Internacional de Ceramica, S.A. de C.V. - Company Profile, Information, Business Description, History, Background Information on Internacional de Ceramica, S.A. de C.V.

Avenida Carlos Pacheco 7200
Chihuahua, Chihuahua 31060

History of Internacional de Ceramica, S.A. de C.V.

Internacional de Ceramica, S.A. de C.V. (Interceramic), a Mexican holding company, is the largest manufacturer of ceramic glazed floor tiles in North America and is also a leading manufacturer of ceramic glazed wall tiles, with some 80 different product lines in all. The company also make grouts and adhesive materials to complement its tile product lines and has a tile factory in the United States. Internacional de Ceramica also imports and distributes ceramic glazed floor and wall tiles, distributing them in Mexico through a network of franchised and company-owned stores and, in the United States, through independent distributors and a network of wholesale/retail stores owned and operated by a U.S. subsidiary. Sales in the United States, where the company is known as Interceramic, account for about half the total.

Making Floor Tiles in the 1980s

A member of an important landowning family in the northern Mexican state of Chihuahua, Esteban Almeida was a cattle rancher who established links north of the border when he fled to Texas during the revolution that convulsed Mexico in the second decade of the 20th century. The business prospered after his return, so the Almeida family borrowed money from Texas bankers and also went into the automotive business as a franchised distributor for Chrysler Corp. Because the Mexican government began seizing land and setting cattle prices during the 1970s, the Almeidas shifted their resources from ranching to banking. In 1982, however, the value of the peso dropped precipitously, and the government nationalized the nation's banks in order to restructure the financial system.

The Almeidas, although now virtually bankrupt, had, in the early 1960s, established a small brick-making company in order to erect buildings on their properties. This company was converted into a tilemaker in 1978, becoming the first tile producer in North America to adopt the Italian single-fired production process, which resulted in lower firing times and energy usage, thereby allowing the manufacture of high-quality products at relative low cost. A related, family-owned business extracted the clay from the Almeidas' own mines. The machinery came from Italy and Spain. Esteban's son Oscar stepped aside to allow his son, Victor, to run the firm's day-to-day operations. Like most Mexican companies, Interceramic was a traditional family business, with Victor Almeida in charge and the second-in-command his brother-in-law. Most of the other high executives were sons of men who had worked for Victor's grandfather or father. By the mid-1990s, however, Victor had brought in new blood in the form of top managers who were mostly under 40. The firm's organizational structure was more open and informal and less hierarchical than the traditional Mexican practice.

The construction business was among the Mexican sectors hardest hit by the peso crisis. The company produced three million square meters of tile in 1982 but then had to close two of its four furnaces for a time. By the end of 1986, however, Interceramic had raised its production capacity by 50 percent without being able to fully satisfy the demands of the market. Additional firing capacity was put into operation in late 1986, raising production to 4.5 million square meters in 1987, but this still did not meet market demand. An unexpected amount of business was coming not from building contractors but from homeowners who found it cheaper and more durable to cover their floors with tiles than rugs. Sales rose from 9.49 billion pesos (about $15.5 million) in 1986 to 40.37 billion pesos (about $28.71 million) in 1987. Because of the scarcity of funds available from the banks and their high interest rates, Interceramic decided to became a public company in 1987, when its shares were first offered on Mexico City's stock exchange. Some 45 percent of the 12.97 billion pesos (about $9.22 million) raised from the sale of shares was earmarked to repay debts.

From Interceramic's inception, the Almeidas saw as vital to the company's future an expansion of sales into the United States, and for this reason chose Interceramic as the brand name for its products. It was unknown north of the border, however, and had to go through a trial-and-error process of finding good managers to help the company develop a distribution network. In Mexico, homeowners typically bought their tiles directly from the manufacturer, but in the United States a contractor almost always served as an intermediary. Moreover, Interceramic soon learned that American customers demanded much better service. "The Mexican customer would take just about any beating you gave him," Victor Almeida told Paul B. Carroll of the Wall Street Journal in 1994. Another barrier to sales were tariffs as high as 60 percent, since Washington claimed that, among other factors, Mexico was subsidizing Interceramic's exports by providing cheap fuel through the government-controlled oil monopoly.

Interceramic's exports still came to less than 10 percent of company revenue when, in 1988, the company established U.S. headquarters and a distribution center in El Paso, Texas, a three-hour drive north of Chihuahua. This office moved the following year to Carrollton, Texas, where another distribution center was opened. Prompted by its American managers, the company began producing the smaller (and more subdued) 4 1/4-inch-square tiles used in the United States rather than the more flamboyant 6-by-6-inch tiles typical of the Mexican market. Although initial sales north of the border were through independent distribution, Interceramic eventually established a network of company-owned wholesale/retail stores in the southern United States. In 1989 Interceramic formed a joint venture with Armstrong World Industries, Inc., which invested 44 billion pesos (about $177 million) to market Interceramic's products in the United States. The joint venture, Recubrimientos Interceramic, S.A. de C.V., became the owner of a recently established second Interceramic tile plant in Chihuahua, with the right to purchase up to 50 percent of the first-quality glazed ceramic floor tiles made at this plant for sale in the United States. Dal-Tile, Inc. later became the successor to Armstrong's interest in this venture.

In order to respond quickly to changes in consumer fashions, Interceramic established a large research-and-development unit, with its own kiln and computerized design tools next to a pilot production line. When a competitor introduced a tile pattern simulating a parquet floor, Interceramic rushed large shipments of similar tiles to its distributors in only 35 days. The company, to reduce costs, invested heavily in new equipment that stamped, glazed, silk-screened, and baked the tiles with almost no resort to human hands. By 1994 the percentage of the production run considered to be first quality had risen from 70 percent to 81 percent, while the percentage of scrap had fallen from 11 to 9 percent.

Expansion in the 1990s

In 1990 Interceramic raised its production to 5.93 million square meters of ceramic tile, some 32 percent of the Mexican market for this floor and wall product. At the beginning of 1991, the company raised $7.6 million by selling American Depositary Receipts, the equivalent of shares, on the New York Stock Exchange. Interceramic had net sales of $71.7 million and operating income of $7.4 million in 1991. It held 80 percent of the luxury end of the Mexican floor tile market in 1992 and also was marketing a Vision brand of medium-priced tiles there. Its share of the wall tile market in Mexico was 8 percent, although it was not yet manufacturing this product. The company had 85 independent distributors in Mexico and 77 in the United States. A third U.S. distribution center had opened in San Antonio. Speaking of Interceramic, a Mexico City investment analyst told Norman Peagam and Michael Marray of Euromoney, "They have the best technology they can get, they are continuously improving their equipment, and they invest money in market research. They do their homework and they know exactly where they want to go." A New York analyst agreed, adding, "From the CEO of the company to the worker on the assembly line, they know exactly what they are doing. It is a very lean operation and very efficiently run--on the financial side they are very knowledgeable and sophisticated."

Although Interceramic held only a 2 percent share of the $1 billion U.S. tile market in 1992, U.S. sales had risen to more than 20 percent of company revenue. The export pace gained impetus when the North American Free Trade Agreement came into force in 1994, resulting in a gradual reduction of the 20 percent U.S. duty on Interceramic's products. By late that year the company held 7 percent of the U.S. floor tile market as well as 20 percent of the total Mexican tile market, which made it the leading tile producer in Mexico. Its system of selling through independent distribution in Mexico was giving way to a mixed network of company-owned distribution and an extensive, exclusive franchise web throughout the country, operating under the Interceramic name. In 1995 the company added a third manufacturing facility in Chihuahua and opened another in Garland, Texas, which also became the new site of U.S. headquarters. Both the new Chihuahua plant and the Garland one were for the production of glazed ceramic wall tile.

Following the December 1994 peso devaluation, Interceramic's 1995 net sales fell by 20 percent. The next year, however, they rose by 42.5 percent. Interceramic's net sales grew 29 percent between 1996 and 2000, and its operating income increased by 96 percent over this period. In 1998 the company organized a subsidiary to open and operate wholesale/retail locations throughout the Mexico City metropolitan area. The following year it organized another subsidiary to acquire the operations of the company's franchisee in the Guadalajara metropolitan area. Interceramic formed a strategic association in 2000 with the U.S.-based Kohler Co., a leader in kitchen and bathroom fixtures. Kohler took an 11 percent stake in Interceramic's common stock, and the Interceramic franchise network began distributing Kohler products throughout Mexico. A new Interceramic facility for the production of grouts and adhesives in central Mexico was completed in 2001.

Interceramic in 2000-01

Interceramic was producing glazed ceramic floor tile at two Chihuahua facilities: the ICSA and RISA plants. The latter was owned by the joint venture with Dal-Tile, which retained Armstrong's right to purchase up to half of the plant's first-quality production for sale in the United States. A third Chihuahua facility, the Azulejos plant, located adjacent to the RISA plant, was devoted to the manufacture of large-format wall tile and also was producing trim pieces. The Garland plant was engaged in the manufacture and production of both small and larger-format glazed ceramic wall tile and related trim pieces, all for the U.S. market. These four plants accounted for 47, 25, 15, and 13 percent, respectively, of Interceramic's installed capacity of 264 million square feet (24.5 million square meters) in 2000, all of which was being utilized. In addition, a joint venture with Custom Building Products of California, Inc., established in 1993, owned and operated a plant, adjacent to the ICSA facility, for the development and manufacture of grouts and adhesive materials used in the installation of ceramic tile. This joint venture subsidiary opened a second grout and adhesive plant in the central Mexican town of Huichapan, Hidalgo, in 2001. Another Interceramic subsidiary owned several Mexican mining properties from which substantially all the clay used in the company's Mexican production facilities was derived.

The products manufactured by Interceramic in Mexico were being marketed by a national network of exclusive franchise stores as well as a number of company-owned stores in the Mexico City and Guadalajara markets. In the United States, a subsidiary was selling Interceramic's products through independent distributors and a network of wholesale/retail stores owned and operated by Ceramic Tile International, Inc., a subsidiary of Interceramic USA. Current Ceramic Tile International locations were in Austin, Dallas, El Paso, Fort Worth, Houston, Plano, and San Antonio, Texas; the Atlanta metropolitan area; Albuquerque, New Mexico; Las Vegas, Nevada; Phoenix and Scottsdale, Arizona; and Tulsa, Oklahoma. Some of the ICSA plant's production was being sold to Dal-Tile for resale in the United States under Dal-Tile brand names. Canadian sales were mostly through a Toronto distributor. In addition, Interceramic was importing ceramic floor and wall tile, primarily from Italian and Spanish manufacturers, for distribution and sale in the United States. These imported tiles, and similar products by U.S. manufacturers, were being stocked by Ceramic Tile International along with Interceramic's own output.

Interceramic's net sales in 2000 came to 2.55 billion pesos ($264.91 million). Its operating income was 264.42 million pesos ($27.52 million) and its consolidated net income was 132.65 million pesos ($13.8 million). Mexico accounted for 57 percent of consolidated sales and the United States for 43 percent. The long-term debt of 1.11 billion pesos ($115.69 million) at the end of the year was 25 percent lower than the total at the end of 1998. Interceramic's net sales in 2001 reached 2.71 billion pesos ($294.42 million), of which Mexico accounted for 59 percent. Net consolidated income was 174.04 million pesos ($18.94 million). Company debt had fallen to $103.6 million at the end of 2001.

Oscar Almeida and his immediate family members owned nearly 49 percent of Interceramic's common stock in 2001; he owned 44 percent directly. Banamex Trust owned 10.7 percent and Banco Accival, an affiliate of Banamex, owned 13.6 percent. Kohler owned 11 percent.

Principal Subsidiaries: Adhesivos y Boquillas Interceramic, S. de R.L. de C.V. (51%); Distribucion Interceramic, S.A. de C.V.; Intercabados del Noroeste, S.A. de C.V.; Intercabados del Occidente, S.A. de C.V.; Interceramic, Inc. (U.S.A.); Interceramic de Occidente, S.A. de C.V.; Interceramic Trading Company (U.S.A.); Operadora Interceramic de Mexico, S.A. de C.V.; Procesadora de Materiales Cerro Grande, S.A. de C.V.; Recubrimientos Interceramic, S.A. de C.V. (50.01%).

Principal Competitors: Lomosa; Porcelanite, S.A. de C.V.; Vitromex.


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