Souza Cruz S.A.

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Souza Cruz S.A.

Rua Candelaria 66
Rio de Janeiro
20092-900 RJ
Brazil
Telephone: +55 21 3849 9000
Fax: +55 21 3849 9643
Web site: http://www.souzacruz.com.br

Public Subsidiary of British American Tobacco PLC
Incorporated: 1903 as Souza Cruz & Cia
Employees: 4,843
Sales: BRL 6.8 billion ($1.2 billion) (2003)
Stock Exchanges: Sao Paulo
Ticker Symbol: CRUZ
NAIC: 312221 Cigarette Manufacturing

Souza Cruz S.A. is Brazil's leading producer and distributor of tobacco and tobacco products, including cigarettes and cigars. In Brazil, the company controls nearly 78 percent of the total tobacco market, while worldwide the company sells almost 82 billion cigarettes through 200,000 sales outlets. A subsidiary of British American Tobacco, Souza Cruz is one of the world's largest exporters of tobacco and tobacco products, with sales of cigarettes and other products to more than 180 countries—and holds the leading share in more than 50 markets. Souza Cruz markets its own brands, including Derby and Free, the number one and two-selling brands in Brazil. Other brands, include Hollywood, Hilton, and such BAT brands as Carlton, Kent, Viceroy, Pall Mall, and Lucky Strike. The company also manufactures and distributes a number of licensed brands, such as Camel. Altogether, the company produces some 300 brands, including six of the top ten Brazilian brands. The company's production facilities include a state-of-the-art site in Cachoerinha, inaugurated as part of the company's centennial celebration in 2003, the world's largest cigarette manufacturing facility. Together with its factory in Uberlandia, Souza Cruz has a total production capacity of more than 100 billion cigarettes per year. The company also operates a number of leaf processing facilities in Brazil, including its facility in Santa Cruz do Sul. Souza Cruz also works in close partnership with its pool of tobacco farmers, providing technological guidance and equipment, as well as seeds and fertilizers. Beyond Brazil, the company operates the Brascuba joint venture with the Cuban government to produce cigarettes incorporating that country's black tobacco. Souza Cruz's sales topped BRL 6.8 billion ($1.2 billion) in 2003, making it one of Brazil's top five corporations.

Founding a Brazilian Tobacco Giant in the 1900s

Souza Cruz was founded in Rio de Janeiro, Brazil, by Portuguese immigrant Albino Souza Cruz, who immigrated to the then-young republic in 1885. Cruz, then just 15 years old, went to work for a local cigar producer, Famosos Fumos Marca Veado, and remained there for some 18 years. In 1903, however, Cruz decided to leave Veado and set up his own business producing cigarettes using the recently developed cigarette rolling machine.

Souza Cruz & Cia was the first to produce machine-made, ready-rolled cigarettes in Brazil. The company launched its first brands in 1903, as well, including the popular Dalila, which became a company best-seller for the next two decades. Other cigarette and cigar brands launched in the company's early years were Très Misturas (1903), Hamburgueses (1903), Boccacio (1905), and the French-inspired Coquelin (1905) and Petits Cigarettes n. 45 (1909).

The rising popularity of cigarette smoking caused the company to seek an expansion of its production capacity. In 1910, the company acquired the Imperial Fabrica owned by Paulo Cordeiro in Rapé. The company then imported new German machinery, which enabled the company to further mechanize its operations, increasing production.

Souza Cruz remained an independent company until the beginning of World War I. In 1914, however, the company agreed to be acquired by British American Tobacco, then in the midst of its massive global expansion. Nonetheless, Albino Souza Cruz continued to lead the Brazilian company's operations, debuting a new and successful version of Dalila in 1915. Other highly popular new brands including Pavlova, named for the Russian ballerina, in 1918, and Yolanda, which went on to inspire a notable song of the period. That cigarette remained a company best-seller for some 45 years.

Meanwhile, Souza Cruz's association with BAT gave it access to the most modern tobacco technologies and techniques. In 1918, for example, the company began working closely with tobacco farmers, forming partnerships to ensure its tobacco supply. The company also became the first to begin processing tobacco using new tobacco shed production techniques in 1918. In the 1920s, the company's Odalisca brand became the first in Brazil to feature aluminum-backed paper wrappers, helping to preserve the freshness of cigarettes. Also during the 1920s, Souza Cruz stepped up its association with its tobacco farmers, providing new fertilizer techniques, and importing tobacco seeds from all over the world in order to improve the country's tobacco output. During this period, the company led its pool of farmers to begin planting Virginia and Burley varieties from the United States.

Long-Lasting Brand Success in the 1930s

Cigarette smoking became more and more popular in Brazil, spreading beyond Rio de Janeiro to other areas of the country in the 1920s. In response, Souza Cruz began adding new facilities and subsidiaries around Brazil. In 1924, the company created its first subsidiary in Porto Alegre, followed by the opening of a new factory in Santo Angelo in 1926. That year, also, the company acquired Litograficao Ferrerira Pinto, allowing it to expand its packaging and marketing efforts. A new sales subsidiary opened in Salvador in 1927. That year the company added a production facility in Brós as well. In 1930, the company opened a new factory, in Recife.

The year 1931 marked a new success for the company, with the launch of the hugely successful Hollywood brand. Hollywood became the company's longest-lasting success, and remained in production at the turn of the 21st century. The success of Hollywood and the company's other brands enabled it to gain control of one of its chief rivals, Companhia de Cigarros Castelloes, in 1935. The Castelloes business remained a separate operation at first, but was finally absorbed into Souza Cruz in 1955.

By then, Souza Cruz had marked a number of new expansion efforts, including the opening of a new subsidiary in Rio de Janeiro in 1936 and a new factory in Belo Horizonte in 1938. These were kept busy by the launch of another highly successful cigarette brand, Continental, which emerged as the country's top seller, accounting, by the end of the 1950s, for more than 63 percent of all of Souza Cruz's sales. Following World War II, the company stepped up its production capacity to meet the surging demand for the Continental brand. In 1946 the company inaugurated two new tobacco leaf processing facilities in Lajeado and Blumenau in 1946.

During the 1950s, the company added another subsidiary in Belém do Pará, and a third tobacco leaf processing facility in Tubarao, in 1954 and 1955, respectively. Souza Cruz also responded to the growing popularity of U.S. blonde tobaccos, used in particular in parent company BAT's brands, by beginning processing and sales of cigarettes incorporating these tobaccos. The company also created a new in-house graphics department, which took over from the Ferrerira Pinto operation. At the beginning of the 1960s, the company expanded again, opening a new leaf processing facility in Rio Negro in 1961. The following year, Souza Cruz retired from the head of the company he had founded at the age of 91 years. By then, Souza Cruz had already claimed the place as Brazil's leading cigarette company.

A new factory, dedicated to producing cigarillos and cigarettes, was created in Inducar in 1967. Meanwhile, Souza Cruz had begun plans to extend its business beyond Brazil for the first time. The company's low-cost tobacco production made it a prime candidate for the foreign export market. In 1969, the company sent out its first exports shipment, a 25-ton order to the United Kingdom.

To fuel its growing exports—which later topped 100,000 tons per year—Souza Cruz invested in new production facilities. In 1974, the company began construction of a new plant in Uberlandia. That site, completed in 1978, became the largest cigarette production facility in Latin America, and, with a total capacity of 65 billion cigarettes per year, one of the largest in the world. During this period, as well, the company went on a brief diversification drive, changing its name to Companhia Souza Cruz Indústria e Comércio to mark its move into paper production and fruit growing, among other industries.

Tobacco remained at the heart of the company's business, nonetheless. After modernizing its production and processing facilities at the beginning of the 1980s, the company prepared to step up its tobacco exports, as well as its overseas sales of its own cigarette brands. As part of its expansion effort, the company created a new subsidiary, Companhia de Cigarros Souza Cruz, which became the holding company for all of its cigarette operations.

Tobacco Leader in the 21st Century

Throughout its history, Souza Cruz continued developing new brands. In 1979, the company had a new hit with the launch of its first low-tar cigarette, Advance. Meanwhile, the 1980s marked a huge boom in the company's tobacco exports, as cigarette manufacturers from around the world—hit hard by rising taxes on cigarettes—stepped up the demand for the country's relatively low-cost tobaccos. At the same time, the country's cigarettes, dominated by Souza Cruz's brands, under-went a huge boom in demand, in part serving to fuel a new emerging market for discount cigarettes. If Souza Cruz and Brazil's other tobacco producers already exported more than 600 million cigarettes at the beginning of the 1980s, by the mid-1990s cigarette exports topped 63 billion.

Company Perspectives:

We want to be recognised as a responsible company in a controversial industry. But more than simply being a responsible company, we are also working towards earning public recognition for our responsibility. The responsibility of being a company that is deeply concerned with people's values, that has faith in the potential of each individual and believes that everyone should contribute. A company that truly values its consumers, shareholders and the community. A company that takes pride in its team and a team that takes pride in its work.

Another factor lay behind Souza Cruz's growing export success. In the early 1980s, Brown & Williamson, another BAT subsidiary, had developed a genetically modified tobacco plant that not only grew faster than the natural plant, but also contained twice the nicotine levels. Since the company was barred from growing the crop in the United States, seeds for the plant were smuggled into Brazil in the 1980s and provided to Souza Cruz's pool of farmers. By the 1990s, the crops had matured, and Souza Cruz began exporting the tobacco, much of which became incorporated into BAT's cigarettes destined for the United States and other markets. A still larger part was reserved for the fast-developing Asian nations, as well as the Middle East, where smoking rates were rising rapidly. By 1994, Souza Cruz had shipped more than eight million pounds of the leaf, which became known as "wacky tabacky."

By the mid-1990s, Souza Cruz had captured nearly 80 percent of Brazil's cigarette market. The country had also emerged as the world's fourth largest tobacco producer, as well as the largest leaf tobacco exporter and the sixth largest cigarette producer. Souza Cruz itself ranked in the top ten of the world's tobacco companies. By 1998, the company's cigarette exports alone topped 73 billion pieces. Fueling the company's growth was the success of its international brand, BAT-owned Lucky Strike. At home, the company had new brand hits with its Derby and Free brands, which rose to become the domestic market's number one and two top-selling brands by the early 2000s.

In response to its strong growth, Souza Cruz inaugurated a new state-of-the-art leaf processing facility in Santa Cruz do Sul in 1996. The new plant began production at 70,000 tons per year, with plans to nearly double capacity to 150,000 tons per year by the next decade. Also in 1996, Souza Cruz launched a joint venture with the Cuban government, creating Brascuba in order to produce cigarettes for the Cuban market, as well as export cigarettes containing Cuba's black tobacco to other markets.

By the year 2000, Souza Cruz found its domestic operations under pressure. New legislation had placed new restrictions on the company's marketing efforts, while at the same time stiffening taxes—which rose to account for as much as 80 percent of the price of a package of cigarettes. This in turn stimulated the growth of a cigarette black market and by the early years of the 2000s, smuggled cigarettes were estimated to account for as much as one third of all cigarettes in the country.

Nonetheless, Souza Cruz remained one of Brazil's industrial powerhouses—with sales of BRL 6.8 billion ($1.2 billion), the company ranked as the country's fourth largest company. In 2003, the company celebrated its centennial in style, inaugurating a new state-of-the-art cigarette production facility in Cachoerinha, near Porto Alegre, that was expected to reach its full capacity of 45 billion cigarettes per year by 2005. Despite the difficulties faced by the global tobacco industry—in 2004, the company lost a new class-action lawsuit brought against it in Brazil—Souza Cruz remained committed to remaining a force in the cigarette and tobacco market, and a pillar of the British American Tobacco empire.

Key Dates:

1903:: Albino Souza Cruz founds first modern cigarette production plant in Rio de Janeiro and launches popular Dalila brand, among others.
1910:: Souza Cruz acquires Imperial Fabrica de Rapé Paulo Cordeiro in Tijuca and imports new German production equipment.
1914:: Souza Cruz is acquired by British American Tobacco.
1918:: Company launches Yolanda brand, which remains a best-seller for 45 years.
1919:: Company begins processing tobacco with new shed production techniques.
1931:: Hollywood brand is launched.
1935:: Souza Cruz acquires Companhia de Cigarros Castelloes.
1936:: Souza Cruz begins marketing Continental brand, which later represents 63 percent of all company cigarette sales.
1946:: Leaf processing facilities open in Lajeado and Blumenau.
1962:: Albino Souza Cruz retires at the age of 91.
1969:: Company begins exports of tobacco, starting with the United Kingdom.
1973:: Company changes name to Companhia Souza Cruz Indústria e Comércio.
1977:: Cigarette production facility in Uberlandia begins operations.
1981:: Companhia de Cigarros Souza Cruz is created as holding company for cigarette operations.
1996:: Brascuba cigarette manufacturing joint venture is formed with Cuban government; inauguration of new leaf processing plant at Santa Cruz do Sul.
2003:: State-of-the-art cigarette production plant begins operations in Cachoerinha, near Porto Alegre.

Principal Competitors

Bulgartabac Holding PLC; Societatea Nationala "Tutunul Romanesc"; Limbe Leaf Tobacco Company Ltd.; DIMON Malawi Ltd.; Philip Morris International Management S.A.; Altria Group Inc.; Loews Corp.; Djarum, PT; Japan Tobacco Inc.; Shanghai Tobacco Group Corporation; International Tobacco Company Ltd.