KLABIN S.A.

2010 MANAGEMENT REPORT

Dear Shareholders
We submit for your consideration this Management Report and the corresponding financial statements, accompanied by the opinions of the independent auditors and the Audit Board for the fiscal year ended December 31, 2010.

INITIAL REMARKS
Record breaking year for Klabin: The production of paper made from virgin and recycled fibers reached 1,781 thousand tonnes, 10% higher than in 2009; Paper and packaging sales volume reached 1,716 thousand tonnes, up 11% on the previous year. Wood sales volume totaled 3,113 thousand tonnes, 65% higher than in 2009; Net revenue came to R$ 3.7 billion, up 24% on 2009. Other 2010 Highlights: Operating cash flow (EBITDA) of R$ 962 million, growing 29% from 2009; Net income totaled R$ 560 million, 232% higher than in 2009; Operating working capital declined R$ 231 million in relation to December 2009; Net debt/EBITDA ratio fell from 3.6x in December 2009 to 2.2x at the end of 2010; In December, Standard & Poors upgraded Klabins rating on the global scale from BB to BB+. The strong growth in Klabin's sales volume and net sales revenue in relation to 2009 reflected the brisk growth in Brazil's domestic demand, which was driven by the government's income-transfer policies, the growth in formal employment, the hike in the minimum wage, the higher income levels and the ample supply of credit to individuals. With the recovery in the domestic economy and the stronger Brazilian real versus the U.S. dollar, Klabin channeled a portion of its volume previously destined for the export market to meet the demand in the local market. The Forestry Business Unit expanded the volume of its log sales to sawmills in Brazil by 65% in 2010, which reached 3.1 million tonnes, despite the fragility of the U.S. real estate market. In the Paper Business Unit, international kraftliner paper prices continued to rise, reaching their highest level of the past 5 years. Sales volume in the domestic market grew 70% in relation to 2009. According to the Brazilian Association of Pulp and Paper Producers (Bracelpa), in 2010, domestic consumption of coated board, excluding liquid packaging board, reached 576 thousand tonnes, up 14% on 2009. In the Conversion Business Unit, corrugated boxes sales accompanied growth in the domestic market, with growth in box and sheet shipments of 12%, to 512 thousand tonnes. According to the Brazilian Corrugated boxes Association (ABPO), shipments of boxes and sheets in Brazil grew by 12% in the period. Industrial bags sales increased 9% to 142 thousand tonnes, with this result supported by the installation of state-of-the-art equipment. 1

In capital markets, since the start in July of the divestment of preferred shares by BNDESPAR, the average daily trading volume of Klabin stock on the BM&FBovespa has increased by 50%, from R$ 9.7 million in the first six months of 2010 to R$ 14.6 million in the final six months of the year. In 2010, R$ 177 million in dividends were paid, of which R$ 57 million corresponded to supplementary dividends relative to fiscal year 2009 and R$ 120 million to interim dividends relative to 2010. The Management will submit to the Annual Shareholders Meeting a proposal for the payment of supplementary dividends of R$ 70 million, to be paid in April 2011. In November, an announcement was made that Mr. Reinoldo Poernbacher would retire, with Mr. Fabio Schvartsman replacing him as CEO. Mr. Schvartsman was elected at the Board of Directors meeting held on February 2, 2011.

FINANCIAL PERFORMANCE
Klabins consolidated financial statements are presented in accordance with International Financial Reporting Standards (IFRS), as determined by CVM Instructions 457/07 and 485/10. Data for prior periods were adjusted for comparison purposes.

R$ Million
Gross Revenue Net Revenue Domestic Market Exports % Domestic Market Gross Profit Gross margin EBIT before IFRS adjusts EBIT after IFRS adjusts EBITDA EBITDA Margin Net Income before IFRS adjusts Net Income after IFRS adjusts Sales Volume (thousand tonnes) Domestic Market Exports % Domestic Market Stockholder's Equity Net Debt Total Capitalization Net debt/Total Capitalization Net debt/EBITDA

2010
4.431 3.663 2.850 813
78%

2009
3.591 2.960 2.248 712
76%

Variation %
23% 24% 27% 14% 2 pp. 161% 20 pp. 69% N/A 29% 1 pp. 8% 232% 11% 17% 0% 4 pp. 7% -20% -1% -7 pp. -39%

1.371
37%

526
18%

521 821 962

26%

309 60 747
25%

361 560 1.716 1.161 555

68%

333 169 1.544 989 555

64%

4.994 2.128 7.285

29%

4.662 2.676 7.395

36%

2,2x

3,6x

In 2010, sales volume, excluding wood, totaled 1,716 thousand tonnes, 11% higher than in 2009. Domestic sales volume grew 17%, while export sales, which account for 32% of total sales, remained stable in relation to the previous year. Net revenue, including wood, was R$ 3.7 billion, up 24% from 2009, reflecting both the sales volume growth and higher international prices. Domestic sales revenue accounted for 78% of overall net revenue, in comparison with 24% in 2009.

Despite the stable export volume in relation to 2009, export revenue grew 14% in Brazilian real terms and 30% in U.S. dollar terms, reaching US$ 462 million. OPERATING INCOME Cost of goods sold was R$ 2.741 million in 2010, up 10% on 2009. Excluding the effects of biological assets, cost of goods sold was R$ 2,621 million in the year. Gross income was R$ 1,371 million in 2010, versus R$ 527 million in 2009. Gross margin in 2010 was 37%, increasing 20 percentage points from 2009. Selling expenses were R$ 300 million in 2010, stable in relation to 2009. Freight costs accounted for 59% of overall selling expenses. General and administrative expenses totaled R$ 215 million in 2010, increasing 21% from 2009, affected primarily by the collective bargaining agreement and the profit sharing program. Operating income before the financial result (EBIT) was R$ 821 million in the year, up R$ 761 million on 2009. Operating cash flow (EBITDA) was R$ 962 million in 2010, increasing by 29% from 2009, accompanied by EBITDA margin of 26%, versus 25% in 2009. FINANCIAL RESULT AND INDEBTEDNESS Consolidated Gross debt stood at R$ 4,857 million on December 31, 2010, with short-term debt accounting for 17%, or R$ 842 million, of total debt. Foreigndenominated debt totaled R$ 2,855 million, or 59%, corresponding to US$ 1,714 million. Cash and financial investments stood at R$ 2,729 million on December 31, which more than covers the amortizations coming due over the next 40 months. Cash and cash equivalents denominated in foreign currency was R$ 162 million (6% of the total), equivalent to US$ 97 million. Consolidated net debt stood at R$ 2,128 million, in comparison with R$ 2,676 million on December 31, 2009. The net debt/EBITDA ratio fell from 3.6x at the end of 2009 to 2.2x at the end of 2010.
Financing (R$ Million) Short Term Long Term Gross Debt Cash and Cash Equivalents Net Debt 12/31/2010 Currency Local Foreign 496 346 1.506 2.509 2.002 2.855 Total 842 4.015 4.857 (2.729) 2.128 12/31/2009 Currency Local Foreign 492 310 1.683 2.243 2.175 2.553 Total 802 3.926 4.728 (2.052) 2.676

NET INCOME In 2010, net income was R$ 560 million, versus R$ 169 million in 2009.

CAPEX
The investments made in 2010 are listed below:

R$ Million
Forestry Papers Conversion Others Total

2010
133 181 68 3 386

2009
98 122 27 247

Investments came to R$ 386 million in 2010, with 47% allocated to the Paper Business Unit, 34% to the Forestry Business Unit and 18% to the Conversion Business Unit. The total amount invested was 56% higher than in 2009. The Forestry Business Unit planted 17 thousand of own hectares during the year. The increased planting of higher yielding species guarantees the supply of raw materials for expanding fiber production capacity. In 2010, harvesting machinery, equipment and modules were acquired to accelerate the pace of wood harvesting. Klabin made investments to improve the energy matrix of its paper units. The main projects include the installation of new biomass boilers at the Otaclio Costa plant in Santa Catarina, the acquisition of a new high-voltage transmission line for the plant at Monte Alegre in Paran and a new biomass boiler at the Correia Pinto plant in Santa Catarina, which replaced the current fuel oil boiler. Four printers with the capacity to print in four colors on corrugated boxes were acquired and installed at the Conversion units. These equipments are in operation, with two at the Jundia-DI plant in So Paulo, one at the Feira de Santana plant in Bahia and one at the Itaja plant in Santa Catarina, and will expand Conversion capacity and provide better graphic solutions for meeting the new demands in the market. In 2010, a new complete line for producing multi-layered valve-type bags was also acquired and installed. The equipment, which is already in operation at the Lages factory in Santa Catarina, substitutes two older lines and will provide productivity and quality gains.

BUSINESS PERFORMANCE
BUSINESS UNIT FORESTRY With a focus on creating the conditions required for the Company's sustainable growth through higher cash generation and better yields on planted areas, the Forestry Business Unit modified its strategy for wood sales by expanding its range of clients, extending the reach of its actions and identifying new market niches and opportunities. Harvested areas are being made available for replanting with more productive species. Klabin handled 9.9 million tons of pine and eucalyptus logs and woodchips as well as waste products for energy generation in 2010, representing an increase of 25% versus 2009. Of this amount, 6.8 million tons were transferred to the plants located in Paran, Santa Catarina and So Paulo. The volume of log sales to sawmills and planer mills totaled 3.1 million tons in 2010, up 65% from 2009. In December 2010, the Company owned 458 thousand hectares of land, which were composed of 213 thousand hectares of planted forests and 192 thousand hectares of preserved native forests. In 2010, 24,743 hectares were planted, of which 17,125 hectares were planted on own properties and 7,618 hectares were planted under the scope of the Forestry Incentive Program. In 2010, 8 thousand hectares were planted on the properties of rural properties located in regions near the forestry units of Paran, Santa Catarina and So Paulo, 4

increasing the total area planted since the launch in 1984 of the Forestry Incentive Program to 102 thousand hectares. A total of 18 thousand producers in these Brazilian states have already benefited from this program. With the Forestry Incentive Program, Klabin seeks to increase from 10% to 20% the share of thirdparty wood in its overall supply by 2012. Eucalyptus forest yields, measured in tons of pulp produced per hectare of planted forest, have been increasing each year as a result of the investments made in research and development. In 2010, fiber yields on these areas were 40% higher than five years earlier. BUSINESS UNIT PAPER In 2010, higher income, employment and industrial-production levels boosted consumption and consequently the demand for coated board and kraftliner in the domestic market. Brazilian exports of packaging paper also benefited from the economic recovery in certain regions and from the supply restrictions faced by international producers in the first half of the year, which are explained by the capacity shutdowns, strikes and natural phenomena that hindered world supply (earthquake in Chile, freezing of the Baltic Sea and the rigorous winter in the Northern Hemisphere). In the second half of the year, the waning of the crisis also boosted demand for O.C.C. (old corrugated container) and recycled paper. This scenario led to hikes in kraftliner prices in all markets. In Europe, according to FOEX, the list price of kraftliner brown 175 g/m reached approximately $ 600/tonne in December, for an increase of 46% from the price in the same month of 2009. In the year, the average international kraftliner price was 509/tonne, 23% higher than the average in 2009. Kraftliner sales volume was 367 thousand tonnes in 2010, down 6% on 2009. Exports accounted for 60% of overall sales volume, down from 78% in 2009. Net revenue in the year was R$ 466 million, 21% higher than in 2009. Higher international paper prices and the growth in domestic sales volume partially offset the appreciation in the Brazilian real against the U.S. dollar, helping to boost revenue. According to the Brazilian Association of Pulp and Paper Producers (Bracelpa), in 2010, Brazilian shipments of coated boards, excluding liquid packaging board, reached a record 576 thousand tonnes, for growth of 14% on 2009. Klabins share of coated boards sales in the domestic market reached 27% in the year. The volume of paper and board sales in the year totaled 1,024 thousand tonnes, for growth of 11% on 2009, with the domestic market registering growth of 24% and the export market recording growth of 1%. Net revenue was R$ 1,713 million, up 25% on 2009, with the domestic market growing by 30% and the export market by 18%. BUSINESS UNIT - CONVERSION Brazilian demand for corrugated board, as measured by the volume of boxes and boards shipments, reached a record high in 2010. According to the Brazilian Corrugated boxes Association (ABPO), Brazilian shipments reached 2.5 million tonnes in the period from January to December, 12% more than a year earlier. Klabins sales of corrugated boxes and boards reached 512 thousand tonnes, up 12% on 2009. Net revenue totaled R$ 1,157 million, growing by 22% on the previous year. To meet the growth in domestic demand, the Company installed four new printers capable of printing in four colors, with two at the Jundia-DI plant located in So 5

Paulo, one at the Feira de Santana plant in Bahia and one at the Itaja plant in Santa Catarina. Brazils cement industry, which is the main consumer of Klabins industrial bags, has been prioritizing the domestic market and investing heavily in expanding its production capacity. Preliminary data from the National Cement Industry Trade Union (SNIC) and market estimates indicate that domestic cement sales in Brazil reached 59 million tonnes in 2010, which represents a substantial increase from the 52 million tonnes in 2009. The North posted the country's strongest growth rate, of 58%, however, this region accounts for only 6% of Brazil's consumption. Sales volume of industrial bags at the plants in Brazil and Argentina totaled 142 thousand tonnes in 2010, increasing by 9% and 10% in relation to 2009, respectively, with net revenue of R$ 472 million. The main consumers of multi-layered bags are the construction (cement and mortar), agribusiness (seeds) and food (wheat) industries. In 2010, the Company developed highly resistant, plastic-film protected bags with sophisticated printing for the powdered milk market. In August, a new line began operating at the unit located in Lages, Santa Catarina. The line has production capacity of 4 million bags per month and replaced the two lines previously operating at the unit.

CAPITAL MARKETS
In 2010, the price of Klabin preferred stock (KLBN4) gained 9%, while the Ibovespa index increased by 1%. The Company's stock was traded in all trading sessions on the So Paulo Stock Exchange (Bovespa), registering 575 thousand transactions involving 593 million shares, for average daily trading volume of R$ 12.2 million. Klabins capital stock is represented by 917.7 million shares, of which 316.8 million are common shares and 600.9 million are preferred shares. SALE OF PREFERRED SHARES BY BNDESPAR With the start of the divestment of preferred shares by BNDESPAR in July, average daily trading volume on the BM&FBovespa increased by 50%, from R$ 9.7 million in the first six months to R$ 14.6 million in the last six months of 2010. By December 31, 2010, BNDESPAR had sold 77.4 million preferred shares in Klabin, which led its interest in the Companys preferred shares to fall from 31% to 18%. STOCK BUYBACK AND TREASURY STOCK In an extraordinary meeting of the Board of Directors held on October 13, 2010, authorization was given for a Preferred Stock Buyback Program involving up to 45.3 million shares issued by the company. The program is valid for 365 days, i.e. until October 12, 2011. In 2010, the Company repurchased 10.3 million shares and ended the year with 27.2 million preferred shares in treasury. DIVIDENDS In 2010, R$ 57 million in supplementary dividends and R$ 120 million in interim dividends were paid, which corresponds to R$ 184.54 per lot of thousand common shares and R$ 202.99 per lot of thousand preferred shares. The Management will submit to the Annual Shareholders Meeting, to be held on April 2011, a proposal for the payment of supplementary dividends of R$ 70 million, which corresponds to R$ 73.85 per lot of thousand common shares and R$ 81.24

per lot of thousand preferred shares. As a result, the dividends distributed relative to fiscal year 2010 will total R$ 190 million. RELATIONSHIP WITH INDEPENDENT AUDITORS The Companys policy for hiring independent auditors to perform services unrelated to the external audit is based on principles that preserve the independence of audit professionals. During fiscal year 2010, the external auditors provided only services directly related to the audit of the financial statements.

SUSTAINABILITY
RESEARCH AND DEVELOPMENT The management model adopted by Klabin allows for conciliating the creation of wealth with the promotion of social wellbeing without compromising the environment and future generations. This effort is characterized by adopting modern and innovative tools that allow the company to achieve important gains in efficiency and quality. In line with its vision to grow in a sustainable manner, Klabin prioritizes investments in research and development, with a focus on creating processes and products and forming partnerships with research institutes and universities. The responsibilities of the R&D area include pursuing technological innovations and improvements in industrial processes and obtaining reductions in production costs, while always considering during the execution of projects the environmental, quality, productivity, health and safety aspects. In recent years, the R&D area has focused especially on developing papers, coated boards and packagings with lower grammage, which in aligned with the companys strategy of investing in products with higher added value. The process improves efficiency by reducing the costs related to the production, use and transport of packaging and by generating environmental advantages from lower fiber usage. In 2010, the main products developed were: Greaseproof Coated Board Targeting manufacturers of packaging for fastfood restaurants, this product has a protective film that repels grease, improving its resistance when it comes into contact with food. Oil consumption by the lime kiln The reduction of 9% in fuel oil consumption was made possible by an advanced control system that uses mathematical models to anticipate fluctuations and indicates the optimal moment to adjust the machine and prevent process variations. Increased efficiency in the calcification process This initiative was based on the same model to improve efficiency in lime consumption used at the Monte Alegre Unit, and obtained gains of 12% in the calcification process. The project won the award for the best project of the year given by the Brazilian Pulp and Paper Technical Association (ABTCP).

Over the past 25 years, forestry research has led the Mean Annual Increment (MAI) of cultivated species to double for both softwood species (Pine) and hardwood species (Eucalyptus). Higher forestry yields allow for higher fiber production on the same hectare planted. Challenges for the future: Expanding the use of advanced control technologies, which are already used on recovery areas and in pulp, paper and coated boards production;

Increasing research in the field of biotechnology for the production of pulp, paper and coated boards; Establishing the use of process modeling and simulation as a work tool.

SOCIAL RESPONSIBILITY For Klabin, healthy relationships with the communities surrounding its units are fundamental for the sustainability of its business. The company believes that it plays a decisive role in improving the quality of life of people and in building a more equitable society. To achieve this, it adopts a series of actions to strengthen ties with this stakeholder and to support local development. The highlight in 2010 was the Program to Develop the Telmaco Borba Region Based on Diversifying the Wood Industry. The initiative aims to structure a solid wood chain in the region, promoting development with a focus on the sustainability and competitiveness of manufacturers. The partnership between Klabin, local governments, the government of the State of Paran, Sebrae-PR and the Paran State Manufacturers' Federation (FIEP) encompasses 13 municipalities. Other actions developed by Klabin involve partnerships working on projects in the areas of healthcare, vocational and environmental education, social assistance, cultural activities and incentives to encourage volunteer work by employees. ENVIRONMENT Klabin conducts its business under an environmental management model that balances industrial production with the preservation of natural resources. In line with its Sustainability Policy, Klabin adopts and encourages its employees and partners to practice the 3 Rs: Reduce, Reuse and Recycle, developing initiatives to continually enhance its products and services, as well as to control and monitor the impacts of its operations on the environment. In this way, it contributes to building a better future for subsequent generations while obtaining gains from lower costs and lower consumption of water, electric and raw materials. This structured management model is complemented by various social and environmental activities that educate and raise awareness among its various stakeholders. Examples include the Cauibi Environmental Education Programs and the Klabin Ecological Park maintained in Telmaco Borba, Paran. Klabin is also a world reference in forestry management practices, due to its high level of commitment to maintaining balanced ecosystems and preserving biodiversity. All wood used in the production process comes from forests that are planted exclusively for this purpose. In addition, all forests on properties owned by the company are certified by the Forest Stewardship Council (FSC), which attests to the fact that its forests are managed correctly and contribute to sustainable development. In 1998, Klabin became the first company in the industry in the Southern Hemisphere to receive the certification. Similarly, the companys Environmental Management System is certified by ISO 14001 in all its business segments (paper, coated board, bags and packaging). At the end of 2010, Klabin preserved 192 thousand hectares of native forests, which represented 41% of all its land properties, which will help protect biodiversity and included the reintroduction of extinct species in the region. HUMAN RESOURCES Klabins people management policy promotes the satisfaction and wellbeing of its employees and helps identify people who are aligned with its values. The company believes that the success of its strategies and the sustainable expansion of its business are only made possible when everyone shares the same commitment and goals.

To strengthen this principle, in 2010, the company implemented actions to value and disseminate its culture, which will serve as a guide for its employees. The Code of Conduct is one of the main tools used to disclose the companys principles and values. It is through this code that professionals commit to act in accordance with the company's expectations. At the end of 2010, Klabin had 14,603 employees, of which 8,004 were employees, 6,122 were outsourced workers and 477 were temporary workers. The Company also had as an Internship Program with 63 interns.

NEW CEO
In November, an announcement was made that Mr. Reinoldo Poernbacher would retire, with Mr. Fabio Schvartsman replacing him as CEO. Mr. Schvartsman was elected at the Board of Directors meeting held on February 2, 2011.

OUTLOOK
2010 was a year full of challenges. In addition to the continuous improvements in performance, investments were initiated to reduce costs at the paper units and to expand capacity at the industrial bag and corrugated box units. In 2011: Klabin plans to continue deleveraging, reducing the net debt/EBITDA ratio to a level below 2x; Klabin continues to renew its forestry area, substituting older forests with new ones, with gains in fiber yields of up to 50%; At the Otaclio Costa unit in Santa Catarina, the new biomass boiler, which began operations in January 2011, replaced the fuel oil boiler. The investment will result in cost savings, advances in the energy matrix and technological updates; At the Correia Pinto unit in Santa Catarina, the new biomass boiler will replace two older boilers, resulting in self-sufficiency in terms of electricity needs; At the corrugated boxes plants, in addition to the recently installed printers, two new corrugators will be installed that will lead to an increase in production capacity at the Jundia DI (SP) and Goiania (PE) units; At the industrial bag unit in Lages, Santa Catarina, an additional line to produce multi-layered bags will be installed that will increase the units productivity by 10%.

ACKNOWLEDGEMENTS
The Management of Klabin S.A. thanks its shareholders, clients, commercial partners, suppliers and financial institutions for the support and confidence demonstrated, and in particular its employees, who played a major role in 2010.

So Paulo, February 24, 2011

The Management 9