After spending US$ 53 million last year to boost glass container production, Mexican glass maker Vitro will reverse course, closing a plant and selling off assets amid a sharp slowdown in demand, Chie…
After spending US$ 53 million last year to boost glass container production, Mexican glass maker Vitro will reverse course, closing a plant and selling off assets amid a sharp slowdown in demand, Chief Financial Officer Jose Antonio Lopez said. Vitro said it would close a Mexico City plant, sell off US$ 100 million in assets, cut costs and reduce its US$ 1.647 billion debt by US$ 150 million by December 2000. Lopez said that glass container production for soft drinks is expected to plummet 20% this year amid competition from plastic. Vitro“s glass container division represents 29% of overall sales. “We are countering (the troubles) through these measures,” Lopez said. “We think that this will help us return to profitability, and next year we are going to post margins about three percentage points higher than what we reported in the first half of 1999.” Lopez also said Vitro could lay off some of its 30,000 workers, 4,000 of whom work outside of Mexico. Vitro“s glass container division posted an operating margin of 14.4% in the first six months of the year, down from 19% in the first half of 1998. Overall, Vitro had a six-month operating margin of 15.8% on sales of Pso 12.231 billion (about US$ 1.3 billion). Cutting into those sales have been PET resin bottles increasingly used in the soft drinks industry and which beer companies are starting to experiment with. Once a symbol of the industrial might of the northeastern city of Monterrey, Vitro got clobbered by a series of unprofitable investments ahead of the sudden devaluation of the peso in December 1994, which ushered in Mexico“s worst recession in half a century. Vitro“s glass container division is its second most important after flat glass. The company also operates an appliance division. “Production of soft drink containers will be lower this year than what have had in years past because of the (switch to PET),” Lopez said. “In general terms we“re talking about 20% less than last year”. “The first big step is to adjust capacity to demand, but we are looking for new markets and new products,” he said. “We“re working hard in all areas of glass container exports.” Vitro was humming along in the late 1980s and early 1990s as Mexico modernised its economy. Between 1987 and 1992, Vitro invested around US$ 2 billion in expansions and acquisitions. The glassmaker“s biggest move was the acquisition of Florida-based Anchor Glass Container Corp. for US$ 900 million in 1989. Vitro sold Anchor Glass in 1997 for a mere US$ 328.8 million, after the peso devaluation threw a million Mexicans out of work and sent interest rates soaring in Mexico“s worst crisis since the Great Depression. The peso crisis hit Vitro hard because of the heavy debt it had taken on, a slump in the construction industry that cut into its flat glass sales, and shrinking consumer spending that hit its appliance and glass container divisions. Vitro invested US$ 53 million last year to increase its glass container production by 8% without forecasting the coming slump in sales. Vitro now will reduce capacity by about the same amount with the closing of the Vidriera Oriental plant, for which it will take a US$ 70 million charge in the third quarter. Lopez said Vitro would shift that production to newer, more efficient plants.