Kimberly-Clark de México, S.A. de C.V.

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Kimberly-Clark de México, S.A. de C.V.

José Luis Lagrange 103
Mexico, D.F. 11510
Mexico
Telephone: (52) (55) 5282-7300
Fax: (52) (55) 5282-7382
Website: http://www.kcm.com.mx

Public Company
Incorporated: 1925 as Compania Papelera La Aurora, S.A.
Employees: 7,664
Sales: 15.63 billion pesos (2001)
Stock Exchanges: Mexico City OTC (ADRs)
Ticker Symbol: KIMBER A and B (Mexico City); KCDMY (OTC)
NAIC: 322110 Pulp Mills; 322121 Paper Mills; 322232 Stationery, Tablet & Related Product Manufacturing; 322291 Sanitary Paper Product Manufacturing

Kimberly-Clark de México, S.A. de C.V. (KCM) is the largest manufacturer and seller of consumer and industrial paper products in Mexico. Principal products include feminine care products, paper towels, paper napkins, toilet paper, disposable diapers, and bond, typing, and other types of office paper, tablets, and notebooks. Among its brand names are Kotex, Kleenex, and Huggies. Kimberly-Clark de México is 48 percent owned by Dallas-based Kimberly-Clark Corporation. It is habitually ranked as one of the best-run companies in Mexico.

The First 35 Years: 1955-90

Kimberly-Clark de México got its start in 1955, when parent Kimberly-Clark purchased 90 percent of the outstanding shares of its predecessor, Compania Papelera La Aurora, S.A., which had been established in 1925 and owned a newly constructed paper mill at Nacaulpan, on the outskirts of Mexico City, for production of business and school papers and consumer tissue products. Kimberly-Clark purchased the remaining 10 percent of La Aurora’s stock in 1959 and incorporated the subsidiary as Kimberly-Clark de México (KCM), which became a public company in 1961. The parent company reduced its stake to 60 percent in 1962 as part of a government-prodded program of Mexicanization that included the sale of a considerable stake to Nacional Financiera, S.A. (Nafinsa), the federal government’s investment bank. This holding dropped to 43 percent in 1973 through further sales to Mexican investors. (Nafinsa owned 28 percent of the stock in 1994.)

The parent company continued to provide Kimberly-Clark de México with brand names and technologies. KCM made its first sale of Scribe notebooks in 1963. In 1967 KCM announced plans to establish a pulp and paper manufacturing facility at Orizaba in the state of Veracruz. When completed the following year it was the parent company’s largest facility in Latin America and the first to utilize sugarcane byproducts—known as bagasse—for pulp. One of Orizaba’s attractions was its plentiful water supply, provided by many large springs emanating from limestone outcrops. Expansion of the Nacaulpan mill was considered impossible because of the severe water shortages in the Mexico City metropolitan area.

By 1970 Kimberly-Clark de México was the largest paper company in Mexico in terms of sales volume. Annual tonnage capacity was 90,000 metric tons of paper, with actual production about 60,000 tons. The company began selling Kleen-Bebe disposable diapers in 1974. Its sales surpassed $100 million for the first time in 1975. By 1977 Kimberly-Clark de México was operating a third plant, for consumer and service products, at Tlalnepantla, near Mexico City. This facility (which closed by 1993) was supplemented in 1981 by a new one at Cuautitlán, also near Mexico City. During the same year KCM opened a pulp and paper mill at San Juan del Río, Querétaro. The company’s net sales came to 8.41 billion pesos ($367.25 million) and its net income to 1.3 billion pesos ($56.77 million) in 1980.

Beginning around 1975 Kimberly-Clark de México targeted the institutional market. Near the end of the 1980s it established a division for this purpose named Servicios e Industriales (Ser-vin). By 1990 Servin was offering its clients a complete line of hygienic papers, napkins, facial tissues, hand towels, and polyvinyl films. Meanwhile KCM’s line of Scribe educational products maintained its position as leader in this field. During 1990 the company introduced an extension of the Scribe line for use in offices. KCM made its first export sale in 1983 and its first sale of away-from-home products in 1988. Its annual sales volume surpassed $500 million for the first time in 1987, with export sales reaching as high as $80 million to $90 million. The United States was its principal export market, and the company’s products were competitive because of efficient production and rapid inventory turnover.

Kimberly-Clark de México in the 1990s

In 1993 Kimberly-Clark de México opened a plant for tissue products and diapers in Ramos Arizpe, Coahuila. Only two hours’ drive from Mexico, the mill was intended not only to serve northern Mexico but to compete against imports there from the southern United States. To provide the large quantities of high-quality water it needed, Kimberly-Clark tapped water from a well 240 meters (almost 800 feet) deep, constructing a special-treatment plant to remove the high sulphur content. It made its first sale of Huggies disposable diapers in that year. With net sales of 3.22 billion pesos, the company passed the $1 billion mark for the first time in 1993. Its net income came to 532 million pesos ($171 million) that year, and it had 6,231 employees. KCM also began selling American depositary receipts (ADRs)—the equivalent of shares—in the United States in 1993. By now growing demand for its paper products in Mexico had reduced the company’s export sales volume to only about $10 million a year, even though Mexico’s per-capita use of paper products was only one-tenth ofthat in the United States. KCM’s production now came to 350,000 metric tons a year.

When Kimberly-Clark de México placed $150 million of long-term debt with institutional investors in late 1992, the loan was the first unsecured debt offering from Latin America to receive an investment-grade credit rating. Indeed, the company’s credit rating was higher than that of the Mexican government. KCM enjoyed an excellent reputation for strong management. It was praised for low-cost, efficient manufacturing; an excellent distribution network; aggressive product innovation; and an effective quality-improvement program. Its executives—all Mexicans—were in constant contact with their counterparts in the United States but were allowed to make their own decisions, governed by on-the-spot knowledge of the Mexican consumer. In 1991 alone, for example, the company issued 17 new products, including gender-specific diapers in five age-related segments, a new kitchen towel, three new sanitary products offerings, two new larger-sized and colored paper napkins, new notebooks, and a new format for presenting toilet tissue. KCM was ranked fifth in a 1993 poll of Latin America’s best-run companies. According to a 1994 brokerage report, the company held 50 percent of the market for hygienic papers, 66 percent for napkins, 90 percent for notebooks, and the entire Mexican market for cigarette papers.

Kimberly-Clark de México had total installed capacity in 1992 of some 125,000 metric tons a year of bagasse pulp, nearly half of KCM’s pulp needs; most of the rest was being purchased on the open market. Its capacity for printing and writing papers came to 188,000 tons, that of consumer products, to 184,000 tons, and cigarette papers to 54,000 tons. The Nacaulpan mill was producing printing and writing papers, napkins, feminine hygiene products, disposable diapers, cigarette papers, and facial tissues. The Orizaba mill, besides providing bagasse pulp, was producing printing, writing, and coated papers, toilet and facial tissue, napkins, kitchen towels, and notebooks. The San Juan del Rio plant was producing printing and writing papers, toilet tissue, napkins, notebooks, and recycled, de-inked pulp. The Cuautitlan mill was producing disposable diapers and feminine hygiene products. Ramos Arizpe was making disposable diapers, kitchen towels, paper napkins, and toilet tissue. Consumer products accounted for 80 percent of sales, with the industrial and office markets making up the other 20 percent.

Kimberly-Clark de México announced in 1994 that it would double capacity at the new Ramos Arizpe plant, increasing this capacity by 60,000 tons and adding feminine care products. The company, in 1995, opened a new plant for the production of disposable diapers in Tlaxcala, capital of the state of Tlaxcala. Company sales and income continued to be strong despite the 1994 peso crisis that plunged Mexico into deep recession; in 1995 KCM contributed $46 million to the parent company’s net income, the same as in 1994. Sixty percent of distribution from KCM’s manufacturing plants was being handled by the company’s own customers. This enabled it to devote financial resources to purposes such as improvements in technology and production rather than to expanding its distribution network.

In 1996 Kimberly-Clark Corp. acquired Scott Paper Co. This takeover paved the way for Kimberly-Clark de México to acquire its chief competitor, Compania Industrial de San Cristobal, S.A. de C.V. (Crisoba), an affiliate of Scott, for $1.4 billion. After the merger was approved by a Mexican government agency, KCM held at least half of the nation’s paper products market, including an estimated 79 percent of paper towels, 65 percent of paper napkins, and 56 percent of bathroom tissue. Crisoba was ordered by the Mexican government, however, to sell its subsidiaries that manufactured feminine pads (dropping KCM’s share of this market to 58 percent), sell a line of bathroom tissue holding 20 percent of the national market, and suspend for five years a line of napkins. Crisoba also was required to divest its rights to Baby Fresh wet wipes and to license its Scotties brand of facial tissue, which was estimated to hold about 28 percent of the Mexican market.

Company Perspectives:

The performance and quality of our products, coupled with a constant stride towards innovation and access to Kimberly-Clark Corporation’s technological know-how, allow KCM to hold leading market positions in all product categories.

The fusion with Crisoba resulted in the incorporation into Kimberly-Clark de México of four plants. Ectapec, in the Mexico City metropolitan area was focused on the manufacture of tissue paper and the conversion of hygienic paper, napkins, and facial tissues. San Rafael, also in metropolitan Mexico City, concentrated on the manufacture and finish of writing papers. The plant in Morella, Michoacan, focused on the production of wood cellulose, the manufacture of paper tissue and writing papers, the conversion of hygienic paper and kitchen towels, and the finishing of flat sheets of paper. The plant in Texmelucan, Puebla, concentrated on the manufacture of paper tissue and the conversion of institutional products, including hygienic paper, napkins, hand towels, and soaps.

Further Growth in the New Century

Kimberly-Clark de México issued bonds in 2001 to finance the construction of a $175 million plant. The company was studying the idea of manufacturing disposable medical waste, which was being produced by parent Kimberly-Clark Corporation in other countries. It also was considering adding nonpaper products, such as detergents and ballpoint pens, that were using the same distribution channels as KCM. As of 2000, Kimberly-Clark Corp. held 48 percent of its shares of common stock on the Mexico City exchange, while more than 1,500 investors owned the rest.

Not the least reason for Kimberly-Clark de Mexico’s success was its longtime leader, Claudio X. Gonzalez. Chief executive of the company since 1973, at the age of 37, the Stanford University-educated chemical engineer was routinely called the main adviser of Carlos Salinas de Gortari, president of Mexico from 1988 to 1994. He remained influential during the presidency of Ernesto Zedillo (1994-2000) and had an estimated net worth of $200 million in 1997. Gonzalez supervised all of KCM’s Latin American activities and sat on the parent company’s board of directors as well as General Electric and Kellogg Co. The business magazine Expansion ranked him in 2002 as the sixth most important entrepreneur in Mexico. Also in 2002, Expansion rated KCM fifth among Mexican companies in aggregate economic value, which relates profit to the cost of capital employed. Even though both sales and net profit fell during the year, the company recorded a 21 percent return on capital in 2001.

KCM’s consumer lines at this time consisted principally of the following: hygienic paper—Kleenex, Kleenex Cottonelle, Pétalo, Pétalo Sensations, Suavel, Lys, Vogue, Desleí, Fancy, Kimlark, and Crisoba; napkins—Kleenex, Pétalo, Lys, Delsey, and Kimlark; facial tissues—Kleenex and Kimlark; kitchen towels—Kleenex, Pétalo, and Vogue; hand towels—Crisoba, Kimlark, Sanitas, and Marli; aluminum wrap—Alukim; wrapping film—Kleen-Pack; disposable diapers—Huggies, KleenBebé, and Toys; damp towels—Huggies and KleenBebé; training pants—PuU-Ups, Huggies Little Swimmers, and PuU-Ups GoodNites; feminine protection—Kotex and Ferns; incontinence products—Depend. Stationery brands were Scribe, Stilo, Break, Kids, and Leeds. Other office supplies came under the names of Duplicador, Ink Jet, Laser Jet, Leed’s Fotocopy, Foto Bond, Kimber Ecologico, and Leed’s. Sheets and rolls of paper were sold under the names Editores, Kromos, Grafico, Lustrolito, and Couché. Among institutional products, in addition to the preceding, were the soaps Sanifresh and Sanituff, the aluminum wrap Alupak, and the cleaning towels WyPall and KimWipes.

Principal Subsidiaries

Papeles de Calidad San Rafael, S.A. de C.V.; Papeles Industriales Crisoba, S.A. de C.V.; Paper Products Trade Corporation (U.S.A.); Servieiios Empresariales Soran, S.A. de C.V.; Taxi Aereo de México, S.A.

Principal Divisions

Consumer Products; Industrial Products.

Principal Competitors

Grupo Industrial Durango, S.A.; Georgia Pacific Corp.; International Paper Co.; Procter & Gamble Co.

Key Dates:

1925:: Kimberly-Clark Corp. acquires a controlling stake of a Mexican paper company.
1959:: The company is incorporated as Kimberly-Clark de México (KCM).
1961:: KCM becomes a public company.
1968:: KCM opens a second paper mill in Orizaba, Veracruz.
1973:: Parent Kimberly-Clark is now a minority rather than majority shareholder of KCM.
1975:: KCM’s annual sales exceed $100 million for the first time.
1981:: New KCM mills open in Cuautitlán, Mexico, and San Juan del Río, Querétaro.
1987:: Annual sales volume reaches $500 million.
1993:: KCM’s sales pass $1 billion a year; a new company paper mill opens in Ramos Arizpe, Coahuila.
1995:: KCM’s fifth manufacturing facility opens in Tlaxcala.
1996:: KCM acquires rival Crisoba, giving it more than half of Mexico’s paper products market.
2002:: KCM declares a dividend for the 39th consecutive year.