PERFORMANCE

Competitiveness
and results

GRI 103-1, 103-2, 103-3

The year 2019 was marked by the optimization of the Klabin’s assets, with an increase in the industrial utilization rate and dilution of operating costs. Once again, the Company managed to overcome the challenges of an adverse economic scenario through its flexibility and operational efficiency and its diversified product portfolio. We also started a new investment cycle in 2019, with the approval of the Puma II Project.

Klabin’s economic goals are strictly linked to the generation of long-term value for its shareholders. Return on Invested Capital (ROIC) is one of the main indicators that guide decision making in the economic field. The Company’s economic performance is constantly assessed by top management, with a breakdown into goals and variable compensation for the Executive Board.

Acquisition of International Paper’s operations in Brazil

 

On March 29, 2020, Klabin announced the purchase of International Paper (IP)’s packaging paper and corrugated cardboard packaging businesses in Brazil. The acquisition, effected after a long negotiation period, reinforces the Company’s belief in the Brazilian market and confirms its long-term strategic vision.

The operation, totaling BRL 330 million, will increase our installed capacity of corrugated cardboard packaging to over 1 million tons per year. The investment also includes the purchase of three packaging paper units (virgin and recycled fibers), with total capacity of 310,000 tons per year With the deal, the company will operate in Brazil’s five regions, as one of the acquired plants is located in Rio Verde (GO). The other assets are in São Paulo and Amazonas By the closing of this report, the transaction was under assessment for approval by the Brazilian Administrative Council for Economic Defense (Cade).

Summary of the economic scenario

 

BOTH ABROAD AND IN BRAZIL, TWO DIFFERENT ECONOMIC SCENARIOS PERVADED THE YEAE 2019.

The period up to September was marked by unclear contingencies raised by the trade war between the United States and China, and by the slower-than-expected growth of the Brazilian economy. Such scenario resulted in a price drop of pulp and packaging papers, a lower demand in certain regions and an increase in pulp inventories in ports, mainly in China and Europe.

In Brazil, uncertainties regarding the approval of the pension reform also slowed economic activity until mid-year, with cautious, below-expected results. The shipment of corrugated board boxes1, for example, posted a modest growth of 0.6% up to September against the same period in 2018. A expedição de caixas de papelão ondulado1, por exemplo, apresentou um modesto crescimento de 0,6% até setembro, em comparação com o mesmo período de 2018.

By the fourth quarter, however, expectations reversed both for the international pulp market and the Brazilian economic activity. Abroad, the slowdown of the trade war and consequent demand recovery from China, the drop on global pulp inventories and unscheduled production shutdowns, generated greater optimism and the first announcements of price increases, mainly in the softwood pulp market.

In the domestic market, the passing of the pension reform and structurally lower interest rates and inflation apparently boosted confidence, directly impacting the paper and packaging market.

Expansion in the shipment of corrugated

from 0.6% in September to 1.6% by the end of 20191.

increase

3.5%

in the shipment of cement in 20192, putting and end to a four-year shrinking of the >-> Positive impacts in the industrial bags sector.

Board and pulp sales volumes:

up 12% and 6%, respectively.

growth

7%

growth in the adjusted EBITDA.


1Data from the Associação Brasileira do Papelão Ondulado (ABPO) [Brazilian Association of Corrugated Cardboard]
2Data from the Sindicato Nacional da Indústria do Cimento -SNIC [National Union of the Cement Industry]

Klabin’s main results

GRI 102-7, 201-1

Sales volume: 3,327 million tons, 4% growth compared to 2018, notably the 12% and 6% increases in the board and pulp markets, respectively.

Announcement of the Puma II Project in April: with estimated gross investment of BRL 9,1 billion, it includes the construction of two paper packaging machines with a total capacity of 920,000 tons per year.

Extension of Klabin’s average debt term from 48 to 96 months, under the same financial cost levels.

Adjusted EBITDA of BRL 4,322 billion, an increase of 7% compared to 2018.

Main financial results (in BRL millions)1

2017 2018 2019
2019/2018
Sales volume (K tons) 3,320 3,189 3,327 4%
Domestic market 1,564 1,589 1,769 11%
Export 1,656 1,601 1,558 -3%
% Domestic market 49% 50% 53% + 3 p.p.
Net revenue (in BRL millions) 8,373 10,016 10,272 3%
Domestic market 5,020 5,534 6,114 10%
Export 3,353 4,483 4,158 -7%
% Domestic market 60% 55% 60% + 5 p.p
Change in fair value of biological assets 790 628 390 -38%
Cost of goods sold -6,427 -6,342 -7,241 14%
Gross profit 2,736 4,302 3,421 -20%
Sales -657 -764 -910 19%
General & administrative -528 -558 -601 8%
Other operating income (expenses) -12 -2 610 Net profit
Total operating expenses -1,197 -1,325 -902 -32%
Adjusted EBITDA 2,738 4,024 4,322 7%
EBITDA Margin 33% 40% 42% + 2 p.p
Net profit 532 137 676 392%
Net indebtedness 11,278 12,399 14,355 16%
Net indebtedness/EBITDA 4.1x 3.1x 3.3x + 0.2x

1Some figures may not express an accurate result due to rounding.

 

Distribution of economic value generated

GRI 201-1

Direct economic value generated (in BRL millions) 2016 2017 2018 2019
Gross revenues 8,204 9,727 11,516 11,886
Distributed economic value
Shareholders (equity remuneration – income) 448 507 840 957
Employees (remuneration, benefits and charges for employees) 1,250 1,373 1,419 1,451
Government (taxes, fees and contributions) 1,378 1,032 391 884
Remuneration of third-party capital (interest and rent) -1,099 1,548 3,704 3,003
Retained direct economic value (in BRL millions)
Retained direct economic value 2,034 25 -604 -204

Note: Information on environmental and social investments is available in the Environment and Local Development chapters, respectively.

Debt management

 

Important debt management work carried out in 2019 enabled a reduction on the portion of Klabin’s short-term debt from 11% at the end of 2018 to 5% at the end of 2019, increasing the average debt term from 48 to 96 months, with costs kept at the same level.

The work also improved the debt profile, with a consequent increase in the share of debts via the capital market, in addition to improving the Company’s liquidity horizon by significantly reducing the average amortization for the period of higher disbursements in the Puma II Project. Thus, average amortization between the 2020 and 2022 dropped from BRL 2.5 billion/year by the end of 2018 to less than BRL 1 billion/year in December 2019.

Business performance

 

Forestry

Klabin handled approximately 15 million tons of logs and chips of pine and eucalyptus and waste for energy.

Third-party log sales of 1,7 million tons (saw mills and rolling mills), a reduction of 19% compared to 2018, due to the focus on the availability of wood to supply an increased domestic consumption of the pulp and paper operations. Net revenue of BRL 250 million.

 

Pulp

Higher production volume, due to the positive operational performance of the pulp unit.

Price reduction, due to increases in global inventories: according to FOEX, average costs dropped 25% for bleached hardwood pulp and 28% for bleached softwood pulp, both delivered in China, in the year.

1,542 million tons produced: 3% above the nominal capacity of the Puma Unit and 7% above 2018’s production.

6% increase in total sales volume compared to the previous period.

Net sales of BRL 3,49 billion, down 5% compared to 2018, as a result of falling prices in international markets, partly mitigated by a better sales mix and the devaluation of the Brazilian real against the US dollar.

 

Papers

Following the drop in Kraftliner prices, taking advantage of its ability to integrate vertically into packaging, Klabin reduced export volumes and put a greater focus on supplying the local market and converting into packaging.

Kraftliner sales volume: 389,000 tons, a 9% drop in exports and a 29% increase in local market sales.

Volume recovery in the board market in 2019 compared to 2018’s drop: 12% shipment growth for coated boards.

Among the growth drivers, the highlights are the expansion of the geographical footprint and the strong growth in new innovation-related markets.

 

Packaging

Shipment of corrugated cardboard packaging and industrial bags recorded a 7% net revenue growth over 2018.

766,000 tons sold, with a BRL 3 billion net revenue.

Within a scenario of falling Kraftliner prices, operational flexibility in increasing vertical integration with own papers played a fundamental role to support the resilience of the Company’s results.

Learn more on Klabin’s financial and operating results at the Investor Relations website.

New paths

A milestone for the Pulp Business Unit in 2019 was the anticipated termination of the supply agreement with Fibria, following an evaluation of the market and strategic benefits of trading hardwood pulp.

The process took place in a gradual and planned manner, with the migration of volumes starting in April. We took on full responsibility for the trading as of August.

We have an adequate commercial structure, as well as proper logistics and expertise in the distribution of a wide range of products and, with that move, took a step forward to establish ourselves as an independent and competitive supplier in the international market of BEKP (Bleached Eucalyptus Kraft Pulp), foreseeing even better profitability, price and term conditions regarding sales of the product.

Investments

 

Of the BRL 2,574 million invested by Klabin in 2019, the amount earmarked for forestry operations and the operational continuity of the plants represents investments aimed at the Company’s operational maintenance. Investments in special projects and expansions represent high and fast return projects.

Of the total estimated gross investment of BRL 9.1 billion for the Puma II Project, Klabin disbursed BRL 1.3 billion in 2019. By the end of 2019, the works were slightly ahead of schedule, with about 20% of the first phase already completed. Learn more about the Puma II Project in Business Expansion.

16%

advance in Klabin Units (KLBN11), compared to the 32% increase in the Bovespa Index.

Units traded

in all B3 trading sessions.

Approximately

3 million transactions made

over 1,014 million securities traded and an average daily trading volume of BRL 68,1 million.

Fixed income market:

Four issuances of active debt securities, maturing in 2024, 2027, 2029 and 2049, all with a nominal issue value of USD 500 million (those maturing in 2027 and 2049 are green bonds).

Green bonds:

resources necessarily intended for use in eligible projects.

Additional funding of USD 200 million:
US$ 200 milhões:

in January 2020, the green bond was reopened, maturing in 2049, with an additional funding of USD 200 million and yield of 6.10% per year Learn more about green bondsin in Business expansion.

Closer communication

Following the growing increase of small stock market investors, Klabin’s investor base also registered a significant expansion of such profile in 2019. . Such movement reinforces the confidence placed by capital market and investors in the Company as it strives to provide this public with relevant information, particularly with regard to ESG (Environment, Society and Governance) indicators.

Click here to learn more about the disclosure of the use of green bond funds em 2019.