SCA sees good opportunities for growth and improved margins in the years
ahead. This applies to all SCA’s business areas – forest products,
tissue, personal care and packaging. At SCA’s capital market day in
Stockholm on 4 September the company’s management presents the financial
levels at which the Group creates value and specifies opportunities for
growth and improved margins through internal measures such as efficiency
enhancement programmes and product innovations.
CEO Jan Åström: “We can strengthen our market positions considerably
through strategic investments, selective acquisitions and divestments
within the framework of our business areas. We also see very substantial
growth opportunities in three regions outside our traditional main
markets. This will be a key part of management’s agenda over the next
SCA’s value creation requirement for the Group in 2006, based on the
present capital base and cost of capital, is an operating surplus margin
of 15%. Internal efficiency programmes have contributed to an
improvement in SCA’s operating surplus margin during the past 12 months
and it now amounts to over 14%. SCA sees potential for improvement over
the next few years of 2-3 percentage points from the present level,
mainly based on internal measures, including price increases already
announced. Cyclical market improvements are not included, however, nor
are costs outside SCA’s control such as energy or raw materials.
“The potential for improvement we are now reporting is relatively
conservative. For example, we have not included compensation for the
dramatic rise in energy prices in recent years. That said, there is an
upside in the form of a continued improvement in the market situation,”
says CEO Jan Åström.
The Forest Products business area today provides value creation with an
operating surplus margin of 22%, 1 percentage point higher than the
required level of 21%. The margin improvement over the next few years is
estimated at 2-3 percentage points, driven by a continued focus on
productivity and high-quality magazine papers.
For the Tissue business area, the value creation level is 14%. The
current level is 12%, a consequence of restructuring within our customer
base – the retail trade – in recent years and higher energy costs.
Highest priority is being given to achieving the value creation level.
The potential for improvement is estimated at 3-4 percentage points
driven by positive effects from efficiency programmes and a greater
focus on product development.
For Personal Care, the value creation level is 12%. Today’s level is
18%. The challenge for Personal Care is to continue to develop and grow
product segments, primarily the world-leading incontinence business,
with retained margins.
For the Packaging business area, the value creation level is 13%. The
present level is 11%, a consequence of the emigration of manufacturing
industry with resultant excess capacity. The potential for improvement
is estimated at 2-4 percentage points, driven by the ongoing efficiency
programme and a focus on segments with a higher value content.
Growth outside the home market, Europe
Europe is SCA’s largest market. But sales outside Europe have risen
significantly and SCA see continued major potential here over the next
At the capital market day, Jan Åström says: “For the Group, we expect
annual organic growth of 3-4% which will be driven, among other things,
by high growth within Personal Care. SCA also sees strong growth within
geographic regions such as Eastern Europe including Russia, Latin
America, and China.”
In Asia, SCA’s packaging operations are growing fast. The Chinese market
is very dynamic and attractive. SCA is confident about the possibilities
for continued growth in China and is also seeking opportunities to
expand its hygiene operations, through acquisitions and other
activities. The company’s goal is a strong increase in organic growth in
Asia Pacific from today’s approximately USD 850m to USD 1,300m by 2010.
Another of SCA’s prioritized growth regions is Eastern Europe including
Russia. Of the 330 million people who live in this region, approximately
140 million live in Russia. SCA already has significant positions here
within tissue and personal care products. In order to meet demand for
tissue in the expansive Moscow region, SCA plans to start a plant for
the manufacture and conversion of tissue. This investment is expected to
amount to approximately SEK 500m. Provided the necessary permits are
obtained, production can start at the beginning of 2008.
Latin America is the third region of future strategic significance for
SCA. The company has significant positions here within tissue and
personal care products in markets such as Mexico, Colombia and Chile.
SCA’s goal is organic growth of more than 50% over the next 5 years,
from today’s USD 570m to USD 870m by 2010.
Investments, acquisitions and divestments
During the next few years, current investments will as before amount to
about 5% of sales. Expansion investments (strategic investments) to
support organic growth primarily in the three growth regions, are
expected to remain at least 2% of sales. CEO Jan Åström also sees the
extension of tissue capacity within the Americas business group as an
interesting area for investment. The Ortviken paper mill is pointed out
as an attractive industrial venue for a continued focus on magazine
papers. However, in view of the ineffective Swedish energy policy, SCA’s
board currently finds itself unable to decide on such an investment.
SCA has conducted extensive efficiency enhancement programmes over the
past two years with capacity shutdowns and substantial employee cutbacks
designed to strengthen competitiveness. Acquisitions have been given
lower priority during this period. At the capital market day, CEO Jan
Åström indicates that SCA is now once again seeking growth through
“We have a mutually supportive product portfolio within the Group with
our four business areas and we see strong advantages in this. Over the
next few years, the aim is to further strengthen our positions. We will
do this by being active both when it comes to opportunities to acquire
companies, including possible structural deals, but also through
divestment of units within the framework for our business areas that are
not considered to have development potential. Taken overall, this will
create conditions for profitable growth,” says CEO Jan Åström.
Within current operations, Jan Åström also emphasizes the major focus on
product development and brand building. Many of SCA’s world-leading
positions are based on being continuously out ahead in its ability to
develop new products to meet customer and consumer preferences.
Jan Åström, SCA’s CEO: “SCA, with more than 60% of its sales comprising
consumer products, has had a number of tough years, due among other
things to changes within the retail sector. We have responded with cost
savings and by trimming our organization. We have also worked with
product development and innovations which are now bearing fruit. We see
clear indications of a recovery and improvement within our main
Stockholm, 4 September 2006
SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ)
Communications and Investor Relations
Questions about this press release will be answered during the capital
market day’s question time for registered participants and for media
representatives at the press conference to be held directly after the
capital market day. The press conference will be held at 6 pm on
4 September 2006 in Moderna Museet, Stockholm.