SCA Interim report, 1 January-31 March 2001

Interim report 1 January - 31 March 2001 01:1 00:1 00:4 Earnings per share, SEK 5.72 4.79 6.00 Cash flow from current operations per share, 6.19 3.79 9.32 SEK Net sales, SEK M 18,522 15,992 18,030 Earnings after financial items, SEK M 1,963 1,670 2,048 Net earnings after tax 1,323 1,109 1,389 · Earnings per share improved by 19%. · Higher earnings in all business areas: Packaging 29%, Hygiene Products 27% and Forest Products 25%. · Unchanged operating profit and margins in all business areas, compared with the fourth quarter 2000. · Continued stable demand for the Group's products despite an increasingly pronounced economic slowdown. NET SALES AND EARNINGS Earnings per share, after dilution, increased 19% to SEK 5.72 (4.79). Net earnings after tax amounted to SEK M 1,323 (1,109). Sales and earnings from the North American operations acquired in the beginning of 2001 have not been included in the first quarter results. Nor has interest paid on the purchase price been charged against earnings. The transactions were finalized in March and preliminary acquisition balances are included in the consolidated balance sheet. As announced previously, the operations will be included in SCA's financial results as of the second quarter. Consolidation of sales and earnings was postponed due to ongoing efforts to establish definitive acquisition balance sheets and an alignment of the accounting principles in these companies. Financial results by the acquired units since the takeover have corresponded with evaluations made in conjunction with the acquisitions. Consolidated net sales amounted to SEK 18,522 M (15,992), an increase of 16% compared with the year-earlier period. Higher product prices and a better product mix resulted in a sales increase of 7% while expansion through acquisitions and organic growth increased sales 4%. Currency movements generated a favorable effect on the Group's net sales of about 5%. Group operating profit amounted to SEK 2,213 M (1,951), an increase of 13% compared with the first quarter 2000. Excluding the Group's share in earnings of Modo Paper, which amounted to SEK 218 M in the first quarter of 2000, the increase was 28%. All business areas reported higher earnings. The operating profit for Hygiene Products amounted to SEK 858 M (673), an increase of 27%. Packaging reported earnings of SEK 858 M (665), an increase of 29%, and earnings in Forest Products amounted to SEK 760 M (607), an increase of 25%. Currency movements increased the Group's operating profit by 4%. Financial items amounted to an expense of SEK 250 M (expense: 281). Higher interest rates during the period were more than offset by a lower average level of net debt. Group earnings after financial items amounted to SEK 1,963 M (1,670), an improvement of 18% compared with the year-earlier period. Return on shareholders' equity, excluding non-recurring items, was 14% (13), and return on capital employed was 15% (12). Comparisons with fourth quarter of 2000 Group earnings were marginally lower than earnings in Q4 2000. All business areas, however, reported virtually unchanged earnings, and the lower consolidated earnings is due to a gain of SEK 140 M from a leasing transaction that was included the fourth quarter. Currency movements increased the Group's operating profit during the period by about SEK 80 M. CASH FLOW The operating cash surplus amounted to SEK 3,436 M (2,837), equal to 19% (18) of net sales. The seasonal increase in working capital amounted to SEK 769 M (1,105), while net investments in current operations totaled SEK 498 M (402). The operating cash flow, accordingly, amounted to SEK 2,095 M (1,319). Cash flow from current operations, defined as cash flow before strategic investments and dividends, amounted to SEK 1,435 M (880), equal to SEK 6.19 (3.79) per share. Company acquisitions during the period amounted to SEK 11,238 M and related to the acquisitions of the American tissue operations of Georgia- Pacific and the American packaging company Tuscarora. This amount corresponds to the total purchase price of the acquisitions, which, on a debt-free basis, amounted to USD 850 M for the tissue company and USD 284 M for the packaging company. Strategic capital investments in plant and machinery, as well as restructuring costs, totaled SEK 177 M. Comparisons with fourth quarter of 2000 The operating cash surplus amounted to SEK 3,436 M (3,572), while the seasonal increase in working capital resulted in a cash flow from current operations of SEK 1,435 M, which was SEK 724 M lower than corresponding cash flow in the preceding quarter. SEK M 01:1 00:1 00:4 Net sales 18,522 15,992 18,030 Operating cash surplus 3,436 2,837 3,572 % of net sales 19 18 20 Current capital expenditures, net -498 -402 -818 % of net sales 3 3 5 Changes in working capital -769 -1,105 304 Other operating cash flow changes -74 -11 -29 Operating cash flow 2,095 1,319 3,029 Tax payment etc1 -272 -246 -591 Free cash flow 1,823 1,073 2,438 Per share, SEK 7.86 4.63 10.52 Interest payment after taxes -388 -193 -279 Cash flow from current operations 1,435 880 2,159 Per share, SEK 6.19 3.79 9.32 Strategic investments and divestments -11,415 -635 -20 Cash flow before dividend -9,980 245 2,139 1 Tax attributable to operating profit. FINANCING Net debt amounted to SEK 27,630 M, which was SEK 11,750 M higher than year-end 2000. The change was attributed to the American acquisitions, which created an outflow for acquisitions and strategic investments totaling SEK 11,415 M, the net of cash flow from current operations, SEK 1,435 M, and negative currency effects of SEK 1,770 M due to the weakening of the Swedish krona. The debt/equity ratio amounted to 0.64 (0.66). The interest coverage multiple was 8.9 (7.0). HYGIENE PRODUCTS BUSINESS AREA SEK M 01:1 00:1 00:4 Net sales 8,586 7,402 8,291 Operating surplus 1,270 1,036 1,283 Operating profit 858 673 865 Operating surplus margin, % 15 14 15 Operating margin, % 10 9 10 Volume growth, % Consumer products -0.5¹ 3.32 4.3¹ 1.0¹ AFH and Incontinence products -0.6¹ 5.62 1.6¹ 2.7¹ ¹ Compared with the immediately preceding quarter. 2 Compared with corresponding period previous year. See also additional information on page 17-19. Net sales amounted to SEK 8,586 M (7,402), an increase of 16% compared with the year-earlier period. Acquired companies and organic growth accounted for 4% of the increase. Higher sales prices and a better product mix accounted for 6% of the increase, while currency movements generated favorable effects amounting to 6% of the increase in sales. Operating profit rose 27% to SEK 858 M (673). The improvement was attributable primarily to increased sales prices and volume growth, some of which was offset mainly by higher costs for pulp and other raw materials. Compared with the fourth quarter 2000, the business area's profit and operating margin were unchanged. Higher costs for energy and, compared with the preceding quarter, higher but more normal costs for advertising and marketing were offset by a better product and market mix together with lower raw material costs for tissue operations. Raw material costs for fluff products though remained largely unchanged during the quarter. Consumer products Earnings from consumer products increased 50% to SEK 467 M (311). The improvement was attributable primarily to price increases introduced last year for tissue products, which increased margins despite higher pulp prices. Results for other consumer products were largely unchanged. Compared with the fourth quarter 2000, earnings during the first quarter rose 3%, from SEK 455 M to SEK 467 M as a result of lower raw material costs, an effect that was reduced by lower volumes and rising energy costs, however. The operating margin remained unchanged at 9%. AFH and incontinence products Earnings attributable to AFH and incontinence products amounted to SEK 391 M (362), an increase of 8% compared with the first quarter of 2000. Better sales prices and higher volumes contributed to the increase. Operating profit compared with the fourth quarter 2000 was down slightly, amounting to SEK 391 (410). The lower earnings was attributed mainly to a marginal decline in volumes, the result from a strict pricing policy, while the effects of lower raw material costs offset rising energy and transport costs, among other items. The decline in operating margin from 12% to 11% was due in part to increased sales in North America following the acquisition of Serenity, which initially were at a lower margin. PACKAGING BUSINESS AREA SEK M 01:1 00:1 00:4 Net sales 6,887 5,776 6,752 Operating surplus 1,212 1,002 1,197 Operating profit 858 665 854 Operating surplus margin, % 18 17 18 Operating margin, % 13 12 13 Production Liner products, kton 648 647 612 Deliveries Liner products, kton 645 647 601 Corrugated board, Mm2 1,017 920 992 Net sales for the period amounted to SEK 6,887 M (5,776), an increase of 19%. The increase was attributable to acquired companies, 9%, effects of higher sales prices introduced last year for both corrugated board and containerboard and changes in the product mix, 5%, as well as currency movements, 5%. Operating profit amounted to SEK 858 M (665), an improvement of 29%. The increase was attributable primarily to higher sales prices and, to a certain extent, acquired companies. Higher energy and raw material costs created negative effects on the earnings improvement, however. Currency movements increased earnings by 5%. Compared with the fourth quarter of 2000, earnings and margins were unchanged. Demand has been clearly weaker in the beginning of year 2001, however, particularly in markets such as the UK and the Nordic countries, and a sharp decline has been noted in certain industrial packaging segments, e.g. the heavy-duty segment of the market. The weaker demand, combined with changes in the product mix, resulted in volumes increasing only marginally, despite a higher number of public holidays during the fourth quarter. Higher wood prices and rising energy costs, as well as the earlier described product mix and market changes, totally offset the positive effects of falling raw material prices and slightly higher volumes. Corrugated board packaging Market growth during the first quarter is estimated at about 2%, compared with the corresponding period last year. Demand for corrugated board is declining in the UK, and volumes in general have been weak in the early part of 2001, considering the number of working days. Volume growth for SCA's corrugated board activities has been lower than market growth due to the Group's strict pricing policy. Containerboard Downtime was implemented during the second half of 2000 to balance inventories. Production levels of kraftliner and testliner were also reduced during the first quarter to avoid inventory build-ups. A variety of time-limited discounts for testliner are now being offered in Europe, while some decline has been noted in kraftliner prices as a result of a modest increase in imports to Europe. FOREST PRODUCTS BUSINESS AREA SEK M 01:1 00:1 00:4 Net sales 3,382 3,095 3,376 Operating surplus 1,033 869 997 Operating profit 760 607 734 Operating surplus margin, % 31 28 30 Operating margin, % 22 20 22 Production Publication paper, kton 316 319 325 Solid wood products, km3 154 170 147 Deliveries Publication paper, kton 297 311 343 Solid wood products, km3 171 184 160 See also additional information on page 17-19. Despite a decline of 5% in deliveries of publication papers, net sales by the business area rose 9% to SEK 3,382 M (3,095), mainly on the strength of higher prices. Currency effects increased sales by 1%. Operating profit amounted to SEK 760 M (607), an increase of 25%. Improved earnings were reported for both publication paper and pulp and forestry operations. Compared with the fourth quarter of 2000, operating profit was up 4%. The increase was attributable primarily to higher earnings from forestry operations, which were offset by lower earnings from pulp operations, however. Publication papers Operating profit from publication paper operations amounted to SEK 380 M (338), an increase of 12%. Higher sales prices for all paper grades were introduced during the quarter. The effects of increased prices on earnings were limited, however, due to significantly higher costs for chemicals and energy as well as pulp and wood. Deliveries were down slightly, compared with the year-earlier period, due mainly to reduced demand for LWC paper and subsequent downtime. The improvement in earnings, compared with the fourth quarter 2000, was only marginal despite increased prices and favorable currency effects as a result of a sharp decline in deliveries, particularly for LWC paper, and higher costs for wood raw materials and chemicals. Market conditions are stable for both newsprint and SC paper, whilst the LWC market weakened toward the end of the first quarter 2001. Pulp, timber and solid wood products The operating profit amounted to SEK 380 (269), an increase of 41% compared with the year-earlier period. Earnings from forestry operations improved, partly as a result of higher timber prices. Earnings from pulp operations were also sharply higher, compared with the year-earlier period, since average sales prices during the quarter were higher than average prices in the first quarter of 2000, despite the ongoing downward trend in market conditions. Earnings from sawmill operations improved mainly as a result of rationalization measures. Compared with the fourth quarter of 2000, the operating profit was up 6%. A substantial improvement in earnings from forestry operations, attributable mainly to higher timber prices, more than compensated for the effects of lower earnings in pulp operations caused by lower prices and higher raw material costs. PERSONNEL The number of SCA Group employees at the close of the period was 38,639 (33,518), including personnel from Georgia-Pacific and Tuscarora. MARKET OUTLOOK Demand for the Group's products remains stable, despite an increasingly pronounced economic slowdown. However, volume growth in the hygiene and corrugated board areas are clearly weaker than during the preceding year. In addition, pulp prices have declined in the early part of the year, and a continued decline in prices is expected during the second quarter. Kraftliner prices have also fallen in Europe, but not as sharply as the decline in North America. The market for newsprint and SC paper is stable, but weaker trends were noted in the market for LWC paper toward the close of the period. Prices for recycled paper have stabilized. SCA will continue to pursue its strict price policy in all product areas and adjust production levels to prevent inventory build- ups. The Group's ongoing efficiency enhancement and integration measures will be intensified to further offset the effects of the economic slowdown. OTHER The SCA Group's interim report was prepared in accordance with the recommendations of the Swedish Financial Accounting Standards Council. In addition to the Group adapting accounting to the Financial Accounting Standards Council's new recommendation, RR9, regarding income taxes, the accounting principles are unchanged. Deferred tax on previously written- up forest and land values is reported gross, which resulted in an increase of SEK 1.4 billion in the Group's provisions for deferred taxes and a corresponding increase in tangible fixed assets. Since year-end, 12,001,133 A shares were converted to B shares. Consequently, at the end of the quarter, the proportion of A shares declined from 26.7% to 21.5%. The conversion of shares occurred at the request of the affected shareholders and pursuant to the conversion clause added to the Articles of Association in 1999. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/04/27/20010427BIT00850/bit0001.doc http://www.bit.se/bitonline/2001/04/27/20010427BIT00850/bit0001.pdf