that it has, the company has the potential to make much more money. We are working on this goal and what we have done so far has already exceeded our expectations so I am sure that we are going to achieve our goals.

Can you tell us a bit about your work in civil construction?

GDI is a company within our group that works with property developments. The company came about due to our knowledge particularly of the southern area of Sao Paulo. Our President Mr João, had a lot of experience in these areas and he is a born entrepreneur. We decided that we wanted to diversify and so we started GDI at the beginning of the housing boom in Sao Paulo. If we look back 7 or 8 years ago, a square meter in Sao Paulo was worth 2 thousand reals, now it is worth 8 to 10 thousand. We realized that there was going to be a property boom basically because there were so many people that needed housing, and there were even people who wanted their second home! The only problem was that here in Brazil we have a lot of issues with project clearance. Therefore there were a lot of people in the private sector who had the money to start building but they couldn’t get the project started because we didn’t have the infrastructure to get the project clearance. Therefore there was a huge lack of housing in Brazil and so we saw the tendency for housing growth and need for construction in Rio de Janeiro and indeed in all the capitals around the world. I travelled a lot of China and I saw Pudong which was a brand new neighbourhood on the outskirts of Shanghai. We began to see that it was a good moment to buy property and so we began to buy a lot of properties and we didn’t sell them. When the values went up we decided we would begin to negotiate these properties. We made partnerships and exchanges with consultancy companies, we also bought properties that had some structural problems which we reformed and refurbished into good residencies. Additionally we bought some land in the interior to build industrial warehouses. As we work with all sorts of industrial sectors, we have a good idea of what each sector needs and what are the ideal locations in terms of logistics for each sector. Therefore we built warehouses for all types of industry separately which helped us when it came to selling these properties. This all came about as an investment decision due to the fact that we wanted to diversify. We started to see that buying properties was profitable and so we invested more and more and we grew in that way. We can´t say that we had a huge know-how in this field, but we did have a good feeling about it and we did have a sound knowledge of the market. We don’t have a construction workforce, we do have the workforce to carry out refurbishments but not for construction so we outsource these services. We had an idea of what we wanted to achieve but we didn’t set up a huge structure for this business.

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