SCA Interim Report January 1 - March 31, 1999

SCA Interim Report January 1 - March 31, 1999 A in brief 99:1 98:4 98:1 t sales, SEK M 16,242 15,918 15,264 rnings after financial items, SEK M 1,128 1,117 1,654 xcluding nonrecurring items 1,128 1,117 1,254 Earnings per share after tax, SEK 3.76 3.68 5.57 Cash flow from current operations 4.25 7.62 3.08 per share, SEK First step taken prior to divestment of fine paper operations. Earnings at the same level as in preceding quarter. Hygiene Products and Packaging business areas posted higher operating profit compared with fourth quarter. Continued favorable volume trend in Hygiene Products. Cash flow from current operations amounted to SEK 845 M. Successive recovery in European business climate expected to result in improved price situation. SALES AND EARNINGS The Group's net sales amounted to SEK 16,242 M (15,264), an increase compared with the first quarter of 1998 of 6%. 8% of the increase is attributable to acquisitions in the packaging operations, a volume increase of 2% and lower prices and other effects amounting to 4%. Compared with the fourth quarter of 1998, net sales rose 2%. Acquisitions within Packaging accounted for 6% of the increase. Higher volumes provided 3%, while prices, product mix and other factors resulted in a 4% decline. In addition, currency effects impacted negatively on the first quarter by 3%. This was due to the appreciation of the SEK. Group operating profit amounted to SEK 1,454 M (1,934). Adjusted for nonrecurring items of SEK 400 M in the first quarter of 1998, operating profit declined 5%, mainly due to lower product prices. Accordingly, earnings were at the level reported in the fourth quarter of 1998. Financial items amounted to an expense of SEK 326 M (280). The change is attributable mainly to higher net debt as a result of company acquisitions. Group earnings after financial items amounted to SEK 1,128 M (1,654). Adjusted for nonrecurring items, this corresponds to a decline of 10% compared with the first quarter of 1998. Earnings after financial items were at the level reported in the fourth quarter of 1998. Earnings after tax amounted to SEK 746 M (1,100). Earnings per share, after full tax and full dilution, were SEK 3.76 (5.57). Calculated on a rolling 12-month basis, the return on shareholders' equity was 11% (14) and on capital employed 12% (14). CASH FLOW SEK M 99:1 98:1 Net sales 16,242 15,264 Operating surplus 2,533 2,911 % of net sales 16 19 Current capital expenditures -442 -396 % of net sales 3 3 Changes in working capital -559 -1,023 Other operating cash flow -101 -116 changes Operating cash flow 1,431 1,376 Income taxes paid, etc¹ -288 -528 Free cash flow 1,143 848 per share, SEK 5.75 4.29 Interest paid after taxes -298 -239 Cash flow from current 845 609 operations per share, SEK 4.25 3.08 Strategic capital investments, -3,860 -302 net Cash flow before dividend -3,015 307 ¹ Tax attributable to operating profit Operating surplus amounted to SEK 2,533 M (2,911), corresponding to 16% (19) of net sales. Excluding nonrecurring items, operating surplus for the comparable period was SEK 2,511 M, which also corresponds to 16% of net sales. Operating cash flow amounted to SEK 1,431 M (1,376). Working capital increased by SEK 559 M (1,023). Capital expenditures for current investments amounted to SEK 442 M (396). Cash flow from current operations, that is, before strategic capital expenditures and dividends, amounted to SEK 845 M (609), corresponding to SEK 4.25 (3.08) per share. Strategic capital investments, which include expansion investments and acquisitions, amounted to SEK 3,890 M (1,272). Company acquisitions, SEK 3,347 M (1,043), include purchases of packaging companies in Great Britain and Denmark and redemption of the minority interest in SCA Graphic Laakirchen AG. Strategic capital expenditures in machinery and plant amounted to SEK 543 M (229), mainly within Hygiene Products. FINANCING Net debt at the end of the period amounted to SEK 23,699 M, which is SEK 2,329 M higher than at 1 January 1999. The increase is attributable to a net of the cash flow from operations of SEK 845 M, payments for strategic investments and divestments, combined amounting to SEK 3,860 M, and the positive effects of currency movements, SEK 686 M. As a result of the appreciation of the SEK, shareholders' equity declined by about SEK 900 M due to SCA's policy of hedging the Group's assets outside Sweden. This policy is based on the principle that the debt/equity ratio should be unaffected by currency movements. The debt/equity ratio was 0.80 (0.69), while at 31 December 1998 it was 0.72. The interest coverage multiple was 4.5 (6.9). SIGNIFICANT EVENT SCA's reasons for forming a new fine paper company in cooperation with MoDo SCA's strategic direction involves a continued focus on hygiene products and packaging as well as wood-containing papers linked to SCA's extensive forest holdings, which also represents a strategically vital raw material base for the hygiene and packaging operations. Since SCA acquired PWA in 1995, a comprehensive improvement program was implemented in the fine paper operations regarding the product program (concentration to coated sheet and quality enhancement) and increased integration with the merchanting operations. As a result, it has been possible to increase the value of SCA's fine paper operations substantially. SCA has announced for some time that the fine paper activities was not among SCA's strategic operations. During the process, SCA studied various action alternatives based on the best possible solution for SCA's shareholders. The alternatives studied were merger with another company, exchange of assets, direct divestment and a listing on the stock exchange. It is considered that the alternative selected, taking into account the potential that exists in the new company and current market situation, represents the overall best solution from a value viewpoint. From an industrial viewpoint, the merger with MoDo means that the new company will be a leading player in fine paper in Europe, with concentration on the rapidly growing commercial print segment (coated paper) and office papers. The new company will be one of Europe's largest paper merchants, with substantial market shares in its main markets and a presence in more than 20 countries. Financial effects for SCA The transferred fine paper operations has reported the following earnings trend: SEK M 99:1 1998 1997 Net sales 2,465 9,789 9,042 Operating profit 108 528 436 Capital employed, excluding pension liabilities, amounted to SEK 6,579 M at 31 December 1998. The estimate is that SCA's net loan liabilities will decline by SEK 2.5 - 3.0 billion as a result of the new company's own external borrowing. Accordingly, the debt/equity ratio in SCA will decline by a multiple of about 0.1. The transaction with MoDo is described in a separate press release and supplementary information on SCA's website www.sca.se. HYGIENE PRODUCTS BUSINESS AREA SEK M 99:1 98:4 98:1 Net sales 6,609 6,951 6,328 Consumer products 3,775 4,081 3,698 AFH and incontinence 2,834 2,870 2,630 products 596 583 616 Operating profit 237 244 253 Consumer products 359 339 363 AFH and incontinence products 1.6* 1.8* 6.0* Volume growth, % 6.2** 2.9* 4.8* Consumer products 2.0* AFH and incontinence 9.6** products *) Compared with the immediately preceding quarter **) Compared with corresponding period previous year Net sales amounted to SEK 6,609 M (6,328), up 4% for comparable units compared with a year earlier. The increase was the net effect of a 5% volume growth, price decline of 2% and adverse currency effects of 1%. In addition, company acquisitions, mainly in consumer products, contributed a volume increase of 3%. Compared with the fourth quarter of 1998, net sales declined 5%. Volumes were higher, prices unchanged, while the currency and product mix affected net sales adversely. Operating profit amounted to SEK 596 M (616). The decline in operating profit was due mainly to lower prices and higher costs for development and marketing. Compared with the fourth quarter of 1998, earnings improved somewhat despite increased development costs and advertising investments. As a result of currency hedging, the effects of the appreciation of the SEK did not impact earnings. PACKAGING BUSINESS AREA SEK M 99:1 98:4 98:1 Net sales 4,745 3,832 3,828 Operating profit 387 316 373 Deliveries m sq. m. Corrugated board 823 704 728 Production and deliveries, liner products, see table "Volumes" on page 14. Net sales in the period amounted to SEK 4,745 M (3,828). Adjusted for acquisitions, the packaging operations posted a decline in net sales corresponding to 6%. The decline is due to lower kraftliner prices and lower corrugated board volumes. Compared with the fourth quarter of 1998, net sales, adjusted for company acquisitions, declined 3%, due mainly to lower paper prices. Operating profit amounted to SEK 387 M (373). Company acquisitions affected earnings favorably while reduced paper prices and lower corrugated board volumes reduced earnings. Compared with the fourth quarter of 1998, operating profit rose 22%, due mainly to company acquisitions. GRAPHIC PAPER BUSINESS AREA SEK M 99:1 98:4 98:1 Net sales 4,569 4,959 4,673 Operating profit 405 469 465 Wood-containing publication 320 380 279 papers Fine papers, paper merchanting, 85 89 186 market pulp Production and deliveries, see table "Volumes" on page 14. Net sales amounted to SEK 4,569 M (4,673), down 2%. The decline was due mainly to lower prices. Compared with the fourth quarter of 1998, net sales declined 8%, due to lower volumes as well as lower prices. Operating profit in the period amounted to SEK 405 M (465), of which wood- containing publication papers accounted for SEK 320 M (279). The earnings improvement for wood-containing publication papers is due to lower raw material costs and higher productivity. However, prices for LWC has been somewhat lower. Operating profit within fine paper and pulp operations amounted to SEK 85 M (186). The earnings decline is due to lower fine paper and pulp prices. Compared with the fourth quarter of 1998, earnings of SEK 405 M (469) weakened. Prices for wood-containing publication papers declined concurrent with lower deliveries. Earnings within the fine paper and the pulp operations were SEK 85 M (89). Fine paper operations posted improved earnings while pulp operations declined due to lower volumes. FOREST AND TIMBER SEK M 99:1 98:4 98:1 Net sales 941 998 1,053 Operating profit 161 206 188 Operating profit in the first quarter of 1999 were 14% lower than in the first quarter of 1998. Capital gains from the sale of forest land amounting to SEK 14 M (20) are included in earnings. Both sawmill and forestry operations reported lower earnings compared with a year earlier due to lower selling prices for sawn timber and pulpwood. Compared with the preceding quarter, operating profit was lower as a result of cuts in pulpwood prices. PERSONNEL As of 31 March 1999, the number of employees was 34,554 (31,879). The number of employees as of 31 December 1998 was 32,211. The increase is due to company acquisitions. MARKET OUTLOOK Economic growth in Europe was weak during the first quarter, particularly in Germany and France. However, greater consumer optimism was noted regarding confidence in a successive economic recovery. Concurrently, there are clear signs of a recovery in the raw material business climate due to continued strong development in North America and increased activity in Asia. Among other effects, this has resulted in increased prices for liner and pulp, a development which should be able to create a successively better price situation for the Group's hygiene and packaging products. SHARE DISTRIBUTION 31 March 1999 Series A Series B Total Registered number of 62,145,880 135,254,055197,399,93 shares 5 Unconverted debenture - 1,313,151 1,313,151 loans Outstanding warrants - 1,643,544 1,643,544 Total after full 62,145,880 138,210,750200,356,63 conversion 0 Calculated in accordance with the recommendations of the Financial Analysts Association, the effects of the outstanding convertible debenture and warrant programs is a maximum dilution of 0.7%, which is taken into account in calculating earnings per share for the period. Stockholm, 28 April 1999 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Sverker Martin-Löf President and CEO This report is unaudited. Copies of the Interim Report are available at SCA U.K. Holdings Limited, SCA Packaging House, 543, New Hythe Lane, Aylesford, Kent ME20 7PE, attention, Tony Staples, telephone +44 1622 883 025. Statement of Earnings 1 January - 31 March 1999 1998 SEK M EUR M SEK M MECU Net sales 16,242 1,813 15,264 1,751 Operating expenses - -1,530 - -1,417 13,709 12,353 Operating surplus 2,533 283 2,911 334 Depreciation according to -1,084 -122 -998 -114 plan Share in earnings of 5 1 21 2 associated companies Operating profit 1,454 162 1,934 222 Financial items -326 -36 -280 -32 Earnings after financial 1,128 126 1,654 190 items Income taxes -372 -42 -522 -60 Minority interest -10 -1 -32 -4 Net earnings after tax 746 83 1,100 126 Operating margin 9% 13% Return on shareholders' 11% 14% equity Return on capital employed 12% 14% Business Areas Net sales 1 January - 31 March SEK M 1999 1998 Hygiene Products 6,609 6,328 Consumer products 3,775 3,698 AFH and incontinence products 2,834 2,630 Packaging 4,745 3,828 Graphic Paper 4,569 4,673 Wood-containing publication 1,807 1,838 papers Fine papers, paper merchanting, 2,762 2,835 market pulp Forest and Timber 941 1,053 Other operations 375 411 Divested units - 141 Intra-Group deliveries -997 -1,170 Total net sales 16,242 15,264 Earnings 1 January - 31 March SEK M 1999 1998 Hygiene Products 596 616 Consumer Products 237 253 AFH and incontinence products 359 363 Packaging 387 373 Graphic Paper 405 465 Wood-containing publication 320 279 papers Fine papers, paper merchanting, 85 186 market pulp Forest and Timber 161 188 Other operations -16 365 Divested units - 5 Goodwill amortization -79 -78 Total operating profit 1,454 1,934 Financial items -326 -280 Earnings after financial items 1,128 1,654 Balance Sheet 1999-03-31 1998-12-31 SEK M EUR SEK M ECU M M Assets Long-term assets 56,555 6,36 55,147 5,823 3 Receivables and inventories 19,689 2,21 18,790 1,984 6 Financial receivables and 2,684 302 2,617 276 investments Cash and bank balances 1,409 159 1,819 192 Total assets 80,337 9,04 78,373 8,275 0 Equity, provisions and liabilities Shareholders' equity 28,250 3,17 28,404 2,999 9 Minority interests 1,349 152 1,386 146 Provisions 10,777 1,21 10,906 1,152 3 Interest-bearing debt 27,792 3,12 25,806 2,725 7 Operating liabilities and other noninterest-bearing debt 12,169 1,36 11,871 1,253 9 Total equity, provisions and 80,337 9,04 78,373 8,275 liabilities 0 Debt/equity 0.80 times 0.72 times Equity/assets 37% 38% Cash Flow Statement 1 January - 31 March SEK M 1999 1998 Operating surplus 2,533 2,911 Changes in working capital -559 -1,023 Current capital expenditures -442 -396 Other operating cash flow changes -101 -116 Operating cash flow 1,431 1,376 Financial items -326 -280 Income taxes paid -180 -438 Other -80 -49 Cash flow from current operations 845 609 Strategic capital expenditures -543 -229 Acquisitions - -1,043 3,347 Divestments 30 970 Net cash flow¹ - 307 3,015 Net debt, 1 January - -19,018 21,37 0 Net cash flow - 307 3,015 Currency effects 686 56 Net debt, 31 March - -18,655 23,69 9 Debt payment capacity 36% 38% ¹ Additional information in accordance with Swedish Financial Accounting Standards Council's recommendation regarding reporting of cash flow Net cash flow - 307 3,015 Change in loan liabilities 2,646 -346 Change in cash and bank balances -369 -39 Cash and bank balance at beginning of 1,819 1,582 period Currency effects on cash and bank -41 -4 balances Cash and bank balances at end of 1,409 1,539 period Quarterly Data Group 1999 1998 SEK M I IV III II I Net sales 16,242 15,91815,23414,85715,264 Operating surplus 2,533 2,476 2,506 2,427 2,911 Depreciation according to -1,084 -1,043-1,006 -966 -998 plan Share in earnings of 5 27 32 41 21 associated companies Operating profit 1,454 1,460 1,532 1,502 1,934 Financial items -326 -343 -338 -298 -280 Earnings after financial 1,128 1,117 1,194 1,204 1,654 items of which, nonrecurring items - - - - 400 Income taxes -372 -356 -426 -376 -522 Minority interest -10 -30 -19 -29 -32 Net earnings after tax 746 731 749 799 1,100 Earnings per share 3.76 3.68 3.77 4.05 5.57 Quarterly Data Business Areas - Net sales 1999 1998 SEK M I IV III II I Hygiene Products 6,609 6,9516,4906,3956,328 Consumer products 3,775 4,0813,8203,7143,698 AFH and incontinence 2,834 2,8702,6702,6812,630 products Packaging 4,745 3,8323,7253,6503,828 Graphic Paper 4,569 4,9594,7794,4914,673 Wood-containing 1,807 1,9791,9001,7611,838 publication papers Fine papers, paper merchanting, 2,762 2,9802,8792,7302,835 market pulp Forest and Timber 941 998 9011,0331,053 Other operations 375 365 467 404 411 Divested units - 3 1 -1 141 Intra-Group deliveries -997-1,190 - - - 1,1291,1151,170 Total net sales 16,24215,91815,2314,8515,26 4 7 4 Business Areas - Earnings 1999 1998 SEK M I IV III II I Hygiene Products 596 583 600 605 616 Consumer products 237 244 234 276 253 AFH and incontinence 359 339 366 329 363 products Packaging 387 316 396 395 373 Graphic Paper 405 469 492 425 465 Wood-containing 320 380 358 317 279 publication papers Fine papers, paper merchanting, 85 89 134 108 186 market pulp Forest and Timber 161 206 140 188 188 Other operations -16 -30 -16 -34 365 Divested units - -1 -1 - 5 Goodwill amortization -79 -83 -79 -77 -78 Total operating profit 1,454 1,4601,5321,5021,934 Financial items -326 -343 -338 -298 -280 Earnings after financial 1,128 1,1171,1941,2041,654 items of which, nonrecurring - - - - 400 items Earnings after financial items 1,128 1,1171,1941,2041,254 excl. nonrecurring items Quarterly Data Business Areas - Operating surplus margins 1999 1998 % I IV III II I Hygiene Products 14 13 14 14 15 Packaging 15 14 16 16 15 Graphic Paper 16 16 17 18 16 Wood-containing 28 27 28 28 24 publication papers Fine papers, paper merchanting, 8 8 10 12 10 market pulp Forest and Timber 20 24 19 21 21 Group operating surplus 16 16 16 16 19 margin Business Areas - Operating margins 1999 1998 % I IV III II I Hygiene Products 9 8 9 9 10 Consumer products 6 6 6 7 7 AFH and incontinence 13 12 14 12 14 products Packaging 8 8 11 11 10 Graphic Paper 9 9 10 9 10 Wood-containing 18 19 19 18 15 publication papers Fine papers, paper merchanting, 3 3 5 4 7 market pulp Forest and Timber 17 21 16 18 18 GROUP Operating margin 9.0 9.2 10.1 10.1 12.7 Financial net margin -2.0 -2.2 -2.2 -2.0 -1.8 Profit margin 7.0 7.0 7.9 8.1 10.9 Five-year summary Full year 1998 1997 1996 1995 1994 Earnings after financial 5,169 4,457 3,573 5,731 1,060 items, SEK M Earnings per share after 17.07 13.98 10.71 17.55 2.94 tax, SEK Debt/equity ratio, times 0.72 0.73 0.67 0.69 0.52 Return on capital employed, 14 12 11 16 6 % Return on shareholders' 13 12 10 17 3 equity, % Volumes Thousand metric 99:1 98:4 98:3 98:2 98:1 9812 Change %* tons Liner products Production 550 497 562 555 554 2,168 -1 External 176 173 183 173 186 715 -5 deliveries Wood-containing publication papers Production 302 295 301 303 301 1,200 - External 290 311 300 300 288 1,199 1 deliveries Fine papers Production 186 179 190 183 184 736 1 External 183 182 193 164 181 720 1 deliveries @ Compared with corresponding period previous year INFORMATION SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Corporate Communications Box 7827, SE-103 97 STOCKHOLM, Sweden Tel +46 8-788 51 00. Fax +46 8-678 81 30 www.sca.se ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/28/19990428BIT00090/bit0001.doc The full report http://www.bit.se/bitonline/1999/04/28/19990428BIT00090/bit0002.pdf The full report