SCA Interim Report 1 January - 31 March 2002

Interim Report 1 January - 31 March 2002 02:1 01:1 01:4 Earnings per share, SEK¹ 5.89 5.68 6.26 Cash flow from current 6.83 6.15 15.22 operations per share, SEK¹ Net sales, SEK M 21,015 18,522 21,509 Earnings after financial 1,967 1,963 2,112 items, SEK M Net earnings, SEK M 1,365 1,323 1,452 ¹ Adjusted historically to reflect new issue of 1.8 million shares in 2001 for stock option program (see page 9). Compared with first quarter of 2001 * Earnings per share improved by 4%. * Cash flow from current operations per share rose 11%. * Operating profit for Hygiene Products operations increased 50%, while corresponding profit for Packaging and Forest Products declined 14% and 30%, respectively. * The operating margin for Hygiene Products improved by 2 percentage points. Compared with fourth quarter of 2001 * Earnings by Hygiene Products were on level with the fourth quarter, while earnings by Packaging and Forest Products were down 5% and 31%, respectively. Expansion through acquisitions Hygiene acquisition in Italy and acquisition of North American packaging operations strengthened the Group's position and will generate an increase of 5% in sales on an annual basis. NET SALES AND EARNINGS Earnings per share increased 4% to SEK 5.89 (5.68), corresponding to net earnings totaling SEK 1,365 M (1,323). CartoInvest, the Italian tissue company, is not included in first quarter net sales and earnings. However, payment for the company was made at the end of March and, accordingly, a preliminary acquisition balance sheet is included in the consolidated balance sheet. Consolidated net sales amounted to SEK 21,015 M (18,522), an increase of 13% compared with the year-earlier period. Of this increase, 12 percentage points are attributable to acquired companies, while higher volumes and changes in the product mix accounted for 2 percentage points. Lower prices reduced net sales by 5%. Currency movements increased consolidated net sales by 4%. Group operating profit amounted to SEK 2,220 M (2,213), largely unchanged compared with operating profit in the first quarter of 2001. The operating profit for Hygiene Products amounted to SEK 1,283 M (858), an increase of 50%. Operating profit for Packaging declined 14% to SEK 738 M (858), and the operating profit of Forest Products amounted to SEK 532 M (760), a decline of 30%. Financial items amounted to an expense of SEK 253 M (expense: 250). Higher average net debt as a result of company acquisitions was offset by lower interest rates. Group earnings after financial items amounted to SEK 1,967 M (1,963), virtually unchanged from the year-earlier period. Positive effects of currency movements, which offset lower prices quoted in SEK within Forest Products, increased the Group's profit by 6%. The gross margin was 17.7% (18.7), and the operating margin after goodwill amortization amounted to 10.6% (12.0). The decline was due to lower operating profit by Packaging and Forest Products. Return on shareholders' equity was 13% (14), and return on capital employed was 13% (15). Comparison with the fourth quarter of 2001 Consolidated earnings per share declined 6% compared with the preceding quarter to SEK 5.89 (6.26). The operating profit of Hygiene Products increased 4%, while earnings for Packaging and Forest Products declined 5% and 31%, respectively. Currency movements had marginal effects on Group earnings. Within hygiene operations, earnings attributable to Consumer Products declined as a result of raw materials-driven price pressure, while AFH and incontinence products showed increased earnings of 13% as a result of favorable volume and price effects. The operating profit from Packaging operations declined as a result of lower prices, while the decline in earnings by Forest Products was due to lower prices and volumes for publication papers. The improvement in financial items, which amounted to an expense of SEK 253 M (expense: 340), was attributable to the impact of lower interest rates and lower average net debt as a result of strong cash flow toward year-end 2001. EARNINGS ANALYSIS SEK M 02:1 01:1 01:4 Hygiene Products 1,283 858 1,240 Packaging 738 858 777 Forest Products 532 760 776 Other -59 -58 -60 Operating profit, before goodwill 2,494 2,418 2,733 amortization Goodwill amortization -274 -205 -281 Operating profit 2,220 2,213 2,452 Financial items -253 -250 -340 Earnings after financial items 1,967 1,963 2,112 Tax -590 -625 -650 Minority interest -12 -15 -10 Net earnings 1,365 1,323 1,452 Earnings per share, SEK 5.89 5.68 6.26 CASH FLOW Cash flow from current operations, defined as cash flow before strategic investments and dividends, amounted to SEK 1,585 M (1,435), or SEK 6.83 (6.15) per share, an improvement of 11%. The operating cash surplus rose 10% to SEK 3,763 M (3,436), corresponding to 18% (19) of net sales. Net current capital expenditures during the period amounted to SEK 549 M (498). Working capital increased by SEK 667 M (769). Operating cash flow amounted to SEK 2,577 M (2,095) and free cash flow totaled SEK 1,838 M (1,823). Company acquisitions amounted to SEK 4,800 M (11,238), of which SEK 4,400 M was attributable to the acquisition of CartoInvest of Italy, with the remaining SEK 400 M attributable to acquisitions of North American packaging companies. Strategic capital expenditures in plant and machinery amounted to SEK 407 M (177). Comparison with the fourth quarter of 2001 Compared with the fourth quarter of 2001, cash flow from current operations during the first quarter declined SEK 1,949 M to SEK 1,585 M (3,534). The decline was due mainly to changes in working capital, which decreased by a full SEK 1,772 M in the fourth quarter 2001 and increased by SEK 667 M in the first quarter 2002. CASH FLOW ANALYSIS SEK M 02:1 01:1 01:4 Net sales 21,015 18,522 21,509 Operating cash surplus 3,763 3,436 4,070 % of net sales 18 19 19 Current capital expenditures, net -549 -498 -1,130 % of net sales 3 3 5 Change in working capital -667 -769 1,772 Other operating cash flow changes 30 -74 -164 Operating cash flow 2,577 2,095 4,548 Tax payment etc¹ -739 -272 -1,042 Free cash flow 1,838 1,823 3,506 Per share, SEK² 7.91 7.81 15.11 Interest payment after taxes -253 -388 28 Cash flow from current operations 1,585 1,435 3,534 Per share, SEK² 6.83 6.15 15.22 Strategic investments and divestments -5,207 -11,415 -2.524 Cash flow before dividend -3,622 -9,980 1,010 ¹ Tax attributable to operating profit. ² Adjusted historically to reflect new issue of 1.8 million shares in 2001 for stock option program (see page 9). FINANCING Net debt amounted to SEK 26,530 M, an increase of SEK 2,669 M since year- end 2001. The change was due primarily to the acquisition of CartoInvest of Italy and other strategic investments, which created an outflow of SEK 5,207 M. Net debt was affected favorably by cash flow from current operations amounting to SEK 1,585 M and currency effects totaling SEK 1,127 M resulting from a stronger SEK. Net debt increased by SEK 174 M as a result of a change in the definition of net debt 1) . A negative effect on shareholders' equity amounting to SEK 1,156 M was generated during the quarter as a consequence of currency movements and the Group's hedging technique for currency translation exposure. However, with due consideration for the increase in net earnings during the period, shareholders' equity increased by SEK 209 M to SEK 46,192 M. The debt/equity ratio amounted to 0.57 (0.64). The interest coverage multiple was 8.8 (8.9). 1) See page 7, heading "Other," changed definition of net debt. HYGIENE PRODUCTS BUSINESS AREA SEK M 02:1 01:1 01:4 Net sales 10,686 8,586 10,668 Operating surplus 1,859 1,270 1,863 Operating profit 1,283 858 1,240 Operating surplus margin, % 17 15 17 Operating margin, % 12 10 12 Volume growth, % Consumer Products 0.8¹ 1.92 -0.5¹ 0.4¹ AFH and Incontinence products 4.6¹ 55.42 -0.6¹ 0.5¹ ¹ Compared with the immediately preceding quarter. 2 Compared with corresponding period previous year. See also additional information on pages 17-19. Net sales amounted to SEK 10,686 M (8,586), an increase of 24% compared with the year-earlier period. Most of the increase, 17 percentage points, was attributable to the North American acquisitions, which were not consolidated until after the close of the first quarter of 2001. Organic growth, primarily within incontinence operations, accounted for 4% of the increase in sales. Some raw materials-driven price adjustments in tissue operations accounted for 2% of the decrease. Currency movements increased sales by 5%. Operating profit rose 50% to SEK 1,283 M (858). Most of the increase was attributable to acquired companies and higher volumes, combined with lower raw materials and distribution costs. Currency movements had only marginal effects. All product segments reported improved operating profit, and the operating margin for the business area as a whole rose 2 percentage points. Compared with the fourth quarter of 2001, operating profit increased to SEK 1,283 M (1,240). Effects of currency movements on earnings were marginal. The increase was attributable to higher volumes and lower costs for input goods. The effects of these factors, however, were offset, by increased costs for the launch of new products. Continued volume recovery was noted in North American tissue operations. Consumer Products Operating profit from Consumer Products rose 44% to SEK 673 M (467) and the operating margin, in turn, increased 4 percentage points. Lower raw material and distribution costs and a modest increase in volumes contributed to the earnings improvement, which was offset, however, by some price pressure on tissue and increased costs for new product launches. Furthermore, the effects of lower raw material costs were limited by trends for USD. Baby diapers continue to show increased volumes and better margins; the effects of structural changes, changes in technologies and investments in retailers brands are now becoming more pronounced. Compared with the fourth quarter of 2001, operating profit declined to SEK 673 M (699) due to seasonal variations in the tissue segment. AFH and Incontinence products Operating profit attributable to AFH and incontinence products amounted to SEK 610 M (391), an increase of 56% compared with the first quarter of 2001. In addition to acquisitions in North America, the improvement in earnings was attributable to lower raw materials costs in both product areas. Volume growth in the incontinence segment remained strong at 10%, and investments in new product launches increased. Compared with the fourth quarter of 2001, operating profit rose 13% to SEK 610 M (541). The improvement was attributable to higher volumes for tissue both in North America and Europe and continued strong volume growth for incontinence products. PACKAGING BUSINESS AREA SEK M 02:1 01:1 01:4 Net sales 7,340 6,887 7,400 Operating surplus 1,130 1,212 1,177 Operating profit 738 858 777 Operating surplus margin, %¹ 15 18 16 Operating margin, %¹ 10 13 11 Production Liner products, kton 628 648 567 Deliveries Liner products, kton 628 645 571 Corrugated board, Mm2 9882 1,0172 956² 1 Adjusted for external linerboard trading, the margin rises by about 2 percentage points. ² Volumes do not include volumes from protective packaging and other value-added segments. Net sales for the period amounted to SEK 7,340 M (6,887), an increase of 7%. The increase was primarily attributable to acquired companies, which accounted for 11 percentage points, while economic-related price and volume effects reduced net sales by 7%. Currency movements increased net sales by 3%. Operating profit amounted to SEK 738 M (858), a decline of 14%. Operating profit was affected negatively by lower prices in particular and lower volumes for corrugated board packaging. A corresponding volume decline was also noted for liner and other corrugated board raw materials, and production operations were adjusted to demand. Lower prices and the decline in volumes, including costs for curtailments, reduced earnings by 25% and 10%, respectively. Acquired companies accounted for a positive contribution of 7 percentage points, and lower costs for raw materials accounted for 10 percentage points. Currency movements increased operating profit by 4%. Compared with the fourth quarter of 2001, the operating profit declined SEK 39 M to SEK 738 M (777). Continued price pressure on converted products and increased energy costs were offset by favorable effects of a seasonal increase in volumes. Despite an increase in liner production, the business area's liner activities were characterized by continued curtailments also during the first quarter. Some discernible signs of volume improvement have been noted in the North American operations, with an increase in the order backlog during March. The restructuring program that was started in Europe and the US during the autumn is proceeding according to plan and is expected to generate gradual favorable effects during 2002. Currency effects were marginal, compared with Q4 2001. FOREST PRODUCTS BUSINESS AREA SEK M 02:1 01:1 01:4 Net sales 3,317 3,382 3,621 Operating surplus 786 1,033 1,068 Operating profit 532 760 776 Operating surplus margin, % 24 31 29 Operating margin, % 16 22 21 Production Publication papers, kton 294 316 309 Solid wood products, km3 171 154 185 Deliveries Publication papers, kton 284 297 318 Solid wood products, km3 165 171 160 See also additional information on pages 17-19. Net sales of Forest Products business area declined 2% to SEK 3,317 M (3,382). The decline was due mainly to lower prices. Currency movements increased sales by 3%. Operating profit amounted to SEK 532 M (760), a decline of 30%. Operating profit from publication paper operations declined, primarily as a result of reduced prices, lower deliveries and lower capacity utilization. Pulp operations showed a decline in earnings due to lower prices. Some of the decline in operating profit was offset by currency movements, which created positive effects on earnings of 14%. Compared with the fourth quarter of 2001, operating profit was down 31% due to lower prices and volumes for publication papers. Currency effects were marginal, compared with Q4 2001. Publication papers Operating profit from publication paper operations amounted to SEK 277 M (380), a decline of 27%. The sharp decline was due mainly to renegotiated prices. In addition, volumes were marginally lower and costs for chemicals and energy were higher, compared with the first quarter of 2001. Currency movements increased earnings by 15%. The market for SC paper was relatively stable, while the demand for newsprint, and particularly for LWC paper, was weak. Production in publication paper operations was adjusted to demand during the period. The decline in operating profit during the first quarter, compared with the fourth quarter of 2001, amounted to 44%. The decline in earnings was due mainly to lower prices and lower volumes. Pulp, timber and solid wood products Operating profit amounted to SEK 255 M (380), a decline of 33% compared with the year-earlier period. The decline was due to lower earnings from pulp operations, while forestry and solid wood operations reported improved earnings. Compared with the fourth quarter of 2001, the operating profit was down 10%, due mainly to lower pulp prices and higher costs for raw materials. Sawmill operations continued to show favorable development, while earnings from forestry operations were down slightly, compared with the fourth quarter of 2001. GOODWILL Consolidated goodwill increased to SEK 17,650 M (14,674), mainly as a result of the acquisition of CartoInvest of Italy. According to a preliminary acquisition analysis, CartoInvest accounted for SEK 2,000 M, which also includes goodwill attributable to planned provisions for structural changes. Goodwill is amortized over 20 years. Goodwill amortization by business areas is presented on pages 12 and 18. Excluding goodwill amortization, the Group achieved the following results: SEK M 02:1 01:1 01:4 Operating profit 2,494 2,418 2,733 Earnings after financial items 2,241 2,168 2,393 Net earnings 1,623 1,526 1,717 Earnings per share, SEK 7.00 6.55 7.40 PERSONNEL The number of SCA Group employees at the close of the period was 41,618, compared with 38,639 at the close of the first quarter of 2001. The increase was attributable to acquired companies, including CartoInvest. MARKET OUTLOOK Demand for the Group's consumer-oriented products remained strong in the beginning of 2002, but some price pressure partly driven by raw materials costs has been noted for tissue products in the consumer segment. Volume growth has been weaker for product areas that are dependent on the industrial sector, and sales still do not reflect any clear signs of an economic turnaround. It should be noted, however, that demand for converted packaging products has remained relatively stable, while prices for packaging raw materials are believed to have bottomed out and global demand for recovered paper is increasing. A general improvement in advertising trends is needed before significant improvements can be expected in publication paper operations. Market anticipations in North America of improvements in general economic conditions during the third quarter could create significant effects on demand for the Group's packaging and tissue products. Favorable effects from the volume recovery in the US toward year-end 2001, which were noted in SCA's operations during the first quarter, are expected to continue throughout the remainder of the year. OTHER The SCA Group's interim report was prepared in accordance with the recommendations of the Swedish Financial Accounting Standards Council. Effective January 1, 2002, the Group has changed its definition of net debt to include accrued interest expense and revenues, SEK 184 M, which were previously included in capital employed. During the first quarter, SCA also established a euro Medium Term Note program, under which issuance is planned later in the year. The framework amount of the program is EUR 1,500 M. The Group's two-year employee stock options program for senior executives and key personnel, which was approved by the Annual General Meeting in 2001, will be completed during May/June with the second year's options issue of approximately 930,000 options. SHARE DISTRIBUTION 02-03-31 Series A Series B Total Registered number of shares 42,795,405 189,406,150 232,201,555 Of which treasury shares - (1,800,000) (1,800,000) Unconverted debenture loans - 1,169,908 1,169,908 Outstanding warrants - 1,741,206 1,741,206 Total after full conversion 42,795,405 192,317,264 235,112,669 During the first quarter, 2,991,722 A shares were converted to B shares. At the end of the quarter, consequently, the percentage of A shares had declined from 19.7% to 18.4%. The conversion of shares occurred at the request of the affected shareholders pursuant to the conversion clause that was added to the Articles of Association in 1999. Calculated in accordance with the recommendations of the Swedish Financial Accounting Standards Council, the effects of outstanding convertible debenture and options programs amount to a maximum dilution of 0.8%, which was taken into consideration when calculating earnings per share for the period. Stockholm, April 26, 2002 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Jan Åström President and CEO This report has not been examined by the company's auditors. The interim report for the period January 1 - June 30, 2002 will be published on July 30, 2002. 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 0044 1622 883 025. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/04/26/20020426BIT00770/wkr0001.doc The Full Report http://www.waymaker.net/bitonline/2002/04/26/20020426BIT00770/wkr0002.pdf The Full Report