Klabin SA
BOVESPA:KLBN4
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Good morning, and welcome to Klabin's Conference Call. [Operator Instructions] As a reminder, the conference is being recorded and broadcast live via webcast, and it may be accessed at http://cast.comunique-se.com.br/Klabin/4Q17 where the presentation is also available.
Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in connection to Klabin's business outlook, projections, operating and financial targets and potential growth should be understood merely as assumptions based on the expectations of the company's management in relation to the future of Klabin. Such expectations are highly dependent on market conditions, on Brazil's overall economic performance, and the industry's and international market's behavior, therefore, they are subject to change.
With us today in São Paulo, we have Mr. Cristiano Teixeira, Mr. Eduardo de Toledo and other officers of the company. Mr. Teixeira and Mr. Razzolini will comment on the company's performance during the fourth quarter of 2017. And afterwards, they will be answering questions that you might wish to ask.
Now we would like to turn the floor over to Mr. Teixeira. Mr. Teixeira, you may begin.
Good morning, everyone, and welcome to the fourth quarter of 2017 call of Klabin.
It is with great pleasure that I bring to you the 26th quarter of growth of our EBITDA in Klabin in this quarter, especially the last quarter of last year, with the growth of 31% vis-à-vis the first quarter of '16. So as far as we are concerned, this is a quarter that shows how vigorous is our business platform.
I would like to highlight as well 2 important points in these opening remarks. The first, with the profitability improvement, we had 33% in the fourth quarter of '16 and 37% of EBITDA margin in the fourth quarter of '17, and this is due to the fact of our improvement in operating efficiency, mainly in the second quarter, but very much increased in the fourth quarter in our paper areas; and also due to the good growth curve reaching production in the pulp plant; and also due to the fact that international markets and the domestic market are structurally gaining vigorous price increases. And as we have been saying, this would lead to the better profitability. And by the way, we continue to believe that this will go on in the next few quarters in the same way.
I would like to talk about the vigorous drop in our indebtedness. Over one time, the net debt/EBITDA ratio, and we expect to maintain this base. And we are very pleased, because with this base, we will very soon be ready to talk to you about our new growth cycle.
And taking the last point of Klabin's growth, we bring the good news, and this is what I have to bring to you about our growth because we have been able to have the approval of our Board of Directors the continuation of our studies, mainly basic engineering studies for the machines that we intend to invest in.
So very well, ladies and gentlemen, so these are my opening remarks. And now I would like to mention that this is a very special call for all of us because the whole Board of Directors is here -- practically, the whole Board of Directors is with us today. And due to your request, we will be able to hear from our business officers, our commercial officers about the market. So I believe you will have more content in order to be able to ask your questions.
So now I would like to give the floor to Eduardo de Toledo, who will be talking about our financial highlights.
Thank you, Cristiano. Good morning, everyone. Could you please follow the slides of the presentation?
So the first one is the highlights of the quarter. And as Cristiano said, our EBITDA was BRL 855 million, 31% growth on a year-on-year basis, a very vigorous growth. Pulp production reached 394,000 tonnes, and this figure is already higher than the nominal capacity of the plant. So it is very important progress, 10% increase over 3Q '17, so a very good performance of Puma.
Net revenue of sales, BRL 2,298,000,000, a 17% increase over the fourth quarter of '16. Conversion, which has been having a good year, a 4% increase over the first -- or the fourth quarter '16. And net debt/EBITDA, 4.1x.
On the next slide, you see the evolution of our net debt/EBITDA ratio. You can see that from 4.4x in September, it came to 4.1x in December. In the next few quarters, we expect to have the same kind of behavior in order to bring our EBITDA -- net debt/EBITDA level of the company to a comfortable level so that we may announce the new cycle of investments.
And on the next page, we have dividends approved, a dividend payout related to the fourth quarter. In our Shareholders' Meeting, 20% EBITDA approved at each quarter, and our dividend yield reaching 3.3% in 2017.
And the last slide of this very brief introduction is about our free cash flow. And I think it is always best to look at a longer period, so we show this on a quarterly basis, of course. But for the quarter, you will still have fluctuations. Sometimes, it is a vessel that delays shipment, and the shipment is done only in the next month, so it raises the level of inventory to a higher level. So there is some kind of fluctuation.
But I would like to emphasize that in 2017, we had adjusted free cash flow of BRL 1,918,000,000. This is a very important level, and this was reached due to a divestment in working capital of BRL 395 million.
And the most important part of this has to do with taxes. Once we have tax credits that are accumulated, especially from some losses that we won and the construction of Puma itself, and of course, this leads to a divestment in working capital over time. So I would like to give this emphasis regarding our free cash flow.
So this was our introduction. And now we would like to open for questions from you. Thank you.
[Operator Instructions] Our first question comes from Thiago Lofiego from Bradesco BBI.
I have 2 questions. Cristiano, could you please give us some color about the approval of the projects just for us to understand in which areas you -- or when you expect to have a final approval via the board and to have -- to know about the pipeline, and kraft is still a preference? Are you going to do this first before the others? And could you talk about CapEx as well, at least a range for the figure for your CapEx? And about the Puma cash cost, the second question. We have been seeing the cost improving, but we still see the Puma cash cost, BRL 680 per tonne. And do you believe there is more room for improvement? Your target, if I'm -- it was about BRL 670. Please correct me if I'm wrong. Not very far from the level of today, but what do you expect from now on?
Thiago, thank you for the questions. I'm going to answer together with Francisco in order to give you information directly from the source. So I will start by talking about the projects, and then Francisco will be talking about the cash cost of Puma. Well, we see things as follows. We have already overcome one important step in terms of the approximation with our controlling shareholders regarding the study of the projects. And the approval of the basic project is a very important step, a mandatory step for us to continue seeking the exact CapEx level that we will have for the project and also the internal rate of return, which is the outcome of this variable. So we continue with the study. And the most important thing for us to tell you is that our controlling shareholders and the Board of Directors, they believe and they encourage us to continue with our studies. And now with the approval of the basic engineering project, as I said before, we have already overcome this step. And we believe that around the middle of this year, around let's say June or July, our talk with the controlling shareholders will be more in depth with numbers being presented on the table. And as I have been repeating, if we announce the investment this year, and this is the wish on the part of this board of executives, this should happen in the third quarter. But of course, it has to be aligned with the shareholders' interest, which is what we are seeking during these talks. And now Francisco will answer about cash cost.
Thiago, Francisco Razzolini here. Thank you for the question about Puma and the cash cost of Puma. What we can say is that, again, it is performing very well, and our benchmarks for costs have been evolving quite satisfactorily, very competitive vis-à-vis our peers in the sector. And more specifically, in the fourth quarter, we expected a little bit less, as we announced in the third quarter, but we were impacted by some external factors, especially our chemicals cost that impacted more intensively and the price of going up [ over ] 77% sulfuric acid 30% increase. And they had an impact on our chemicals cost. Also, in terms of energy generation, it was practically equal to the third quarter, affected by some factors that were just like one-shot factors that happened in the unit, the rainfall in this quarter, and we have to integrate the project. And of course, this impacted energy generation and other issues regarding the better price of the spot price vis-à-vis the previous quarter. So with -- the internal factors should continue to have a favorable evolution in terms of cost reduction. And we expect an improvement. And probably, we will be seeing this in the second quarter of 2018. And the first quarter of '18, not yet, because we will be impacted by the general stoppage between the 10th and the 21st of the month. And we expect the evolution to be favorable in terms of the [indiscernible].
Daniel Sasson, Itaú BBA.
My first question is about the fluff business. Could you please give us some color about the evolution of the business and the prices that you are achieving in the business or the price delta vis-à-vis hardwood and softwood fiber? And could you give us an idea of the volume that you expect to produce in 2018 of fluff, 200,000 tonnes maybe or more of fluff, or a little bit less than 200,000 in hardwood fiber? So this is my first question. Afterwards, we will -- I will ask a second one.
This is Francisco. Daniel, thank you for participating and for the questions about fluff. We were able to penetrate the market, as we have already reported in previous talks. And in terms of [ profitability ], the acceptance of products is performing very well. In terms of prices in 2017, we still had many primary contracts in 2016. And the contracts were annual contracts, and we had relatively low prices in these contracts. And we could expect an improvement in prices now in 2018. We have already implemented practically all the prices according to the recent Table 5, which is the basis for the fluff prices all over the world. And we have already implemented the price improvement. And the price reference is -- or the benchmark of the international market. Related to the other fibers, fluff is going up more slowly because of the long-term contracts that I have described, but we already see a pickup in the market. The market was already very much impacted by the growth that happened in terms of production in 2015, 2016, so increase in production. So from now on, we expect fluff to have a good performance. Our unit is reaching its full capacity, so we expect to produce around 400,000 tonnes between softwood and fluff, probably around 2/3, 70% for fluff, and the remainder for the softwood market. I would like to mention also that in the last 2 quarters of 2017, and with our view of the first quarter of '18, is that the behavior of the hardwood fiber in the market is better than fluff. So the volumes that we had at spot, we are earmarking for the fluff market, the softwood market. Some oscillations might happen depending on the rational for prices over the year, but we are going very strongly towards fluff already.
Very clear. And my second question has to do with the paper market, the domestic market. Do you see an improvement of the ABPO, that is to say the Brazilian Association of Corrugated Boxes, an improvement in the economic situation of the country? And what do you expect in terms of volume for 2018 in corrugated boxes? And still about paper, how bullish are you in terms of implementing the price increases for the paper lines at the beginning of the year?
Daniel, I would like to take the opportunity to introduce to you Flávio, who is the commercial officer of the paper area.
This is Flávio Deganutti, and it's a pleasure to be here. There is a structural condition that is very good in most markets, I would say, not only in Brazil, but especially in the U.S. and in Europe. And of course, this points to a direction in which supply and demand will reach another level. So we see the market with a very good behavior. And we will be able to achieve our goal, and we have a balance between the supply in the domestic market and the foreign markets. And because of that, it allows us to structurally position ourselves ahead. Especially in Mexico, we have some businesses, and we seek new businesses there. And they seek Klabin today for paper besides the United States, so we see many opportunities being opened because of the recent dynamics.
The next question is from Carlos De Alba, in English, Morgan Stanley.
I would like to ask you about potential ingredients in domestic paper prices. We have seen some news recently in the industry that the demand conditions start to accelerate upward and also some competitors having announced price increases. And then the second question, if you could elaborate about the level of net debt-to-EBITDA or leverage that you will find comfortable before starting to spend money and approve the next growth cycle for Klabin. And then just one, if I may. Eduardo, I know that you are moving on to other opportunities, so all the best in that new phase. But if you could maybe just kind of elaborate a little bit more on the plans for the CFO succession, I will really appreciate it.
Carlos, it was very difficult to hear you not because of the way you asked the question, but we had a lot of noise in the audio received here. So I would like to breach the protocol and ask you to please repeat the question one, and then the other one and the other one. Okay? So please do that. Thank you.
Sure. Hopefully, you can hear me now, but I still hear some echo. Anyway, so I had -- the first question was on paper prices in the domestic market, if you could comment on what you are seeing. We have heard some news of competitors becoming more constructive and announcing some price increases. So if Klabin is planning on doing anything similar to what we have heard, that would be useful to know. Second is, could you elaborate a little bit more about the leverage of the company and the level of net debt-to-EBITDA that makes you comfortable before announcing the next growth phase of the company? And then finally, Eduardo, I understand, is moving to a new opportunity. All the best for you, Eduardo, in the next step of your career. But Cristiano, maybe you could elaborate about what are the plans or the stage of the CFO succession plans for -- to replace Eduardo?
Thank you very much. So we have asked -- you have asked 3 questions, and I will have to organize this in order to bring a little bit of governance here. I'm going to ask Flávio to talk about the domestic market, which was the object of your first question. And then Eduardo will talk about indebtedness. And then I will come back in order to talk about Eduardo and succession CFO. Okay?
As we said before, we have not only in Brazil. We have this point of growth in all the markets that we operate in. And we see a behavior that brings to packaging paper manufacturers, such as Klabin, additional volumes. On top of that, we still see a very important move regarding the regulation in some countries then that earmarked volumes for virgin fiber, which is exactly our condition. So all this places the world vis-à-vis packaging paper the very interesting position and differently from before in a very long cycle where it allows us to fit into these movements, be it regarding investments or positioning. So it is also valid for our domestic market. And even in the Brazilian market, we see a very important growth in the market, and our corrugated boxes made by Klabin show this very clearly. And therefore, this is the way I describe the market, and this is why we are able to put all these moves in place.
Carlos, I will take the liberty to take advantage of your question in order to answer a question that was not answered by Daniel from ABPO, the Brazilian Corrugated Box Association. So before giving the floor to Eduardo, to Gabriella who is our packaging officer, we will talk about the ABPO because we didn't answer Daniel's question. And then I will go back to your question. So I ask your leave to do that.
This is Gabriella Michelucci. I will talk about the market in 2017. And the beginning of the year had projected a growth that was lower than [ 1% ] for the delivery of packaging in Brazil, and we closed the year growing very satisfactorily with 4.9% growth vis-à-vis 2016. And this first 6 months of the year, we're concentrated in the improvement of our agriculture part, which is supplied by corrugated boxes, and the food industry as well. And as of August, we started to see also growth, important growth in the other categories, bringing the necessary momentum for us to close the year with this kind of growth. We are very bullish for 2018. We still don't have the result of January, but we already project at least 3.5% growth year-on-year. And of course, month-by-month, especially after the first quarter, we will be able to make a new projection for the whole year. For the first month, we expect to see at least 4% growth in the market. So as soon as we have this information, this will be published.
Very well. Now Eduardo will talk about deleveraging.
About what Gabriella said, Gabriella is talking about the market as a whole, so it is the ABPO's view for the market as a whole, so not about Klabin's participation. Carlos, talking about deleveraging, the pace that we have shown in this quarter regarding deleveraging is enough for us to be able to announce around the middle of this year a new investment plan. We do not have a target, that is to say when we get to this figure, then we will be announcing. No, this is not the way we work because we look at investment in the light of the company's indebtedness and any investment that we might announce around the middle of the year. The greater disbursement will be after 1 year or 1.5 years. So it's not very important, our indebtedness at that point, but it is from then on. So the way we have been progressing in the last few quarters makes us very comfortable saying that we will be able to announce a new cycle of investments around the middle of the year.
Now talking about Eduardo's situation, if you allow me, I will go back to the subject when -- during my closing remarks when I will be talking about Eduardo, and then Eduardo will be addressing you as well. But I know that I'm taking advantage of your question, but we have our people and management officer. And we have also brought Sergio, and he will be talking about the succession process at Klabin.
I would like to say that we have already concluded the process of selection and contracting or hiring Eduardo de Toledo's position that will become the IRO and the Investor Relations Officer. I cannot reveal the name yet because his current company still has to process the information, which should happen in the next weeks. What I can tell you is that we are bringing on board a very talented executive. And he has all the necessary skills and conditions to come on board already, giving a contribution to the processes that are underway. So he start to play the game immediately as soon as he comes to the company. And he is very much aligned with meritocracy, which is the culture that we have been building in Klabin. So he is fully aligned with our continuous quest for improvement of our corporate governance. And we are very pleased with the agility that we were able to get in the conduction of the process. We have a very well-structured succession plan. And although in the financial department, we have many managers that are very talented and with a very good potential, still, we didn't have an internal or an in-house replacement with all the necessary conditions. So we had already mapped this position of Investor Relations Officer and CFO as being critical for the company. We already had a shortlist of pre-candidates, so to say, that was very closely monitored. And because of that, we were able to have a very agile process in January, and we have recently concluded it. So we have already hired this very talented executive that we will be announcing very soon. And he should start in March, I would say, at the beginning of March. So regarding the CFO succession, this is all I can tell you so far for the time being.
Lucas Ferreira, JPMorgan.
I would like to express my best wishes to Eduardo in his new challenge. I have a question about the packaging market. And please correct me if I'm wrong, but apparently, I saw the conversion volumes of Klabin growing, if I'm not mistaken, 4%, a little bit less than the figure published by ABPO. So are you going to analyze market share and the capacity on the part of Klabin to continue improving conversion? And how much could you still increase conversion? Along the same lines, what about the market? Regarding high utilization of capacity, do you see an increase in supply? I would like to know the consequence that this will have on the price of corrugated boxes in the next few months. And secondly, a question about Puma to Razzolini. If I'm not mistaken, Razzolini, looking at the level of output of Klabin, it was already higher than the nominal capacity, around 105%. Is this what you expect for 2018? Could you maintain this along or over 2018?
Okay, Gabriella, you have the floor.
As I said before, the market closed with the growth of 4.9%, and we continue to be aligned in terms of this growth. But I would like to remind you that Klabin made 2 acquisitions in the previous year, in 2016, and we integrated these 2 new units over 2017. And of course, this means a gain of market share in the market. For this year, going back to the market now. We were able to reach in shipments of corrugated boxes in Brazil, and I'm talking about the market as a whole, a level -- the same level as 2014, which was the last year before the crisis. So I understand that we are operating very close to the full occupation of the level around, let's say, with 85% for the sector as a whole. And of course, some companies started to make small adaptations over these years, and we are ready to cater to the market. And as far as Klabin is concerned, this is the same situation and the big concern for this year. And we are paying keen attention to fibers because of the international movement that we see and that were mentioned by Flávio. So the sector and from the end of market, we'll be ready to supply the market, the packaging market.
I would like to add something to what Gabriella said along the same lines of your question about the importance of market share or where we want to get. I would like to mention that it is very important for everybody to understand this. Klabin would like to get 20%, 25% market share at least, and we would love to have an additional 1 or 2 companies with the same level of market share. Klabin has a firm belief in corrugated boxes. This is part of our DNA. They supplement our businesses, integrate our business, and this makes our attitudes more flexible and improvement in our results. And it guarantees stability during all these years. You can see that our history has stability as one of the most important points. So we desire to see consolidation and increase in market share. This is part of our DNA, and we continue to turn our eyes to that. We don't have any studies on the table right now because there was no opportunity for that. But we will always be looking at market share and consolidated -- and consolidation in the corrugated box market. So now I give the floor to Francisco.
Lucas, thank you very much for the question. The performance of Puma in the fourth quarter was very good, with an output level slightly higher than our nominal capacity, our rated capacity. And for the consolidated figure for the year, we expect to be working higher than the rated capacity, but maybe between 2% and 3% higher, and not 5%. And for 2019, we will be getting close to this 5%. Remember that we have not made investments now for that, and this is the capacity that we estimated for Puma.
Renato Maruichi, Santander.
I have 2 questions. I would like you to give us some color about corporate governance. Could we expect any news this year? Or do you see the unit structure as adequate for the time being? And secondly, could you talk about the prices for OCC vis-à-vis the recovery of the Brazilian economy and the price of OCC over this year? And about, of course, during the Klabin Day last year, you said that you are going to submit to the board your growth project at the beginning of this year, then that you should be announcing new projects around the half year, coated board and fluff. Have you changed anything regarding what you said during the Klabin Day?
Thank you, Renato. I will change the order of the answer. So we will be answering, first, your last question about the project and then governance. And then I will be giving the floor back to Gabriella to talk about the OCC prices. About the order of the project, nothing has changed what we have been saying during the Klabin Day and also in the last call. I said that the studies and our talks with the controlling shareholders would be happening during the first quarter. And our expectation is for the third quarter, if aligned with the shareholders, mainly with the controlling shareholders, then we would be talking about the approval of these investments. What we approved now was the basic engineering, and this is why I say that this is a step-by-step process. We have all the necessary information about markets and capacities, and the specifics of all the products, and the mix and the market. So we feel very comfortable with the structural gains of this sector, and we have already reported all that to our board. And now what we need is to look for return by means of CapEx that will come from this basic engineering. So we are following step-by-step, so this is a very exact process, and it is exactly what we mentioned before. Now about governance, governance is a real game of Klabin and that you all recognize and the controlling shareholders recognize as well. Since the last administration and which will continue during this current administration, this is one of the points of improvement, governance. And this value is recognized by the market and the controlling shareholders. And because of that, we are always expecting further improvements. So you can also -- you can only see improvement in governance. There is no other way. This is the only way to go. Now Gabriella will talk about OCC prices.
Regarding the OCC market, we continue with seasonality. And what I mean by that is that normally, the extremes of the year, the beginning and the end of the year, see a slight price reduction. And then price picks up as of March. Normally, we see an increase in OCC prices as of March. What we see is that inventories are low and that inventories in the recycled paper manufacturers inventory is going down. So we understand that we will get into a seasonality with an upward trend, which means that the average price of the year should be higher than the average price of 2017. The domestic market wants to buy OCC because of the dynamics that Flávio mentioned. And because of that, the prices of paper in the domestic market is already going up. And/or in other words, Klabin is also buying paper in the domestic market because of the opportunity cost for export, so we are buyers of paper in the market today. Thank you.
Ivan Westin, Crédit Suisse.
The first one is about kraftliner. Could you please talk about the global and the domestic demand and the expectation for prices in the Brazilian market and the export market? And the second question to Razzolini. Razzolini, could you please talk about the price outlook for pulp in China? And could you also talk about demand on the part of the end-user? And how do you see inventories in the chain as a whole? If you allow me a follow-up, on the previous question, you said that you would be running Puma higher than the rated capacity. So what is your plan for Puma stoppage in 2018?
Thank you for the questions. Flávio will answer your question about paper.
[Audio Gap]
The U.S. is a major exporter of kraftliner worldwide, and this has the impact in the market, and the supply help us to -- abroad help us to position ourselves. China is a market that had a different behavior than what is typical or was typical, mainly because of what happened regarding the regulation. So they stopped importing significant volumes of OCC from the U.S. especially, but also from Europe. And because of that, the prices in these markets had a growing trend in these markets. And of course, taking this market towards virgin fibers or the fibers that we produce, the papers that we produce. The same is valid for Europe, where you have capacity increasing for container boards based on recycled fiber. But with the growth of this -- well, the growth of this market is very -- we expect it to be very [ marked ] over this year. And looking at the behavior of the Brazilian market as well, what we can see is a very long cycle for this market. And based on that, we position ourselves in kraftliner.
This is Francisco, Ivano. About our outlook for the market, we see a very positive market. The demand for volumes continue to be very big and as you can see in the first quarter. And we see this growth in demand over the year as well. Regarding the specific fibers, fluff and softwood are living a very good moment. And we continue to follow the increases for hardwood that are coming. And we see the market under a very positive light for this year as a whole. Specifically, about Puma, the general stoppage will be in the first quarter, between March 10 and 21.
Gabriela Cortez, Banco do Brasil.
We saw that your sales volume went up to 50% in the domestic market. And I would like to know your expectation for the current year. Volumes sold for -- in the domestic market, what do you expect then? Regarding Puma, Francisco mentioned that by 2019, you will be operating it 5% higher than nominal capacity, rated capacity. And are you going to increase your investments to further increase production beyond 105%? So these are my questions.
Thank you, Gabriela. Well, this is the beauty of Klabin, 50-50 was what we achieved, and this can vary, as you saw. This is a good figure. It's a very balanced figure. It's impossible to have more balance than 50-50. And this is the way that we see, and we see it as good. We could go to 60-40 domestic and foreign market. And this is the beauty of Klabin, the flexibility that is something that we never tire to stress. And this will always happen as an outcome of our analysis regarding improvement in our profitability. There is no other way to go. So this is where you will see this variation. It has to be in the range between 5 or maybe 10 percentage points between one and the other, but always seeking a better profitability. And our relationship with the key accounts all over the world, that is to say respecting our clients. And Francisco will answer.
Thank you very much, Gabriela. About Puma, we have studied that point to a possibility of capacity increase. But based on the engineering studies that we are carrying out about the implementation of new capacities in -- or to gain in Puma, this will be done jointly, whether we will be investing in the current line or whether it will be an additional capacity in our utilities and recoveries so that we boost the project. So we still do not have a clear or a final view about that. But over the year, as engineering studies go on, then we will define this.
Milton Sullyvan, XP.
I have one question. When we were talking about the corrugated box market sometime ago, you said that the site had a very good demand. One of the main drivers for you to have more relevant price increases would be the capacity usage. So along the same lines of Gabriela's question, I would like to understand whether the capacity utilization, which is getting to the precrisis levels of 2014, can we -- or should we be more bullish regarding the price dynamics for corrugated boxes? Still, with the high OCC prices in -- can we already be more comfortable regarding the prices for corrugated boxes for 2018?
Milton, thank you for the question, and I will answer. Gabriella is sitting next to me, and of course, she will add if she thinks it is necessary. I start by saying the following. Looking at what we saw in the last 3 years, now of course, in this window of 3 years, we are reaching a moment of a higher optimism. And based on everything that we read in the newspapers regarding the political situation and the economic situation of the country, we see the domestic market being much more positive. Or at least in the last 3 quarters, we haven't seen this very strongly, mainly in the packaging area of Klabin. And due to the fact that it is linked to the key accounts in Brazil, very large companies in Brazil, we have already said that in other opportunities that in the crisis, Klabin benefit from crisis because there is an exchange of tickets, so to say. We are present in these companies. Even if there is a downgrade in the consumption ticket, Klabin continues to grow in crisis, such as one of the case in the last few years. And if you go back a little bit in history, Klabin, when we had that large boom, and no judgment of value here, if we talk about the economy only, when we saw this boom in 2011 and '12 with 40 million people joining the consumer market, Klabin also benefited a lot, even more than the sector as a whole due to the fact that it was the company with the best footprint in Brazil, with the best distribution or conversion in Brazil, be it in corrugated boxes or industrial bags. So we see the current moment, that is to say the beginning of 2018, and of course, I don't want to be pathetic and call this a boom, but we do see an important recovery in our domestic economy. There's a certain degree of confidence that this will continue over the year. And our conversion areas are totally prepared to cater to the large key accounts in Brazil, all over Brazil, in fact. Talk about profitability gains, in the area of corrugated boxes only, we have always said that the sector has 2 important points that must always be sought by all of you. One is the shortage of fiber, be it OCC or be it the recycled or virgin fiber paper. And they have different grades, of course, and I'm not going to tire you with that. But Brazil has a major shortage of top-level papers for corrugated boxes in order to be able to make the outer layer of corrugated boxes. But what we see in this market is a shortage of fiber, which is positive for the factor -- for the sector. And we also see the occupation level improving. So our conclusion is that you will see profitability gains in the corrugated boxes sector. And I would say that the time has come for this to start.
Lucas Ferreira, JPMorgan.
Cristiano, could you make an analysis similar to what you have done now, but for coated board, demand expansion and folding? And could we see a recovery in margin? And what about prices and what about mix? So could you give us some color about all these points?
Thank you, Lucas. Flávio is sitting right beside me, and I'm going to give him the opportunity to answer your question, and I will add to what he says.
Thank you, Lucas. The behavior of coated board market is very similar to kraftliner, of course, not with the same pace as we see in kraftliner, but the rationale is the same because they look for modern packaging. They want to have different closing devices for the liquids packaging, and a market that wants to have smaller packaging and better design and adapting to consumer's need. And this is a market that is focused on pulp packaging such as ours. So it is under a very quick transformation, this market, and this requires a different supply-demand situation than kraftliner -- container board, and that may -- gave very clear signs in the last quarter of 2017. And we also see in a more evident fashion now in 2018, the virgin fiber product that allow you to have contact -- direct contact with food. They are very well positioned.
HSBC, Jon Brandt in English.
I just had one question, just taking advantage of the fact that Gabriella is there. If you could comment a little bit about demand coming from e-commerce, how much of your shipments it represents now? And maybe where you see that subsector going next 10 to 15 years, how big of an opportunity it is for you, and how well the business should be watered to take advantage of potential growth there?
Jon, thank you very much for your question. We are very bullish about e-commerce and the development of e-commerce in Brazil. The Brazil has around 4% e-commerce in retail as a whole. So looking at the international indices, we see a major growth potential there. Klabin is already prepared. It has prepared itself for the last 2 years in order to cater to this sector, to this market. And because of that, we have been able to close very good deals not only to B2B, but also we have many clients that already operate in e-commerce with Klabin's packaging. And also, we are getting directly into the marketplaces. We have just signed a deal with the free market. And now we became a supplier to packaging solutions for the free market as well. So the companies are very happy with the growth potential and improvement in the packaging market in Brazil. So I would say that the next couple of years could be extremely important for us to really have a very strong presence in this sector.
As there are no more questions, I would like to give the floor back to Mr. Cristiano Teixeira for his closing remarks.
Okay. As we usually do, I would like to talk a little bit about our outlook for the next few quarters and make it very clear that our expectations are very high for all the markets.
We are very bullish for [ trucks ] of reasons. There are no adventures. This is because the markets are good, and our relationship with our clients is very good. And our operating efficiency gains are constant and vigorous. Our indebtedness has been dropping. And our talks about growth with our controlling shareholders are picking up. And so our expectations are very high.
More specifically, about EBITDA, I would like to make it clear that the same pace or this magnitude, I would say, or even more than you saw in the fourth quarter, this is what we expect for the first quarter of 2018.
And with that, we can conclude our remarks saying that we are very bullish about the market, and we trust the market. And I would like to take the opportunity to thank and to congratulate the wonderful administration of Eduardo de Toledo during his time at Klabin. He is a really top-level professional. He is the same level as Klabin. And it was a great pleasure for us to learn a lot with Eduardo. So I wish him all the luck in the world. And I would like to leave some time for him to address you all.
Thank you, Cristiano, for the very kind words. I would like to thank everybody for this year in which we were together. And the decision to leave Klabin was a very hard one. It was not an easy one. Klabin is an excellent company with top competitive advantages and with extremely sound strategic positioning and with very interesting growth potential.
Because of the markets where we operate, because of the footprint that it has in the market, because of the technical competency of the company, and because of all these reasons, it was very hard for me to decide to leave the company. I was only helped by the fact that Klabin is living a great moment and that the financial situation of Klabin is very well structured. And I think I helped in the process, but of course, the process was already coming from many years in Klabin and all this care with the financial area.
So I am comfortable to make this move at this moment when the company has such a good outlook. So I only have to thank Klabin. But it was really a personal challenge for me, and it has nothing to do with wanting to leave Klabin because Klabin, I really believe in this company. I believe in Klabin's capacity. I believe in Klabin's future. Thank you all very much.
Thank you all very much.
Klabin's conference call is closed. We thank you for participating and wish you all a very good day. Thank you.