Hello, welcome to SCA's press conference for the first quarter 2017. As you probably have noticed today, we have released several reports. Due to the decision at the AGM in April this year to split the company into two separate listed companies, one hygiene and health company, Essity, and one forest products company, SCA. Today we have, of course, our CEO, Magnus Groth, who together with our CFO, Fredrik Rystedt, will go through the reports. In addition, we have our Executive Vice President and President for Forest Products, Ulf Larsson, who will also present, followed by a Q&A session. With this, I hand over to you, Magnus.
Thank you, Joséphine. Starting now with the last slide that we will show on the combined SCA, we continue to see a positive development with net sales increasing 4%, organic growth was 2%, an adjusted operating profit increase 5%, and a very strong cash flow for the group. Most importantly, on the 5th of April, after the first quarter, the annual general meeting of the shareholders, and I'm now going to use this word, decided unanimously, so everyone agreed, to split the group into two separate companies: SCA, a well-invested and efficient forest and products company, and Essity, a global leading health and hygiene company. We have progressed to work with the split and can now today announce that the split will actually happen during June, so quite soon.
As you already know, we have also changed the segment reporting, as you will see throughout this presentation. Starting with the future Essity, today's hygiene and health company, SCA. We saw organic sales during the quarter 1% improvement in spite of challenging market conditions, slowing growth, and increasing competition. Adjusted EBITDA improving 4%, leading to an improved margin 20 basis points. Operating cash flow was very strong, an improvement 60% compared to the same quarter last year. During the quarter, we also announced a couple of significant initiatives.
We have now discontinued entirely our businesses in India, so that's done. We announced two investments to strengthen our supply chain and product offering with high-quality premium products in Europe with new baby lines and in Mexico with a premium tissue line to support our fast and profitable growth in Mexico, where we recently became the biggest brand in the consumer tissue market. After the quarter, we completed the acquisition of BSN medical. As you know, this is a big strategic shift for us in the hygiene part of the business that now becomes a hygiene and health business. Less than one month into actually now being in control of the company, we are as excited and positive about the opportunities together with BSN medical as ever before. That's progressing very well. Fredrik will soon talk about the new financial targets for SCA Hygiene Essity.
Our adjusted return on capital employed continued to show a positive trend, up from 15.5 to 15.6. We had a high pace of innovations during the first quarter, and I'd like to focus specifically on the relaunch of our entire Libero baby assortment in Russia. As you know, we had a weak performance in the fourth quarter in baby Russia, continuing now also into the first quarter this year. With this relaunch, we feel very confident that we will recover and move into a more positive development in this category going forward. In the other categories, we are active with all our hygiene categories in Russia, we are doing quite well. This is an important launch for us. As you can see here, the two babies, the happy baby is using the new Libero product, so it seems to work really well. First indications.
Something about our three segments, starting with personal care. As of yet, BSN is not included. BSN will be included from the second quarter, so this is still personal care as you know it. Net sales increased 3.8% and organic sales 1.1%, we had a significant increase in our EBITDA of 26%, resulting in an adjusted EBITDA margin of 14.5%, which is probably the highest margin that we have recorded in personal care, so a very positive development there. The EBITDA improvement comes from better price mix, higher volumes, and lower raw material costs. A very important contribution also from activities that we have been talking about now for about a year.
One is the turnaround of our incontinence business in North America, which is progressing well, and the positive effects from exiting our baby business in Mexico and our hygiene business in India, which is now also showing clearly on the bottom line. Organic sales benefited both from price mix and volume, but with a significant negative impact of 1% then from the closures in Mexico and India that I just mentioned. In the mature markets, we had slightly lower sales in the quarter. In incontinence products, we saw a mixed picture with very good growth in the retail area. A weaker development in healthcare, and this is in line with our previous guidance that the negative tender balance that we have had in healthcare throughout last year continues into the beginning of this year, but then reverses during the second half of this year.
Very positive development in North America. Last year, we saw a turnaround when it came to profits, this year, for the first time in several years, we also see a positive growth in incontinence care in North America, both in retail and healthcare. An important next step in that process. In emerging markets, Latin America grew with 3% in spite of them discontinuing the baby business in Mexico. In Russia, we had another weak quarter in personal care. As you will soon see, it was much better in consumer tissue. With the relaunches that we are undertaking as we speak, we believe that we will turn this going forward. Consumer tissue, with the net sales increase of 2.3% and an organic sales increase of 0.6%. EBITDA increased with 7% due to high volumes, lower raw material cost than the first quarter last year.
For the second quarter this year, we are seeing significantly higher raw material prices for fresh fiber that will then impact our business mostly in Europe. We continue to work with cost savings. We had slightly lower prices due to increasing competition, primarily in Europe. In the emerging markets, we are typically very fast in being able to recover raw material price increases or currency changes with price increases. Adjusted EBITDA margin improved by 50 basis points to 11%. Looking at the sales mix, price mix was negative 0.3% and volume positive 0.9%, with Western Europe accounting for the negative price mix and also lower sales. This is something that is very much in line with our strategy to focus on margins before volume.
Again, another quarter where we have had actually good growth in our branded business, and in some markets, better market shares, all-time high market shares. While when it comes to private label and the semi-finished mother reel businesses, we have been quite strict then in discontinuing businesses that don't provide the margin that we expect and need. This is part of our strategy. In emerging markets across the line, we see continued good growth in all areas. Professional hygiene, away from home, net sales increased 8.6%, with organic sales increasing 1.2%. In away from home, adjusted EBITDA profit decreased by 7%, and this is to a large extent explained by significantly higher raw material costs than expected.
Most of the raw material that we use in away from home or professional hygiene is recycled fiber, as opposed to consumer tissue where we are mostly depending on fresh fiber. Recycled fiber has had a huge increase over the quarter, and for us, somewhat unexpected. Over 30% in North America, over 15% in Europe. A big negative impact there on our margins and our EBITDA. We were not able to compensate through better price mix, higher volumes, and cost savings. Of course, we're continuing to work very hard in all these areas to compensate for these higher raw material costs. Looking forward then into the second quarter, we expect to see still higher prices compared to the first quarter when it comes to recycled fiber, and significantly higher prices for recycled fiber compared to first quarter last year.
EBITDA margin was down 190 basis points to 11.3%. Organic sales increased 2.1% with a mix of price mix and volume. In the mature markets, we saw a flat development, however, a positive development in Europe, a negative development slightly in North America. In emerging markets, a very strong development. Of course, this is the segment where we have the lowest part of our shares, as you can see there in the box coming from emerging markets. Starting now to really be a more important part of our away from home business with 17% of sales. That's what I was planning to say about our three segments in SCA Hygiene to be our future entity very soon in June. I'd like to welcome then Ulf on the stage.
Thank you, Magnus. Ulf Larsson, responsible for the Forest Products part of SCA, and happy to be here and give you some more details about our operations. We also had a strong growth in the first quarter, partly due to increased volume, mainly in kraftliner, and partly due to increased price and mix in mainly wood business. Our adjusted EBITDA margin was down 1% or SEK 6 million. One thing is that we had a one-time effect on electricity certificates, and that had a negative impact of SEK 40 million during the quarter reevaluation. The second thing is that we have some higher costs related to the Östrand project. One thing is training education of the people that are going to run the new mill from next summer.
Second thing is some write-offs due to old spare parts, and also due to the fact that we will start up the new wood handling department in the middle of this summer. We need to increase the speed of write-offs. We have the third thing, which is also that now when we are starting up the new wood handling department this summer, we have some extra costs when it comes to distribution of raw material. We need to distribute in a slightly different way. Otherwise, the project is on plan, both in terms of time and cost. We have so far been investing SEK 3.1 billion, which is approximately 40% of the total investment that shall be done here. We can also say that we now have committed credit facilities in place totaling SEK 9.5 billion.
Many of these numbers are maybe already commented, but if we walk back to EBITDA margin, we can also add that I mentioned the reevaluation of certificates, some extra costs connected to Östrand. We also had some extra costs in terms of raw material and mainly in recycled fiber also for our case. We use some recycled fiber in Munksund and Obbola. On the other hand, we had a strong positive contribution from price and mix and volume during the quarter. When it comes to earnings per share, this refers to continuing operations, so in this case, just the forest part. Also, as you can see, the operating cash flow was quite negative during the quarter, and that is related to increased volume and also increased prices.
On top of that, we also have a VAT receivable due to the Östrand project. That is more a timing effect, so that will come back in second and third quarter. If we then walk over to our four segments, starting with forest, one can say that we have a balanced market in our region for the moment being. Good availability of logs, both saw logs and pulp logs. During the quarter, we have increased the sales, and that is mainly due to high volumes. Price is quite flat for the moment being. Adjusted EBITDA margin has increased by 11%. We have harvested a little bit more on our own land this quarter in comparison with the first quarter 2016. Also we have had a good winter. We have had good conditions.
It has been mild, not too much snow, that has a positive impact, of course, on the cost side. The adjusted EBITDA margin is quite stable on slightly below 25%. We have the second segment, which is wood, as you can see to the left-hand side, price has increased quite substantially during this year. In one year, we have increased prices by close to 10%, 9%. The market is still strong. During the same period, also the production in Europe has increased by 10%, still we feel that we have a good momentum in the market, and the further price increases is also announced for the second quarter. Market is strong. EBITDA also has increased substantially with close to 70% due to high prices.
We have seen some high raw material costs, not for the saw logs, but reduced prices for byproducts like sawdust and chips and things like that. That is one reason. We have also seen some increasing distribution costs, that is due to lack of capacity overseas. We have a problem to get access to containers for mainly Japan, China in this business. Prices has went up. We can see that things are stabilizing a little bit, still we are also hit a little bit by increasing inventories, not due to the market, but due to lack of access to container capacity. Adjusted EBITDA margin close to 11% during the quarter. Pulp. I've already mentioned a couple of things that has impacted the result for the quarter. Reevaluation of certificates, extra costs related to the big project that we are just now running in Östrand.
On the other hand, we have a strong market in pulp. We have seen announcements now for EUR 890 during June made by Södra. On the other hand, we know that capacity will come on stream during the second part of this year. Äänekoski will come up in third quarter, adding 700,000 tons of capacity. UPM Kymi will come up in quarter four and add another 170,000 tons of capacity. Let's see what kind of impact that will have. In terms of adjusted EBITDA, it was heavily down during the quarter, as already mentioned. We will start up the new wood handling department during this summer, and that is the first part of the big part, at least of the big investment in Östrand. During the quarter two, we will also have a maintenance stop, and we will stop for at least 10 days during week 19.
We'll start week 19, that will have a negative impact of about SEK 60 million during the second quarter. It's a planned maintenance shutdown. It is a little bit extended due to the fact that we are running the big project, we have to prepare for the startup next summer. Last but not least, paper. If we look at sales, we can see it's quite flat. It is a little bit divided between our kraftliner business and our publication paper business. We have a really strong momentum in our kraftliner business. We have seen price announcements of plus EUR 50 per ton just recently, we think that they will come through step-by-step in the second quarter.
On the other hand, in publication papers, we have seen that prices has already gone down by a couple of percent, 2% for coated paper, LWC, which is in publication paper two-third of our portfolio. One-third is coated paper, and today that is a little bit stronger market for that. All in all, we know that the consumption in publication paper will continue to decrease by, let's say, 5% as an average for all grades year by year. That is something that we have to handle. On the other hand, we can see that kraftliner business is really strong. We had additional capacity in Varkaus last year, first quarter, 370,000 tons, and that is more or less taken up by the market. We have a really strong balance in the kraftliner market going forward.
The adjusted EBITDA margin is slightly lower than we had first quarter last year. Also here, we will have during the second quarter two big maintenance stops. One at Ortviken has already started, and one in Munkfors. All in all, about 80 million SEK with negative impact during the second quarter, and that is also planned maintenance stop. I also like to mention finally that we will have an investor day 31st of May in Sundsvall, where we will give some maybe more detailed information and also give possibility for study visits in our industry. Most welcome to that one. By that, Fredrik.
Thank you. I will give a bit of extra flavor, and I will do that for both the Essity or hygiene business and also for forest after that. Starting with net sales. As you can see, the sales grew by just over 4%, and roughly about three of those refers to, of course, the normal translation currency and the 21 days of Wausau we had last year. You will remember that we bought Wausau the 21st of January. This is actually the last time you'll see Wausau like this. On the other hand, next quarter you will see BSN here instead.
If you look at the organic growth, we had a good contribution both from price and mix and volume from all of the business areas in hygiene, with the exception of price and mix for consumer tissue, and this is mainly the price pressure that we've had in Europe also previously that we have reported. Organic growth of EBITA approximately 4%, and this is better price and mix, higher volumes. You can also see that this quarter we have showed the cost savings. Many of you have asked that question, what are the cost savings? We have chosen from now on, we will show basically cost savings. Worth noting though, that this is cost savings in cost of goods sold. Of course, we on top of that have occasional saving efforts in SG&A and other parts. This is cost of goods sold.
If you look at the price and mix there, we had a very good contribution from Latin America price increases. We have talked about that before. We also have a really good mix development in professional hygiene, both in Europe and actually also United States. As I previously mentioned, a negative impact from price in consumer tissue. I think both Magnus and Ulf, you talked about the raw material impact, so I'll speak a little bit about those trends on the next slide when we look at the raw material trends. You can see that we had a slight negative impact of approximately SEK 40 million in the quarter. If you look at the other line, this is as usual, everything else that's not on the other bars of this slide, and particularly so you have A&P there, you have SG&A, general things for indirect cost.
Roughly about slightly more than a third of this increase has to do simply with two facts. It's basically A&P, and the fact that we have grown also the ratio of A&P slightly. That's about a bit over a third, and the rest is relating to other general administration, so typically linked to growth and indirect cost. We don't specifically mention this on this slide, but of course the weak pound is still impacting us. Brexit, although it's been some time, is still impacting us. Totally in our result, approximately SEK 90 million is impacting the result. Out of that, SEK 54 million is relating to transactions, so impacting the margin. It's actually still quite significant. Once again, raw material, and Magnus mentioned it before. You can see on the left-hand side, this is sorted office paper in the United States and also Europe.
These are the grades we typically use for our away-from-home or professional hygiene business. You see the lower line there, that's the same line for Europe. This is indexed. The increase here is 35 or even above. If you weight it with all the grades we use, it's approximately about 30%-35%. It's a very, very significant increase. It's been going on for some time. Of course, very rapidly now in the last six months, and of course, this is impacting us significantly. If you look at the right-hand side here, the lower line or eucalyptus or hardwood pulp, this is what we use predominantly in consumer tissue together with NBSK, the blend there, and approximately about 60% on the bottom line. Clearly what you see here is a fairly sharp increase.
If you actually compare Q1 of this year to last year, you can clearly see that we have had lower prices. If you think about the negative impact of SEK 40 million approximately in the quarter, that means that we've had a very significant negative impact of roughly SEK 120 million in professional hygiene, but a corresponding positive impact in consumer tissue. Then also a slightly positive impact in personal care, the net's basically the SEK 40 million. Very clearly from this slide, what Magnus talked about before, you can very easily see that Q2, we will have significantly higher raw material cost in comparison to last year for both consumer tissue and from professional hygiene. We will have also higher cost for personal care. That's also clear from this slide that fluff pulp is increasing, oil-based material is increasing.
Partly we're back to the scenario that we were in 2015. The cash flow increased a lot. As you can see here, 87%, if you look at the total cash flow, a really strong performance. Of course, one very noticeable change here is the change in working capital. Typically Q1, Q2 are negative in terms of development of working capital. We normally consume cash flow or working capital here, and we've done that to a much lower extent here. If you look at the working capital level of the group, we now have, after Q1, basically 3.8%. Last year we had 6%. This is actually a fantastic performance. It's also in a few ways abnormal. You should not expect this to actually repeat itself. On the contrary, in Q2 we will reverse, and this is basically due to several reasons.
We are very low on inventory in a few different places. You will not see this in Q2, but of course, it's super good for cash flow in Q1. You can see here for capital expenditure is also low. Structurally, we normally consume less cash flow, in terms of capital expenditure in Q1. We have previously given an estimate for SEK 7 billion for the full year, and that's still valid. If you just take this times four, you will be too low. We still expect SEK 7 billion of capital expenditure, including BSN. You've seen this from the report, so I won't spend too much time on it. You can see, and we've announced this, what we call the spin-off cost or Silva cost, as we have called it internally. This quarter, it's SEK 460 million.
We talked about this main item here, SEK 450 out of those SEK 460, is the cost related to the foreign tax outside of Sweden that's triggered as a consequence of the spin. From a cash flow perspective, that SEK 450 will be most likely triggered in Q3. Since, of course, it's much more likely than not that the spin-off will occur, we basically take the provision now in the first quarter. That's the main SEK 460. The other restructuring, Wausau, it's in accordance with our previous announcement. Then we have this other item of SEK 265, very significant. During last year, you may remember that we took a fairly big provision to the result on the back of anticipated losses in a few antitrust cases. One of these cases in Poland has now been settled with a much lower loss than we anticipated in that provision.
Basically, the SEK 265 you see here is simply a release of that provision to the extent, of course, not needed. Then the final one is an impairment, a non-cash flow issue of acquired assets from many years ago. It's just an adjustment of the balance sheet with no cash flow implication. We have defined new targets. As previously, we have chosen to use organic sales growth and return on capital employed. The reason we have chosen to remain with these targets is that we believe it has served us well, both externally but also internally. It's very consistent with our internal management model. We have chosen to remain with those two. We have, however, done a couple of changes or basically two main changes. The first one is that we have put targets only for the aggregated group.
Previously, of course, we had it for the different business areas. Now we have it aggregated for the group. That's the first change. Second is that we have redefined return on capital employed to adjusted. Basically, EBITA, excluding amortizations divided by the full capital employed. In reality, if you look at Q1 or historically, this has had very, very little difference. As we go into the second quarter and when BSN comes in with very significant amortizations, as we previously have reported on, EBITA divided by capital employed makes much more sense. The levels here is very simple. It's just basically an aggregate or a weighted average of the previous targets we had, and then we've also added BSN or our assessment of the return. In that sense, these levels, they don't represent a change of ambition.
They're simply just taking the previous targets onwards into a new format. Of course, if you look at the return on capital employed for Q1, it is actually higher than 15%. You may think this is not very ambitious, but don't forget, if you look at the numbers for BSN, you can clearly see that BSN has, in that sense, a lower return on capital and will impact that. These remain as ambitious as the previous targets. A few words on Forest. You can see here that the growth was, you have already talked about that, Ulf, it grew with 5%. Good contributions actually from all areas. Higher volume, pulp and paper price mix contribution was really, as Ulf talked about, strong from the wood part.
The adjusted EBITDA, once again, Ulf, you have discussed those issues, a decline with 1%. The three main items, despite this very good volume development, the EBITDA is actually down, it has to do with these three items. Higher raw material for recovered paper, the electricity certificates that you've seen of approximately about SEK 40 million, and then the additional cost that we have related to Östrand. That's basically part of the development. Forest cash flow, you talked about that, it's actually interesting, of course, when you look at this, if you look at the capital expenditure there of SEK 640 million, approximately, in the quarter, about SEK 500 million of that relates to Östrand. Of course, as Ulf said, 40% of Östrand investment has now been taken. The change to the working capital is very significant, if you actually think about two things.
Last year, volumes were actually lower than the year before that, the prices were also much lower, this year it's just the reverse. That explains the absolute majority. You talked about the VAT, as we pay the invoices for the Östrand investment, we will of course also pay VAT, which we reclaim occasionally. We will have a VAT balance as we go on. This particular quarter, we had approximately about SEK 100 million related to that in negative cash flow. Of course, as time goes by, that will come back. With those words, I'll leave back to you, Magnus.
To sum up, positive development in both our SCA Hygiene business, our future Essity, and in SCA Forest Products, the future SCA, and also a very exciting time ahead of us in both these companies that are both financially strong, exciting prospects, very good underlying market conditions, and of course, important opportunities also now in the near term with BSN transforming Essity from a hygiene company into a health and hygiene company with fantastic opportunities going forward, and with SCA, the forest company, moving closer and closer to finalizing the huge investment in Östrand and all the positive results that that will bring to the Forest Products business. With this bright outlook for both these companies that will then be born sometime in June, let's have some questions.
Let's start here, Karin, in the front row.
Hello. Mikael Jåfs from Kepler Cheuvreux. I have two questions, one a little bit long term and the other one shorter term. The longer term is that you just showed us your new return on capital employed target, then you also talked about your tissue roadmap and your cure or kill program. How should we, as analysts, think about this? You are, as you pointed out, at 15.8% already with a target of 15%. Of course, with then including BSN, it will go down. How should we think about this long term? What could it bring to the table? I know that you can't be specific exactly, but that's the part one. Part two, we see the higher raw material costs. Normally, the industry is able to raise end product prices, then a couple of words on that topic, please.
I'll start with the return on capital employed, Fredrik, please fill in. Before now we changed our goals, we were getting close to our previous goals on return on capital employed, we didn't actually achieve the goals yet. I believe that before you have actually achieved the goals you have for some sustainable period, you shouldn't increase them. That's why we have decided to actually set the goal for Essity based on then the aggregate of the business, including BSN. That's the underlying logic. You want to add anything there, Fredrik?
Not really, because you know the previous targets, and you can see it for tissue that we are not there. It's obvious that if you combine the consumer tissue and professional hygiene compared to the old target, we still have some time to go. You talked about tissue roadmap. Of course, that's very instrumental, especially for consumer tissue, to achieve those targets. We still have a lot of work to actually get to where we want to be.
When it comes to the raw materials, all the big players in the U.S. have announced price increases in away-from-home tissue, in professional hygiene. We believe that those increases will actually come through at the end of the second quarter. No significant impact during the second quarter, but for the second half of the year.
Just two follow-ups. Can you mention the level of those increases?
8%-10% increases in North America, price increases on away-from-home tissue.
Would that then restore the margins when fully implemented?
It depends on the development of the underlying recycled fiber prices, that have been softening a little bit here just in the last couple of weeks. That's the size of increase that we believe that we can actually ask for at this point in time.
Thank you.
Maybe, Mika, just to add that if you look at the history from 2015, you can very clearly see that there's a time lag. Of course, we strive to increase prices. The extent is always difficult, but it takes time. Of course, we compensate in many other ways, cost savings, all sorts of different things. It's really difficult to say if it will restore or not.
Thank you.
Olof Garrard, ABG Sundal Collier. Coming back to this new target for the new Essity group, sales of 3% and ROCE of 15%. You mentioned that it, to a large extent, is based on history, and that BSN had a negative impact on the ROCE target. Shouldn't it be a positive impact on the sales target from the BSN acquisition?
Once again, it's always difficult to assess the future. We have not widely changed the organic sales targets. We don't give estimates on that. This is our assessment of what the combined entity can actually do. If you talk about the return target, you can very simply calculate approximate impact. You know the EBITDA number, we have communicated that. You know the purchase price. The actual impact is quite easy to calculate. If you weight all those together, this is basically what you get. It's very weighted average.
Fair enough. Then a question to Ulf Larsson, please. Coming to this forest division within your company. You mentioned the 25% adjusted EBITDA margin and a strong sales growth, 11% year-on-year. You also mentioned a weak winter having some kind of positive effect. That's not necessarily positive in my world for your kind of operations. To what extent does this quarter mirror a normal quarter for forest?
I think it's quite normal. Mild winter is just due to cost side. If you run the harvesting operations, it's better to do it when it's not too cold. Also, if you have a decent snow level, that is also positive for cost. I think it's quite normal. First quarter, normally, we harvest much forest from private forest owner, and second, third quarter, we harvest more on our own land. You also have a kind of mix there.
It's quite normal then from the point of-
For the first quarter, I think it's quite normal, yeah.
Okay, thanks.
Stellan Hesselgren with Nordea. First, I'd like to ask about the price pressuring consumer tissue, and if you can elaborate a bit on the market dynamics here in terms of earlier raw material cost decreases and new capacity. Also here, maybe if you can comment on how this can be offset by pricing potentially, and the timeline for that.
Yeah. There's no real change when it comes to new capacities coming into Europe. That's then partly good news. Of course, coming to compensating for raw material changes. As you know, raw material prices came down throughout last year for consumer tissue in Europe. As a consequence of that, we saw increasing price pressure, and this was also coming from a situation with quite good margins in consumer tissue. Now, of course, with the reversal of the fresh fiber prices, we will start talking about increasing prices again immediately, and we're already doing that to compensate for that. As we always do, we need to compensate with price increases. That takes time, and in the shorter term, we're doing everything we can to compensate also through lower costs.
Is there any difference that you see compared to the situation in 2015 then?
The price increases are not as substantial as in 2015. They're somewhere in between last year's prices and 2015.
Very well. Also just a question on the Personal Care side where it seems that you had quite significant cost savings from the business you exited, and if you can just say to what extent the savings you achieved in this quarter is representative for what you expect on a full year basis.
Fredrik?
All the cure or kill efforts that we have done now in predominantly Personal Care has been the main reason for the improvements, those hopefully will be sustainable. We have no other reason to believe differently.
Thanks.
Are there any more questions from the room? Seems not. Please, operator, you can open up the telephone lines.
Thank you. Your first question from the phone lines is from Celine Pannuti from J.P. Morgan. Please go ahead.
Yes. Good morning. My first question is on the bridge slide that you show where you showed the savings benefit. Can we have a bit of an idea of how much restructuring savings we should get in the remainder of the year? Should I take that and multiply by 4, or is there any phasing throughout the year? Could you as well tell me if this number, the 214, where are included the benefit from exiting Mexico and India? That's my first question. My second question, coming back on the overall sales target and the environment. I'm still a bit surprised by above 3% as a sales target. If you say that you still have the previous target, which were 5%-7% for personal care and 3%-4% for tissue, it seems that there is a dilutive impact of adding BSN.
Where is the math wrong here? Also, could you talk about the growth environment that you see in the 3 different divisions? Thank you.
Okay. If I start with the sales target, then let Fredrik talk about the savings. We're not having 3% as our target, but above 3% as a starting point. We hope to do better than 3%. We used to have a range, of course, if you look at the lower end of the range of 3% for tissue and 5% for personal care, BSN has had a very good growth over the last number of years, which has been a mix of organic growth and acquisitions. I feel that we need to learn more about that company during the next number of quarters, before we have a feeling for what the underlying growth rate is. Taking all this together, we have ended up with this target, which is then to be above 3% in growth.
Can you put this in relationship as well to the market exposure that you have? A lot of other consumer companies have spoken about a bit of a deceleration, specifically, is it possible to share with us what kind of growth you see in the market in each of the different division?
In each of the different divisions, then you have to look at geographically as well. I guess we are also seeing a slower growth continuing into this year. We had that also last year, then in 2015. Of course, in 2015, large part of the growth came from price increases due to raw material increases and currency exchange changes and so on. The target that we have now is very much based then on cleaning for this and looking at volume growth. In general, of course, we expect to see higher growth in Personal Care than in both the tissue categories or tissue segments also going forward.
Celine, your question on the savings, we call it total cost productivity or total cost performance, TCP, those SEK 214. That includes basically the savings we do on many different fronts. Of course, also measurable directly to EBIT. That's how we measure it. It's also a net number. Included in that SEK 214 is also inflation that we have within our cost of goods sold. The actual gross savings are higher than SEK 214. This is the way we typically measure. We don't specifically disclose the different parts of TCP. You asked about restructuring. We don't as a separate part of that TCP do or segregate the components, so to speak. Your question on exiting India and Mexico, are they included? The answer is no, they're not. This is on the existing business, the cost savings within cost of goods sold.
All right. Thank you. I have a follow-up question, in fact, on the new targets. You said that you decided to keep sales growth and Return on Capital Employed because that's how you did it in the past. Now, if I look at some of your public competitors that are focused on hygiene, they are talking about top line and margin. Obviously, as well, some of them are Return on Capital Employed. They have also P&L targets. Why is it something that you've not considered, or if you've considered, why are you deciding not to choose this as a main target?
Of course, we looked at the targets from comparable companies in different areas. We believe that with these two targets, we actually cover a number of different areas. Growth is always important in the categories where we're present. Return on Capital Employed covers both our margin ambitions and also then how efficient we are in utilizing our capital, and that gives a good summary and also gives enough guidance for you to break it down into those two components, if you wish. Fredrik, do you have anything to add to that?
No, it's exactly like that because return on capital employed is just margin time capital turnover. Of course, capital turnover for a relatively capital-intensive business such as we are, it's super important to maintain good control and efficiency also in the capital base. Leaving capital completely outside of the equation is not something we would like to do, and we don't believe it's creating value for shareholders to leave that outside. It's exactly what Magnus said. Of course, the main change parameter when you look at changes of return on capital employed is needless to say, margin, because although we can make ourselves more efficient, the predominant factor is margin. You basically get the full lead with that measure.
All right, thank you.
Your next question is from Iain Simpson from Société Générale. Please go ahead.
Thank you very much. Couple of questions from me, if I may. Within personal care, it looks like other items drove half of that very significant increase in adjusted EBIT. I just wondered if you could sort of break that down a bit and give a bit more color. Secondly, you're obviously seeing very different input cost trends in personal care tissue and in professional hygiene. Intuitively, I would have thought that recovered paper costs and pulp costs would be broadly correlated, but that's clearly not the case. I just wondered if you could go into a bit more color there and whether we should expect a convergence at any point. Thank you again.
Maybe I can start with the first one.
Yeah, exactly where profit comes out in the bridge is an art, but you spotted a very good point because if you look at the cure or kill exercises and the value of the exits, it basically comes out to a large extent in others. This is the reason.
When it comes to the raw materials, there is to some extent a substitution and correlation. However, recycled fiber is much more volatile than fresh fiber, and I'd like to hand over, maybe this is my last chance, to an expert in this area, Ulf. I don't know if you have any comments on the correlation between fresh fiber and recycled fiber.
I don't think that you have too much of a correlation between fresh and recycled fiber. It's different markets.
Thank you very much.
Your next question is from Linus Larsson from SEB. Please go ahead.
Thank you very much. Maybe on the theme of raw material cost increases, if I understand you correctly, you are expecting to see sequentially rising raw material unit costs in all three of your divisions. Is that correct? That's my first question, and maybe second to that, if you also could talk about personal care. We haven't covered that in the same detail as the other two divisions when it comes to price compensation as we move forward in the next couple of quarters, please.
Yeah. The answer to your first question, yes, we expect high raw material costs, both fresh recycled fiber and oil-based products, for all our segments. To your second question, typically, we have an easier situation in compensating with price increases in emerging markets, and personal care has a larger portion of its business in emerging markets. It's also easier to compensate with price where we have a larger share of our branded business, and this is also the case for personal care. Easier to compensate in general in personal care than in tissue. Also, in tissue, easier to compensate in away from home tissue professional hygiene than in consumer tissue.
Maybe I can just add, Linus, on the raw material sequentially, that was your question. It's higher for personal care and for professional hygiene and significantly higher for consumer tissue.
That's great. Excellent. Thanks for that clarification. Now that as it seems the split is fast approaching, could you just reconfirm the net debt allocation between the two entities, please?
We did that in our Q4 report. We allocated SEK 5 billion to forest and the rest, of course, to hygiene. As of end of the year, you saw the cash flow figure here from forest and from hygiene, of course, that accumulates debt.
Excellent. To be perfectly clear, that's the SEK 5 billion as per the end of 2016. That's the reference point here.
Yes, true. One thing that is worth noting, you saw that also in the information brochure and in our communication that the dividend to be paid by SCA AB, since we are still one group, will be paid by hygiene. You can basically, to estimate the current or the net debt of forest, you will take that SEK 5 billion, and then you accumulate the cash flow from the forest operation.
Absolutely. That's perfect. Maybe a follow-up on that, maybe to Ulf, and that's the Östrand CapEx split. If we assume a June split, as you've said you intend it to be today, how much of the Östrand CapEx will happen before and how much will happen post-split if we look at the total SEK 7.8 billion of CapEx?
Up till today, as mentioned, we did SEK 3.1 billion, We will have some additional, of course, in the second quarter. I don't have the exact figure, really. Do you?
Okay.
No, Linus, we said that if you look at the profile, 2017, 2018 will be the large years, so to speak, Of course there is much to come. Exactly when you pay the invoices is always super difficult because it depends on the day of invoicing. To say that exactly is impossible. You have the approximate number for the full year.
Okay. No, that's great. Thank you very much.
Your next question is from Ian Wood from Redburn. Please go ahead.
Hi. Thanks for taking my questions today. two questions from me, just into the business. In the tissue market, I'd be interested in hearing how you're seeing growth in Europe in terms of private label versus branded products in the consumer category. The second question, I think we saw, maybe it was a few weeks ago, an announcement that you were going to launch a line of diapers in France under the Lotus brand. I'd be interested in hearing what kind of strategy you're going to go for there, what kind of price point you think you'll be coming in at. Thank you.
Thank you, Fredrik, for showing here on stage, and thanks for reminding me of this very exciting launch that we are super happy about. I think it shows our confidence when it comes to our performance in baby in Europe, where we are doing really well, and where we have a dual-track strategy in the same way as we have in feminine care and in tissue in Europe, in consumer tissue. We have concluded that in France, where we do not have a strong partner for retailer brands, there is a very good opportunity to enter with a branded offering.
Since Lotus is the absolute number one tissue brand and a household name in France, also previously was a baby brand, and we're still selling some baby tissue products under the name of Lotus, all our market tests have shown that there's a huge acceptance for this product. It's also based, this launch, on the fact that we now feel that we have a very competitive assortment, both when it comes to quality and consumer preferences and when it comes to cost. That's why we have an opportunity, and we will price ourselves, and we're already on shelf, in line with other branded offerings, and in line, of course, with the assortment of value and premium pricing. In line with other branded alternatives. Your first question, tissue and the mix, private label tissue and branded tissue in Europe, how that's developing.
It's quite stable over the last couple of years. A slight increase in some markets in private label tissue still, but not significant that it's really influencing us. We are, as I already also spoke about, taking a tougher stance when it comes to private label. Of course, working together with our partners to develop their retail brands in our private label offering, but otherwise prioritizing our own branded products in order to improve margins going forward.
Great. Thank you.
No further questions. Thank you.
Okay. I think that was the last question. Any final words from you, Magnus, before we close this press conference?
Thank you for coming, and next time you will have to split into two meetings when SCA, the forest company, and Essity, the hygiene and health company, will report separately. Thanks for listening.