SCA Year-end Report 2001

Year-end report 1 January - 31 December 2001 01:4 01:3 0112 0012² Earnings per share, SEK¹ 6.26 6.07 24.05 21.09 Cash flow from current operations per 15:22 12.47 48.38 28.49 share, SEK¹ Net sales, SEK M 21,509 20,793 82,380 67,157 Earnings after financial items, SEK M 2,112 1,998 8,090 7,296 Net earnings after tax, SEK M 1,452 1,405 5,587 4,917 Dividend per share, SEK 8:753 7.75 ¹ Adjusted historically to reflect new issue of 1.8 million shares in 2001 for stock option program (see page 9). ² Excluding non-recurring items. ³ Board proposal. Dividend Board proposes dividend of SEK 8:75 per share. Accordingly, average dividend growth during the most recent five-year period is retained at a level of 12% annually. 2001 compared with 2000 Earnings per share improved by 14% to SEK 24.05. Higher operating profit in all business areas: Hygiene Products 54%, Packaging 10% and Forest Products 9%. Cash flow from current operations per share rose 70% Fourth quarter 2001 compared with third quarter Earnings per share improved by 3% to SEK 6.26. Operating margin for Consumer Products increased for second consecutive quarter, amounting to 13%. Cash flow from current operations per share rose 22%. NET SALES AND EARNINGS Earnings per share increased 14% and amounted to SEK 24.05 (21.09), corresponding to net earnings after tax of SEK 5,587 M (4,917), excluding non-recurring items in the preceding year (SEK 2,031 M, see page 7). Acquired operations improved earnings per share by about SEK 1, of which the North American acquisitions (GP Tissue and Tuscarora) accounted for about SEK 0.90. Consolidated net sales amounted to SEK 82,380 M (67,157), an increase of 23% compared with the year-earlier period. Of this increase, 13 percentage points are attributable to company acquisitions, while higher sales prices and a changed product mix accounted for 1 percentage point. Currency movements increased consolidated net sales by 9%. Group operating profit amounted to SEK 9,492 M (8,503), an increase of 12% excluding non-recurring items in the preceding year. However, core operations rose 21%, since the Group's share in earnings of Modo Paper, SEK 644 M, is included in the operating profit for 2000. All business areas reported higher operating profit. The operating profit for Hygiene Products amounted to SEK 4,473 M (2,909), an increase of 54%. Packaging reported operating profit of SEK 3,286 M (2,977), an increase of 10%, and operating profit in Forest Products amounted to SEK 2,976 M (2,720), up 9%. Financial items amounted to an expense of SEK 1,402 M (expense: 1,207). The increase was attributable to an average higher net debt and currency effects. Lower interest rates affected earnings positively. Group earnings after financial items amounted to SEK 8,090 M (7,296), an improvement of 11%, excluding non-recurring items in the preceding year. Four percentage points of the increase are due to currency effects which affected Forest Products and Packaging positively. Operating margin after goodwill amortization excluding non-recurring items in the preceding year amounts to 11.5% (12.7). Eliminating the effect of the share in earnings in Modo Paper, the year-on-year margin for core operations is unchanged (11.5%). Net margin amounted to 6.8% (7.3). If the analysis of the net margin is made with the 2000 pro forma figures without Modo Paper, the comparison is 6.8% (6.6). Return on shareholders' equity was 13% (14) and return on capital employed was 14% (15) (non-recurring items were excluded in the preceding year). Comparison with the third quarter of 2001 Consolidated earnings per share increased 3% compared with the preceding quarter and amounted to SEK 6.26 (6.07). Operating margin rose in Hygiene Products while the consolidated operating margin remained unchanged. Hygiene Products reported somewhat improved operating profit compared with the preceding quarter due to an improvement for Consumer Products, particularly in the consumer tissue and baby diaper segments. Packaging reported a decline in operating profit in the fourth quarter of 3% as a result of changes in the product mix and increased curtailments. Operating profit in Forest Products increased 9%, due primarily to better production yield in the pulp operations and improved results in the forestry operations. EARNINGS ANALYSIS, excluding non-recurring items SEK M 01:4 01:3 01:2 01:1 0112 0012 Hygiene Products 1,240 1,200 1,175 858 4,473 2,909 Packaging 777 800 851 858 3,286 2,977 Forest Products 776 710 730 760 2,976 2,720 Share of earnings in Modo 644 Paper Other -60 -62 -53 -58 -233 -18 Operating profit, before 2,733 2,648 2,703 2,418 10,50 9.232 goodwill amortization 2 Goodwill amortization -281 -258 -266 -205 - -729 1,010 Operating profit 2,452 2,390 2,437 2,213 9,492 8,503 Financial items -340 -392 -420 -250 - -1,207 1,402 Earnings after financial 2,112 1,998 2,017 1,963 8,090 7,296 items Tax -650 -578 -591 -625 - -2,333 2,444 Minority interest -10 -15 -19 -15 -59 -46 Net earnings after tax 1,452 1,405 1,407 1,323 5,587 4,917 Earnings per share, SEK 6.26 6.07 6.04 5.68 24.05 21.09 CASH FLOW Cash flow from current operations, defined as cash flow before strategic investments and dividends, amounted to SEK 11,249 M (6,652), or SEK 48.38 (28.49) per share, up 70%. The operating cash surplus rose 24% to SEK 15,410 M (12,383), corresponding to 19% (18) of net sales. During the period, net capital expenditures amounted to SEK 3,479 M (2,245). The change in working capital amounted to SEK 2,467 M (outflow: 1,109) The improvement is attributable to Hygiene Products as well as Packaging. Working capital in the acquired North American operations was reduced to a substantially lower level than the one prevailing at the time of the acquisitions. In addition, a positive effect arose through improved payment terms for certain raw materials. Operating cash flow amounted to SEK 14,206 M (9,005) and free cash flow to SEK 12,021 M (7,614). Company acquisitions during the period amounted to SEK 13,286 M (2,349) and related mostly to the acquisitions in North America. Strategic capital expenditures in plant and machinery totaled SEK 1,469 M (1,121). Comparison with the third quarter of 2001 The operating cash surplus amounted to SEK 4,070 M (3,909). Current capital expenditures amounted to SEK 1,130 M (902) and working capital decreased by SEK 1,772 M (689). Operating cash flow amounted to SEK 4,548 M (3,691) and cash flow from current operations to SEK 3,534 M (2,891). Company acquisitions amounted to SEK 1,585 M (110) and included acquisitions in North America (RPA, Insulated Shipping Containers, Encore Paper Company and Marko Foam Products), in France (Anjou Emballages and Cartonnages Industriels Méhunois) and in Finland (Pakkausjaloste). Strategic capital expenditures in plant and machinery totaled SEK 658 M (257). CASH FLOW ANALYSIS SEK M 01:4 01:3 01:2 01:1 0112 0012 Net sales 21,509 20,793 21,556 18,522 82,380 67,157 Operating cash surplus 4,070 3,909 3,995 3,436 15,410 12,383 % of net sales 19 19 19 19 19 18 Current capital -1,130 -902 -949 -498 -3,479 -2,245 expenditures, net % of net sales 5 4 4 3 4 3 Change in working capital 1,772 689 775 -769 2,467 -1,109 Other operating cash flow -164 -5 51 -74 -192 -24 changes Operating cash flow 4,548 3,691 3,872 2,095 14,206 9,005 Tax payment etc¹ -1,042 -554 -317 -272 -2,185 -1,391 Free cash flow 3,506 3,137 3,555 1,823 12,021 7,614 Per share, SEK² 15.11 13.52 15.26 7.81 51.70 32.61 Interest payment after taxes 28 -246 -166 -388 -772 -962 Cash flow from current 3,534 2,891 3,389 1,435 11,249 6,652 operations Per share, SEK² 15.22 12.47 14.54 6.15 48.38 28.49 Strategic investments and -2,524 -547 -1,017 -11,415 -15,503 3,957 divestments Cash flow before dividend 1.010 2,344 2,372 -9,980 -4,254 10,609 ¹ Tax attributable to operating profit. ² Adjusted historically to reflect new issue of 1.8 million shares in 2001 for stock option program. FINANCING Net debt amounted to SEK 23,861 M, which was SEK 7,981 M higher than at the beginning of the year. The change was mainly attributable to the North American acquisitions and other strategic investments, which created an outflow totaling SEK 15,503 M, a dividend to the shareholders of SEK 1,806 M and currency effects of SEK 3,059 M. This was offset by cash flow from current operations of SEK 11,249 M and the effect of the asset securitization of accounts receivables carried out earlier in the year, SEK 1,138 M. The debt/equity ratio amounted to 0.51 (0.39). The interest coverage multiple was 6.8 (7.0), excluding non-recurring items in the preceding year. HYGIENE PRODUCTS BUSINESS AREA SEK M 01:4 01:3 01:2 01:1 0112 0012 Net sales 10,668 10,580 10,963 8,586 40,797 31,040 Operating surplus 1,863 1,759 1,740 1,270 6,632 4,451 Operating profit 1,240 1,200 1,175 858 4,473 2,909 Operating surplus margin, 17 17 16 15 16 14 % Operating margin, % 12 11 11 10 11 9 Volume growth, % Consumer Products 0.4¹ -0.3¹ 1.7¹ -0.5¹ 1.5² 11.1² AFH and Incontinence 0.5¹ -7.6¹ 46.4¹ -0.6¹ 45.3² 6.9² products 9 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 40,797 M (31,040), an increase of 31% compared with the year-earlier period. Acquired tissue operations in North America accounted for nearly half of the increase. Higher sales prices and a better product mix increased sales by 3%, while organic growth contributed 2%. Currency movements increased net sales by 11%. Operating profit improved 54% to SEK 4,473 M (2,909). The improvement is attributable to prices and product mix improvements, volume growth and acquisitions. Currency effects affected operating profit negatively by 2%. The adverse effect caused by the increasingly stronger US dollar that affected raw material prices exceeded, therefore, the effect of the weakening of the Swedish krona. Investments in marketing and advertising increased 15%. All product segments improved operating profit. Compared with the third quarter, the business area's operating profit increased to SEK 1,240 M (1,200) in the fourth quarter. The increase was attributable to lower raw materials costs and a better product mix, while costs for marketing and advertising programs increased. The tissue operations in North America recovered somewhat. Raw material costs for fluff products remained largely unchanged, compared with the third quarter, while consumer tissue products benefited from lower pulp prices. Consumer Products Operating profit for Consumer Products rose 63% to SEK 2,269 M (1,394). The improvement was attributable primarily to the full effect of the successive price increases for consumer tissue in the preceding year, a better product mix and lower raw material costs. However, the effect of the lower raw material prices was limited by the dollar trend. Baby diapers and feminine hygiene products posted increased volumes and improved profitability. Operating profit for baby diapers more than doubled. Compared with the third quarter, operating profit rose 14% to SEK 699 M (611), mainly as a result of better profit for consumer tissue and baby diapers. The operating margin improved 2 percentage points and amounted to 13% (11). AFH and Incontinence products Operating profit attributable to AFH and Incontinence products was 45% higher, compared with the preceding year, and amounted to SEK 2,204 M (1,515). Apart from the North American acquisitions, the improvement in profit was attributable to higher average prices and lower costs of raw materials, within both product areas. The incontinence segment also contributed with a strong volume trend concurrent with increased investments in advertising and marketing. In comparison with the third quarter, operating profit in the fourth quarter decreased by 8% and amounted to SEK 541 M (589). The decline in operating profit was attributable to a somewhat lower result in the AFH segment in Europe and large product launches in the incontinence product area, which continued to show a strong volume growth. A certain recovery was noted in the AFH segment in North America. PACKAGING BUSINESS AREA SEK M 01:4 01:3 01:2 01:1 0112 0012 Net sales 7,400 7,284 7,659 6,887 29,230 24,636 Operating surplus 1,177 1,199 1,258 1,212 4,846 4,248 Operating profit 777 800 851 858 3,286 2,977 Operating surplus margin, 16 16 16 18 17 17 %¹ Operating margin, %¹ 11 11 11 13 11 12 Production Liner products, kton 567 591 599 648 2,405 2,505 Deliveries Liner products, kton 571 579 615 645 2,410 2,472 Corrugated board, Mm2 956² 953² 997² 1,017 3,923² 3,782 1 Adjusted for external linerboard trading, the margin rises by about 2%. 2 Volumes do not include the North American acquisitions. Net sales for the period amounted to SEK 29,230 M (24,636), an increase of 19%. The increase was mainly attributable to acquired companies, 15 percentage points, while price, mix and volume effects reduced net sales by 4%. Currency movements increased sales by 8%. Operating profit amounted to SEK 3,286 M (2,977), an improvement of 10%. Operating profit was affected favorably by lower raw materials costs and company acquisitions, while higher energy costs and somewhat lower volumes limited the improvement in operating profit. Currency movements increased operating profit by 7%. Operating profit in the fourth quarter was somewhat lower than in the third quarter as a result of product mix changes and increased curtailments. Corrugated board packaging The market for corrugated board packaging has not grown compared with the preceding year, which is due to the sharp decline in the electronics, telecom and automotive industries throughout Europe, particularly in the UK and the Nordic region. The volume trend for SCA's corrugated board operations was somewhat weaker than the market's. Operations in North America was affected adversely by a weakening within the electronics segment, which was partly offset, however, by continued favorable development in the pharmaceuticals segment. Cost-savings and specific efficiency enhancement programs are currently being carried out in the UK, Denmark, Finland, Russia and North America to offset the effects of the weakening economy. Containerboard In order to balance demand and inventories, SCA implemented extensive curtailments of kraftliner and testliner during the year. FOREST PRODUCTS BUSINESS AREA SEK M 01:4 01:3 01:2 01:1 0112 0012 Net sales 3,621 3,257 3,296 3,382 13,556 12,876 Operating surplus 1,068 1,007 1,003 1,033 4,111 3,758 Operating profit 776 710 730 760 2,976 2,720 Operating surplus margin, % 29 31 30 31 30 29 Operating margin, % 21 22 22 22 22 21 Production Publication papers, kton 309 305 318 316 1,248 1,286 Solid wood products, km3 185 151 161 154 651 654 Deliveries Publication papers, kton 318 307 298 297 1,220 1,293 Solid wood products, km3 160 152 173 171 656 647 See also additional information on pages 17-19. Net sales for the Forest Products business area increased 5% and amounted to SEK 13,556 M (12,876). The increase is attributable to currency movements which increased net sales with 4% as well as higher prices. Net sales in the fourth quarter were affected by increased timber exchanges amounting to about SEK 250 M. Operating profit amounted to SEK 2,976 M (2,720), an increase of 9%. Operating profit improved for the publication paper operations, mainly due to price increases and currency movements, while lower operating profit was posted for pulp. Operating profit for the business area rose 11% as a result of currency movements. Compared with the third quarter of 2001, operating profit in the fourth quarter rose 9%, due mainly to higher volumes and currency movements. Publication papers Operating profit from publication paper operations amounted to SEK 1,818 M (1,348), an increase of 35%. Currency movements and the sales price increases introduced during the first quarter improved operating profit. However, this profit effect was limited by significantly higher costs for chemicals and energy. The market for newsprint and SC paper was in balance with stable prices, while demand for LWC paper weakened. During the period, curtailments occurred, mainly for LWC paper. The improvement in operating profit in the fourth quarter compared with the third was 3%. The profit improvement in the quarter was mainly due to favorable currency effects. Pulp, timber and solid wood products Operating profit amounted to SEK 1,158 M (1,372), down 16% compared with the preceding year. The decline is attributable to the pulp operations, while forestry and solid wood products operations posted an earnings improvement. Compared with the third quarter of 2001, the operating profit in the fourth quarter increased 23% due to higher operating profit in the forestry operations, higher capacity utilization in the pulp operations and favorable currency effects. GOODWILL AND OTHER Consolidated goodwill increased mainly as a result of the acquisitions in North America and amounts to SEK 16,149 M (11,218). Goodwill is amortized over 20 years. Goodwill amortization by business area is presented on pages 12 and 18. The "Other operations" line in the report (see page 12) relates to Groupwide expenses as well as financing and insurance activities. Operating profit was a loss of SEK 233 M (loss: 18) . The result in the preceding year included a gain of SEK 138 M on a leasing transaction. The remaining cost increase is due to higher insurance expenses and increased overhead costs related to the acquisitions in North America. Operating profit in the preceding year included non-recurring items amounting to SEK 2,031 M, comprising the net of capital gains on the sale of shares in Modo Paper and allocations to restructuring reserves. There are no non-recurring items reported this year. During the year SCA increased its equity proportion of Scaninge Timber AB, from 40.6% to 59.4%. The voting rights are unchanged 50%. SCA paid a consideration of SEK 70 M for the increase. The transaction was concluded during December. PERSONNEL The number of SCA Group employees at year-end was 40,320 (34,953). The increase was due mainly to North American acquisitions. DIVIDEND An increase in dividend of 13% is proposed to SEK 8:75 (7.75) per share, amounting to SEK 2,016 M. Accordingly, the average dividend growth during the most recent five-year period amounts to 12% annually. MARKET OUTLOOK Demand for the Group's products in Europe was relatively favorable during 2001 despite the rather distinctive decline in the general economy. Demand is expected to remain favorable in 2002 for the Group's consumer-oriented products. For other products, depending more on the development in the industrial sector, the demand trend is more difficult to predict. In North America, the general recession during 2001 had a significant impact on demand for the Group's packaging and tissue products. Prices were also under pressure. However, the incontinence area remained largely unaffected. During the autumn the situation stabilized and a certain, although moderate, recovery occurred during the fourth quarter. Any further weakening is not expected. A potential recovery in the US economy during the year should rapidly improve the demand situation for these product areas. Raw material costs and energy costs are expected to remain stable in early 2002. OTHER The SCA Group's year-end report was prepared in accordance with the recommendations of the Swedish Financial Accounting Standards Council. Apart from adapting accounting to the Financial Accounting Standards Council's new recommendation, RR9, regarding income taxes, the Group's accounting principles are unchanged. As a result of the recommendation and its requirements for gross accounting, the Group's provisions for deferred tax increase by SEK 2.0 billion, an increase that is offset by a corresponding write up of forest and land fixed assets. Moreover, in conjunction with preparing the year-end financial statements, in accordance with the recommendation RR5, the corresponding change was also made in 2000. In addition, in accordance with prevailing accounting rules, gross accounting was applied regarding the Group's tax liabilities and pension liabilities. ANNUAL GENERAL MEEETING The Annual General Meeting will be held on Thursday 11 April 2002, at 3 p.m. at the Aula Magna, University of Stockholm. Tuesday 16 April is proposed as the record date for entitlement to dividend. Payment through VPC is expected on Friday 19 April. The 2001 Annual Report is expected to be released in mid-March 2002. Interim reports during 2002 will be released on 26 April, 30 July and 30 October. NOMINATING COMMITTEE The Nominating Committee, which is assigned the task of proposing a composition of the SCA Board of Directors, includes Bo Rydin, SCA Board Chairman, Curt Källströmer, Handelsbankens Stiftelser, Christer Elmehagen, AMF Pension, Björn Lind, SEB Fonder, and Peter Rudman, Nordea Fonder. SHARE DISTRIBUTION 01-12-31 Series A Series B Total Registered number of shares 45,787,127 186,414,428 232,201,555 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 45,787,127 189,325,542 235,112,669 During the fourth quarter, 2,047,875 series A shares were converted to series B shares. Consequently, at the end of the quarter, the proportion of series A shares declined from 20.6% to 19.7%. 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. Calculated in accordance with the recommendations of the Swedish Financial Accounting Standards Council, the effects of the outstanding convertible debenture and warrant programs amount to a maximum dilution of 0.7%, which was taken into account when calculating earnings per share for the period. Stockholm, 30 January 2002 SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ) Sverker Martin-Löf President and CEO 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/2002/01/30/20020130BIT00430/bit0001.doc The Full Year-End Report http://www.waymaker.net/bitonline/2002/01/30/20020130BIT00430/bit0001.pdf The Full Year-End Report