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Klabin CEO Schvartsman talks exclusively to PPI about the company's success

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Klabin CEO Schvartsman talks exclusively to PPI about the company's success

September 23, 2013 - 07:30

Fabio Schvartsman, chief executive officer of Klabin

BRUSSELS, BELGIUM, Sept. 19, 2013 (PPI Magazine) - Fabio Schvartsman, chief executive officer of Klabin, has been named the 2013 Latin American CEO of the Year by RISI for the second consecutive year. The award was scheduled to be presented to Schvartsman at the Eighth Annual RISI Latin American Pulp and Paper Outlook Conference on August 6 in São Paulo, Brazil.

Under Schvartsman's leadership, Klabin, Brazil's largest paper producer, has continued to consistently outperform competitors and has significantly improved its financial position over the recent past. The award, presented to outstanding leaders in the pulp and paper industry, is selected based on a survey to a group of investment analysts and portfolio managers who cover the forest products industry, using criteria that include leadership, vision and strategic accomplishment.

Analysts nominated Schvartsman once again this year because of the company's consistent financial performance, with one saying: "I think he deserves the premium because of his in-house cost-cutting program, realistic approach toward new expansion projects and commercial strategy."

Congratulations in being named Latin American CEO of the Year for the second consecutive year. Why do you think you have earned this honor again?

Schvartsman: I believe this recognition is due to the fact that 2012 was the best year in the history of Klabin, a result of the combination of cost reduction, increased efficiency of the manufacturing plants and improved mix of products and markets.

We ended the year with net sales of R $4.2 billion, a 7% increase over 2011. This growth was due to, among other factors, the increased share of the internal market, which represented 69% of total sales in 2012, against 66% the previous year.

The consolidation of our cost control process in all areas was also crucial to this result. Our cash cost per unit was R $1,607 per ton, representing a nominal increase of only 1% year over year, in an economic scenario where inflation hit almost 6%.

These actions, aligned with the high return investments we made, led us to a new record in cash generation, with EBITDA of R $ 1.4 billion.

Last year, we asked about plans for the two new paper machines and the new pulp mill. At the time, only the sack kraft machine at Correia Pinto had been officially approved? How is this work coming along? What is the status of the Puma pulp mill project and the recycled paper machine?

The three projects have been officially approved. The new sack kraft machine, in Correia Pinto Plant (SC), is in line with the budget and schedule; the construction works have been completed and the equipment is being installed. The machine, which will have a production capacity of 80,000 tons/yr, is scheduled to start operations in December 2013.

We also started works for installation of the new recycled machine in Goiana Plant (PE). Expected to start up in mid-2014, the machine production capacity will be 110,000 tons/yr, to be used to make corrugated board in the same plant. In addition, as early as in August this year, we are inaugurating the expansion works in the industrial sacks and corrugated board plant in Goiana. Its production capacity will be expanded to 14 million sacks a month and 146,000 tons/yr of corrugated packaging.

And in June this year, we announced the Board of Directors' approval of the Puma Project, which involves the construction of a new plant in the municipality of Ortigueira (PR) for pulp production with an annual production capacity of 1.5 million tons of pulp from short and long fibers and fluff pulp. The Puma Project will be the largest investment in Klabin's history and the largest ever undertaken by a private company in Parana.

What were the most significant challenges for Klabin in 2012?

In 2012, there was an expected upturn in the world economy, which was not confirmed during the year. The effects of the crisis weakened many segments in Europe and Chinese growth was lower than expected.

In Brazil, GDP was lower than in 2011 and industrial production fell by 2.7% compared with the previous year. Given this scenario, our strategy of controlling costs, increasing efficiency of factories and improved mix of products and markets proved to be correct, which led us to have a positive performance regardless of the economic situation.

Brazil has announced plans to dramatically improve its infrastructure (for example, transport system). How will this affect Klabin? Is this something you feel was long needed and look forward to?

Investments in infrastructure are always welcome for the entire industry. In the case of Klabin, considering the increase in production capacity with the start of the pulp project, the expansion of the available logistics network becomes a fundamental point. So this year we have signed a memorandum of understanding with the Government of the State of Paraná, signing an agreement between the two parties for public investment in regional infrastructure. Among the works to be carried out are improvement and paving of roads, construction of a new road on the right bank of the Tibagy river as well as installation of a railroad, a port terminal at the Port of Paranagua and power transmission lines.

At the time of your appointment, you spoke of three cornerstones: increasing performance; defining and implementing a strategic plan; and, focusing of continuing improvement of corporate governance. You addressed these points in last year's interview. Are these still of significance to Klabin? Have you added other priorities? If so, what?

Yes, these points remain a priority, but we can say we have surprised the market both in relation to the improvement of our financial performance and in the definition of a growth strategy. As I said earlier, in 2012, the company performed better thanks to a combination of cost reduction, increased efficiency of factories and improved mix of products and markets.

On strategic planning, there are a number of planned investments, as mentioned before, but the highlight is undoubtedly the Puma Project, which will allow the production of short and long fiber pulp and fluff pulp. Short and long fiber pulp will mainly meet international markets demands. Fluff pulp is mainly designed to meet the national market needs for the product, currently imported for producing diapers and absorbent papers. The proposed product mix allows operations to meet the demands of the market with a focus on consumer products, providing lower volatility, generation of more stable cash flow and sale of products with higher margins.

Regarding governance, the issue can be addressed together with funding for the Puma Project. Klabin's controlling shareholders have presented a proposal for the company to adhere to Corporate Governance Level 2 of BM&FBOVESPA, to be submitted for approval by other shareholders.

How have the markets for liquid packaging board evolved?

Demand for LPB follows on the rise in Brazil, including with the arrival of a new player, SIG Combibloc. We expect this segment to grow around 7% in 2013 compared with last year. Klabin has the most modern board production plant for LPB in the world, it is the only supplier in the industry in South America and it has been Tetra Pak supplier for 30 years in Latin America.

Looking ahead to the rest of 2013 and 2014, what are Klabin's objectives?

Klabin's main objective for the coming years is to grow. The company took 114 years to reach its current size, but it has reached a limit level, where the demand for our products exceeds our production capacity. So, we will build a new pulp mill, which will be the largest investment in the history of the company and which will lead Klabin to nearly double its size in five years. PPI