Klabin S.A.

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Klabin S.A.

Rua Formosa 367, 12 andar
São Paulo 01075-900
Brazil
Telephone: 55 (11) 3225-4000
Fax: 55 (11) 3225-4241
Web site: http://www.klabin.com.br

Public Company
Incorporated: 1909 as Companhia Fabricadora del Papel S.A.
Employees: 12,800
Sales: BRL 2.73 billion ($931.74 million) (2004)
Stock Exchanges: Bolsa de Valores de São Paulo OTC
Ticker Symbols: KLBN; KLBAY
NAIC: 113110 Timber Tract Operations; 113210 Forest Nurseries and Gathering of Forest Products; 113310 Logging; 322121 Paper (Except Newsprint) Mills; 322130 Paperboard Mills; 322211 Corrugated and Solid Fiber Box Manufacturing; 322212 Folding Paperboard Box Manufacturing; 322213 Setup Paperboard Box Manufacturing; 322224 Uncoated Paper and Multiwall Bag Manufacturing

Klabin S.A. is Brazil's largest manufacturer of pulp and paper products. A vertically organized enterprise, it harvests timber from its own forest tracts and sells lumber to a variety of customers, including the U.S. construction industry. Its timber (and the timber it purchases from others) also is converted in its own factories to cellulose (wood pulp), which is used in the company's plants for the production of packaging paper, paper sacks, and corrugated cardboard boxes. It concentrates on these products because, as a low-cost producer of wood and wood pulp, it specializes in paper grades where the raw material plays a major role in the final cost of the product. Its planted pine trees reach maturity for cutting in only 20 years, compared with 100 years in Europe.

Venerable Papermaking Pioneer: 1911–90

Maurício Klabin was one of the five surviving children of the 11 born to a Lithuanian Jewish couple. He emigrated to Brazil in 1889 and began to make and sell cigarettes in São Paulo. He was soon joined by members of his family who, with the Lafer relatives of his wife, took part in the incorporation of Klabin Irmaos & Cia. in 1899. Initially a firm that imported office stationery supplies, especially paper, it merged with a small factory that made paper from rags. When the Klabins and Lafers decided in 1909 to open a new factory to make paper from imported wood pulp, they organized Companhia Fabricadora de Papel S.A., with the family firm owning 44 percent and 25 shareholders holding the rest. The factory opened in 1911.

Companhia Fabricadora de Papel grew to be among the biggest paper producers in Brazil during the 1920s and attained first place in 1929. But the Klabin-Lafer clan had even bigger plans. The family firm became a holding company that, in the 1930s, developed a ceramics manufacturing company and took in a nitrogylcerine enterprise. In addition, in 1933, it purchased a huge tract of land near Monte Alegre in the state of Paraná both for its wood and for a future paper plant. The company founded Indústrias Klabin do Paraná S.A. for this purpose in 1934, with nine shareholders, all family members.

The new company lacked the capital to proceed with its plans until World War II had cut off newsprint imports from Scandinavia and left Brazilian publishers at the mercy of U.S. and Canadian suppliers, who were able to command sharply higher prices. In an era when the only other mass media was radio, this was a matter of serious concern to President Getúlio Vargas, who ruled Brazil as a virtual dictator. He enabled the company to obtain, in 1941, the necessary government credits to purchase imported machinery for the plant and imported electrical equipment to harness the power from a waterfall on a tributary of the Paraná. The plant, which opened in 1947 at Telêmaco Borba, had the capacity to produce 40,000 metric tons of wood pulp a year, half the nation's needs, and 40,000 metric tons of newsprint, 80 percent of the nation's needs. The raw material came from the company's own nearly 1,000 square miles of land. Beginning in 1943, the native trees were interspersed with Araucaria, eucalyptus, and pine plantings.

The death of Wolff Klabin in 1957 left his son Israel, a grandnephew of the founder, as one of four family partners and unofficial president—in charge of the holding company's interests, including what was now Klabin do Paraná de Celulose S.A., South America's biggest paper producer. The family controlled an estimated 80 percent of Brazil's production of newsprint, corrugated and other paper-finishing plants, a rayon and nylon mill, two coffee plantations, a cattle ranch, and the ceramics factory, as well as indirect interests in industrial chemicals, acrylic fibers, land development, and appliances. A $30 million plant expansion, completed in 1963, more than doubled the Paraná plant's newsprint capacity to 135,000 tons. Three years later, the holding company obtained financing from international lending agencies for the construction of a $26 million pulp and paper mill at Lages, in the state of Santa Catarina. Israel Klabin remained president of the group until 1980, shortly after becoming mayor of Rio de Janeiro.

Acquisitions and Divestitures: 1990–2003

The Klabin group purchased other companies during the 1970s and ranked 47th in size among Brazilian enterprises in 1989. In 1990 the holding company had 17 factories, 19,000 employees, revenue of $900 million a year, and it accounted for annual production of one million metric tons of pulp and paper. That year it was renamed Indústrias Klabin de Papel e Celulose S.A. and, although described as a private holding company, was listed on the Borsa de Valores de São Paulo. Klabin Fabricadora de Papel e Celulose S.A. represented about two-thirds of the business. The two other companies were Papel e Celulose Catarinense S.A. (PCC) and Riocell S.A., a pulp and paper producer in Guaíba, Rio Grande do Sul, which was 68 percent owned by Kiv Participaçoes S.A., a holding company in which Klabin held a 52 percent controlling interest. The PCC and Riocell properties included some 217,000 acres of planted forest.

Between 1990 and early 1993 Klabin invested $260 million to expand and modernize its factories. In April 1993 it opened a new PCC unit, in Correia Pinto, Santa Catarina, to increase its production of tissues, toilet paper, and paper towels. A corrugated box plant opened later in the year in Jundiaí, near São Paulo. The group also was planning to invest $300 million to raise production at the Telêmaco Borba plant. In addition, it had purchased at auction in the previous year the Camaçari, Bahia, pulp mill that would become the production facility of Klabin Bacell S.A. and that would require another $200 million to convert to a soluble-pulp plant.

Klabin was producing, in 1993, liquid-packaging board, kraftliner, testliner, and corrugated boxes; newsprint, directory, and wood-containing printing papers; tissue and sanitary products; kraft paper and shipping sacks; and eucalyptus and fluffmarket pulps. Of $600 million in annual net sales, exports amounted to 39 percent. Interviewed for PPI/Pulp & Paper International by Amanda Marcus, Managing Director Alfredo Claudio Lobl called Klabin "still the lowest-cost producers of wood in the world." During the late 1990s Brazilian demand for packaging, folding board, and liquid packaging board grew by 15 percent a year. Klabin was the only company in Brazil making both the hardwood and softwood pulp used for these grades, and its biggest problem was to meet demand.

Josmar Verillo, who was president of Klabin from 1998 to 2002, presided over a restructuring of the enterprise that saw the number of its companies reduced from 30 to 17 and the dismissal of more than 2,600 employees. Priority was given to three areas: timber, packaging, and a third to be decided—either bleached cellulose or discarded paper. The existing companies were grouped into five sectors. During 1999–2000 Klabin acquired Laleka, a manufacturer of paper towels and hygienic paper; Bacraft, a producer of absorbent and sanitary papers; and Igaras, primarily a manufacturer of cardboard boxes.

By 2000, when all of its mills were producing at full capacity, Klabin had formed new strategic alliances with at least two companies. A joint venture with Kimberly-Clark Corp., KCK Tissue S.A., controlled much of this market in Brazil. A newsprint joint venture with Norske Skog do Brasil Ltda. was allowing Klabin to leave the newsprint sector of the paper business, which was described as no longer suitable except for the very largest of the world's paper companies. The arrangement involved the Norske Skog joint venture leasing a newsprint machine at Klabin's Monte Alegre for three years, after which Klabin converted the machine to produce more board instead. In 2003 Klabin sold its interest in the joint venture, Klabin Monte Alegre Com. Ind. Ltda., to the Norske Skog unit. Newsprint accounted for only 9 percent of Klabin's net revenues in 2000, compared with a combined 80 percent for pulp, packaging paper, tissue, and corrugated boxes.

Riocell, on the other hand, had been operating at a loss since 1996 because of falling prices for wood pulp, impelling Klabin to seek a buyer or a joint venture partner. The problem was that, although the price of its product had recovered, the facility's capacity needed to at least double in order to be economically viable, which would require significant investment. As preparation for a possible transaction, Klabin purchased the part of Riocell that it did not own in 2000 and renamed the company Klabin Riocell S.A. Then, at the end of 2001, as part of a corporate restructuring, Klabin merged itself into Riocell and renamed the company Klabin S.A. By this time it had raised Riocell's manufacturing capacity by 25 percent. In 2003 Klabin sold Riocell to a rival pulp and paper company, Aracruz Celulose S.A., for $610 million. Another problem subsidiary was Klabin Bacell, the soluble-pulp producer in a joint venture with an Austrian company that began operations in 1995. Klabin increased its share of the enterprise from 62 percent to 82 percent in 2000 and sold it in 2003. Also in 2003, Klabin sold its half-interest in KCK Tissue and Klabin Kimberly S.A.

Company Perspectives:

Celebrating 106 years, Klabin is proud to be a Brazilian enterprise that is known worldwide for its high quality products and its deep respect for Nature.

Of Klabin's acquisitions in this period, the most important was the 2000 purchase of Igaras, Brazil's second largest packaging company, for an arguably too pricey $510 million. This acquisition included a kraftliner mill in Santa Catarina, pine plantations near the mill, two facilities elsewhere that were processing recovered paper, and five box-making plants strategically located throughout Brazil. The latter raised Klabin's share of the Brazilian corrugated-board box market from 18 to 30 percent. With regard to packaging, it held 40 percent of the domestic market.

Klabin S.A. in 2004

Klabin emerged from these changes somewhat smaller in size but considerably lightened in debt and capable, in the judgment of its chief executive, Miguel Sampol Pou, of investing $1 billion over the next five years. Some $500 million was tentatively earmarked to double annual production of cartonboard at Monte Alegre. Much of this material would be used for packaging liquids such as fruit juices and bulk wine and, along with carrier board and folding boxboard, offered superior profit margins. A company kraftliner mill at Angaratuba, São Paulo, was being converted to cartonboard production. Both these products contained eucalyptus fiber, good for rigidity and also providing a very good surface for printing.

Sampol Pou's plans for Klabin called for annual growth of more than 10 percent through 2009, when its revenues would be 75 percent higher than in 2003. The increase in paper and board production would call for more wood pulp, and hence, timber. Of the company's 353,000 hectares (872,000 acres) of forest, some 230,000 hectares (568,000 acres) adjacent to the Monte Alegre facility continued to be a mosaic of stands of eucalyptus and loboly pine interspersed within large tracts of virgin native forest, a practice that kept pests at bay, in large part by providing haven to their natural predators. As a rule, logs of less than 20 centimeters (about eight inches) in diameter were going directly to the mill, whereas the larger ones went to sawmills. Small private landowners also were providing the company with timber.

Klabin's production of paper products came to 1.34 million metric tons in 2004, of which exports accounted for 41 percent (excluding wood). Wood sales came to 3.3 million metric tons. Cellulose production of 1.2 million metric tons meant that Klabin was still the second largest pulp producer in Brazil despite its disposal of Riocell. This was now for internal consumption only, however, as the prime raw material for its paper products. The company also was Brazil's largest consumer of recovered fiber. Of Klabin's consolidated net sales of BRL 2.73 billion ($931.74 million), wood sales accounted for 11 percent and exports for 30 percent. The company's net debt (of which 75 percent was long-term) was BRL 498 million ($169.97 million), far below the level of the late 1990s.

Principal Subsidiaries

Antas Serviços Florestais S/C Ltda.; IKAPÉ Emprendimentos Ltda.; Klabin Argentina S.A.; Klabin do Paraná Productos Florestais; Klapart Participaçoes Ltda.

Principal Operating Units

Corrugated Boxes; Forestry; Industrial Sacks; Papers and Cardboards.

Principal Competitors

Aracruz Celulose S.A.; Cia. Suzano de Papel e Celulose; Votorantim Celulose e Papel S.A.

Key Dates:

1899:: Importing family firm Klabin Irmaos & Cia. is incorporated.
1909:: A company is incorporated to make paper from imported wood pulp.
1911:: This company opens a factory in the São Paulo metropolitan area.
1929:: Companhia Fabricadora de Papel S.A. is the largest paper manufacturer in Brazil.
1933:: The Klabin holding company buys a huge forested tract in the state of Paraná.
1947:: A papermaking pulp and paper mill opens on this site.
1966:: Financing is secured for a second pulp and paper mill, in the state of Santa Catarina.
1990:: The Klabin holding company owns 17 factories and has 19,000 employees.
1992:: The company purchases the pulp plant that is to be directed by Klabin Bacell S.A.
2000:: Klabin purchases Igaras, Brazil's second largest producer of packaging paper.
2002:: A four-year restructuring has reduced the number of subsidiary companies from 30 to 17.
2003:: Klabin sells newsprint, cellulose, and tissues manufacturing facilities.