Perini Journal recently visited CMPC Tissue to talk about the company, the markets in which it is operating, the growth in recent years and the outlook for the future.
Hugh O’Brian
In a systematic manner, CMPC Tissue has grown over the past decades to become one of South America’s most important tissue suppliers. Starting with a small tissue operation at Puente Alto, Chile, just south of Santiago, in the 1950s, CMPC Tissue has developed to become a leading player on the South American tissue market. With production plants in four countries, the group now has a total tissue capacity of around 250,000 tons per year.
Like quite a few other tissue companies around the world, CMPC Tissue is part of a larger forest products group. Its parent company, CMPC (standing for Compañia Manufacturera de Papeles y Cartones), was started in 1920 and is today an immense two-billion dollar company with operations in the forestry, wood products, pulp, paper, board and tissue businesses. While it is a large group, CMPC has generally maintained a low profile while growing into a big company.
One example of its bigness is the Santa Fe market pulp mill on the coast of Chile, which is part of the CMPC Celulosa subsidiary.
The mill is currently expanding through installation of a massive new 780,000 ton per year bleached eucalyptus market pulp line which will increase the Santa Fe capacity to over 1.2 million tons per year. The new line involves a giant investment of USD 750 million and is planned to come on stream in September 2006. Santa Fe, Laja and Pacifico are among CMPC’s trade names for market pulp. In fact, market pulp is one of Chile’s largest exports, although copper is by far the most important export coming from the country.
CMPC has its headquarters in Santiago, Chile. A very long and extremely thin nation on South America’s south west edge, Chile runs about 4,200 km from top to bottom, but is only about 200 km wide on average. Thus it resembles a pencil, wedged between the impressive Andes Mountains to the east and the Pacific Ocean to the west.
STRONG TISSUE MARKET SHARES IN SOUTH AMERICA. In the tissue business, CMPC operates through its subsidiary CMPC Tissue, which is now producing tissue in four countries in South America, namely Chile, Argentina, Uruguay and Peru. In addition, CMPC Tissue has export sales to other markets in South America. CMPC is clearly important in the southern and western countries of South America, holding about 70% market share in Chile and Uruguay, around 50% in Argentina and 40% in Peru.
The company makes a wide variety of products to serve the various needs of the markets, from high-quality virgin-fiber based tissue and towel, through to the lower-priced, value sector which is very important for the low-income segment of the population.
Brands also play a key role in CMPC Tissue’s business. Eduardo Serrano, General Manager of CMPC Tissue Chile, explains the importance of brands on the Chilean market. “Brands are our main weapon in the fight for market share. We have extremely high brand loyalty among consumers. Brands dominate the market here, with about 90% of tissue products sold under brand names and only 10% under private label. Thus our well-established brands like Confort and Elite are extremely valuable to us and make it hard for the competition to take market share from us.”
In fact, explains Serrano, Confort is a synonym for toilet paper in Chile much like Kleenex is for facial tissue in many countries.
Thus consumers interchange the two terms which of course is an indication of the strength of the brand.
BIG GROWTH SPURT SINCE 1995. Overall CMPC Tissue is operating nine tissue machines. A major part of its growth has come in the last ten years, during the period from 1995 to 2005 when the company added six new paper machines. These new PMs include two machines at the greenfield Talagante mill in Chile; two at the greenfield Zarate mill in Argentina; and two at the Lima, Peru, mill.
One of the people who has been closely involved in CMPC Tissue’s growth over the years is Carlos Hirigoyen, who is presently Director of Industrial Development. Trained as a mechanical engineer, Hirigoyen joined CMPC in 1978 and has spent essentially all of his career with the company. He has been involved in several of the company’s new greenfield tissue mills, as well as working on the move into new markets such as diapers and feminine hygiene products, which have turned out to be very good businesses for CMPC.
Hirigoyen served as our host as we visited two of the CMPC plants, the Puente Alto and Talagante mills in Chile. Both are located quite close to the capital city of Santiago, a city with a metropolitan population of almost six million people.
The Talagante mill is an impressive operation. Built on a greenfield site south of Santiago in 1995, when the Puente Alto mill was clearly too small to accommodate further growth, Talagante today has two tissue machines. The most recent is a Voith unit that started up in September 2005, joining the Beloit machine that was installed in 1995 when the mill was built. Hirigoyen explains the rationale and method that was used to choose the Talagante site.
“We had simply outgrown the Puente Alto site where we started tissue making in the 1950s and in fact where CMPC as a company started its first paper making operations in 1920. The site was too tight to put any more paper machines there. So we decided to look for possible greenfield sites near Santiago which offered a good location from a logistics viewpoint, nearness to a water source and plenty of room for future growth. We looked at numerous sites but then settled on Talagante, which has proven to be a very good location for us.”
An interesting feature of the Talagante site is the fact that is consists of a series of modern looking buildings, each designed for one unit operation. Thus there is a separate building for each of the major functions, such as papermaking, roll product converting and wrapping, folded product converting and wrapping, palletizing, finished product, etc. To give a little more pleasing and aesthetic appearance to the mill site, each of the buildings is painted with a distinctive yellow color.
SISTER MILLS. The Talagante mill in Chile and the Zarate mill in Argentina are essentially copies of each other. “In the early 1990s,” continues Hirigoyen, “we decided to build new capacity in both Chile and Argentina. It therefore made more sense to use the same design and layout for each mill. Each one was started up in 1995 and today they are still very similar, although Zarate has more papermaking capacity since it has one double size (5.4 m) machine.”
The company initially got into Argentina in 1991 with a baby diaper and feminine protection operation which later was integrated into a joint venture with Procter & Gamble in Chile and Argentina. The JV company was called ProSan and later on CMPC sold its 50% share to its partner. At that time, CMPC took the decision to enter the tissue sector in Argentina as well, so in 1993 planning began for the Zarate greenfield tissue mill near Buenos Aires, with PM 1 starting in 1995 and the second one in 1999.
“Argentina was a huge opportunity for us,” says Hirigoyen. “With a high average income, and low per capita tissue consumption, we figured that the market was ready for increased consumption.”
As it turns out per capita consumption more than doubled in Argentina over the period from 1993 to 2005, going from about 1.5 kg to more than 4 kg. Unfortunately in recent years the economic crisis in Argentina has affected that growth rate and the business.
Logistics also plays a particularly important role in Chile with its unique geography offering numerous challenges to the supply chain. CMPC Tissue recently made some major changes to its warehousing operations in Chile, essentially getting rid of the previous central warehouse near the Santiago airport which handled product from both mills in Chile and instead building dedicated warehouses at each mill.
TAKING RESPONSIBILITY. As one of Chile’s largest companies, CMPC also has a long tradition of corporate social responsibility. In fact, in the company’s Annual Report, a chapter at the beginning of the Report is dedicated to this topic, covering CMPC’s position and progress with respect to workers, the community, and the environment. By taking all of these issues very seriously, says Hirigoyen, “CMPC is generally recognized as one of the most respected companies in Chile. The company truly places a lot of importance on issues such as being socially conscious, having good relations with the community, sustainable development, and safety and security for the employees.”
One simple but clear example of this that occurred during our visit was the seriousness with which the company trains its people on safety issues. As we toured both the Puente Alto and Talagante plants, we were reminded continuously as we walked through the mills of the various safety rules and guidelines. Not that we were breaking any (of course!), but at least four times during the visits, operators approached us to remind us to make sure to walk in the designated areas and have the proper safety equipment before entering the operations buildings.
ROOM TO GROW. As far as the future, CMPC Tissue seems to be taking a ‘slowly but surely’ approach to its growth plans. As Hirigoyen points out, the chairman of the CMPC Group, Eliodoro Matte, has declared in the past that the company’s intention is clearly to grow the tissue business. There is no hurry but the intention is there.
“As our core business has always been based on forests and trees,” says Hirigoyen, “the company owners are used to taking a long-term outlook. We have grown the tissue and hygiene products businesses at a nice pace over the past few decades and we are certainly intending to keep moving that way, but only through solid and real opportunities.”
As the markets that CMPC Tissue serves represent less than 50% of the South American tissue consumption, it only seems logical that other countries will be on the CMPC radar screen for possible growth and business development. In addition, while CMPC Tissue is very big in consumer tissue, as the Latin America economies develop, the away-from-home (AFH) sector could be a good area for future growth as well. Exactly how, where and when CMPC Tissue will take its next growth step is certainly not being divulged by the company at this time but you can bet that it is not a question of if, but when, it will happen.
LATEST BREAKING NEWS . . . as this issue went to press CMPC announced that it had signed an agreement to purchase a majority and controlling share of Absormex, of Mexico. Absormex is a company based in the city of Monterrey where it converts baby diapers and toilet paper. It also owns a tissue mill in the city of Altamira, close to Tampico, and the group's annual sales are around USD 50 million. •