AGM 2017

Apr 5, 2017

Slides

This image shows 2 happy, lively, strong individuals, and that's a theme for today's meeting as well as the main point here is about the 2 strong operations that SEA has, Forestry Products and the Bart that deals with hygiene and health. And we're going to make a decision. We're going to make a decision later about dividing the company up into these two items. But before we do that, I thought I'd briefly go through what's happened in 20 16. And in terms of figures, turnover rose by 2% to just over 117,000,000,000 euros and this was in markets that were characterized by declining growth and also financial problems during the year. The adjusted return on capital was almost CHF 14,000,000,000, an improvement of 7%. And then this improvement came from our long term policy work on innovations and increasing efficiency in the whole group, also thanks to lower raw material costs during the year. The adjusted return on capital employed also improved by 0.5% to 12.5%. And as you know, our long term target is 13%, and we're getting very, very close to it now. And it's very gratifying. That we've moved closer to our long term target when it comes to this important return target. And then as you know, finally, the Board has recommended that the dividend this year should be a cash dividend of CHF6 per share, which is a rise of CHF0.25 from last year. But these are figures and these are a result of many activities and events during the year. And here's a selection of them. Let me begin with a number of structural part of our jigsaw puzzle. Which was a really important part of our jigsaw puzzle as SCA is a world leader in tissues from away from home with over market share of over 20%. But we've been a bit weaker in the largest market, which is North America. But this acquisition means that we've got a 26% market share in the United States, a really strong position in a really important market. A bit later during the spring, we finished the divestment of SCA's hygiene business in Southeast Asia to its Chinese subsidiary, Vinda. And we did that to make sure we had a very strong panasiatic organization, which it was very good that we made this merger and is now being operated by strong local management in Hong Kong, one of the reasons, in fact, why the Board made a study visit to Vinda. And then of course, in August, we announced that we were we're going to begin the work of proposing to the Annual General Meeting a split of the group, which we'll come back to later. When we began on that work, of course, we had to begin by working out what the vision and the strategies were going to be for these 2 different operations. And we've created new visions and strategies, which you'll find in the information brochure that's been available. And there, we could see that in the hygiene area, hygiene is not an end in itself. It's one of the ways of obtaining health and well-being. And with this insight in our heads, at the end of the year, we were able to acquire BSN Medical, a leading medical solutions company, yet another structural change in the group. But even more important possibly was the ongoing activities all the time to make sure that we're improving our everyday operations. And there, too, we had implemented a number of different measures. We closed our baby operations in Mexico and India, but we made a number of offensive investments as well. I'd like to mention we opened a factory for incontinence products in Brazil, and we improved our earnings for our incontinence operations in North America. And then of course, what we're working on and talking about all the time in the management in the organization continued work with innovation efficiency, profitable growth and digitalization, but that affects all companies today. I thought I'd show you a very amusing innovation, which I think is related to our strong ambitions when it comes to sustainability. It's this. Sort of recycled paper is nothing new and most of the tissues made are made of recycled paper. But we've never recycled paper from paper handkerchiefs because they're difficult to collect and it's very special requirements when it comes to cleaning this product. And so this is a new product that we're selling, which is made of 50% of recycled paper tissue. It's an innovation and an example of a very, very small step forward towards a more sustainable society. And what did this result in for you as shareholders? Well, the general total return was 7%, which is considerably better than the branch index, the MECI household products. Other consumer and household products manufacturers, but some a few percent worse than the Stockholm Stock Exchange. If you look at the red and blue lines there, you'll see that they both dropped in connection with the election of the president in the United States. There were two reasons for that. 1 was concern about increasing trade obstacles, which would hamper growth in these areas. And also, investors chose to reduce their exposure to this sector and go into infrastructure and building companies, construction companies there. Since then, this has corrected itself during this year, but you can see that the whole sector with SCA dropped there at the end of December. If we look at a somewhat longer perspective, this is over a 3 year period. We could look at 2 or 5 or 10. You'll see there that over the years, SCA has a very good total shareholder return, 40% compared to the Stockholm Stock Exchange, which is only 27%. That's what I thought I would say about the year that's finished. And instead, I'd like to look ahead. And a very important event was what happened on Monday when we completed the acquisition of BSN Medical. In fact, it was only completed the day before yesterday. This is a medical products company. It has its main office in Hamburg, 6,000 employees. It develops and sells sore treatment and compression treatments and orthopedics. And these are very important areas for us because they're very, very close to what we're doing with incontinence. It's the same sales channels. It's the same uses in many cases. So the sales channels are clinics, hospitals, chemists, where they are one off product 1 used products where they're sold. And if you look at the underlying market factors that affect growth, then these three they're the same in factors for these three things. It's the same as for our incontinence products, a growing aging population and chronic states, which we see more and more of as a result very often of overweight, diabetes or cancer treatment, which means that these products are needed. And that means that we're going to be able to sell products like this BSN's products together with our own incontinence products, and they can do the same, and it's going to make us stronger. Turnover in 2016 was just over €8,000,000 and the result after deductions, etcetera, was almost €2,000,000 which shows that there's a very high margin, but there's also generates a strong cash flow. So it doesn't need such major investments. It's a new growth platform for SCA as these areas are not as consolidated as many of the consumer areas we're working in are, which are dominated by a number a small number of companies. Here, there are still a large number of smaller companies. We paid €2,740,000 We paid it on Monday. And this acquisition is meant to add to the profitability of the SCA share. And you can see from strong brands here, which I'm sure you've seen at some occasion, I've got one example in my pocket here, Leukoplast, as it's called in German. I think most people, not only in Germany but also in Sweden, many other countries all over the world have got this in their bathroom cupboard at home, and they use it quite frequently. It's really great that we haven't just bought a financially strong company, but also one with strong brands and with strong marketing possibilities. And this then takes us on to today's theme, which is the proposed division of the company and to put this into some kind of perspective very briefly. We can see that SCA has had a fantastic development since it was founded in 1929. And this development has not been purely organic. And a lot of acquisitions and divestments have taken place. And on the left, you can see the brands that we bought: 2, MUN LICA in 1975, which was the beginning of the whole hygienic factor and then Vinda, which has given this fantastic position in China and Asia. What you can also see there is that the SCA brand has also developed since 1929 to what it is today. And for those of you who stay on after this meeting is over, immediately after, if we get a positive decision that is, then we're going to present the new brand logo type for the 2 different operations in the future. So that's something that a positive decision will lead to. But these are brands that have been used by SCA during the years. If you look at the right, you'll see that the hygiene element has grown enormously, dramatically, now more than 96 percent of our total operations. And this does not mean that the forestry operation is a small operation, which is what you hear sometimes. But the forestry operation will, in fact, be the largest company. So let's put it in that kind of perspective. And briefly about the 2 different businesses, what they would look like after potential split. The Forest Products business as basis has the huge land of forests with an efficiency, world class, 2,600,000 hectares, but also in the forests efficiency, very well taken care of and very efficient. It's well integrated value chain where all the wood product is used, which is good for environment, good for economically. We look at the underlying market, we can see a long term stable growth and demand for fiber product in the long term even though it values varies between product segments naturally. In longer term, potential growth areas within liquid biofuel, green chemicals, renewable materials, a good future for the Forest Products business. And as you can see, this little fact diagram, the turnover was €16,500,000,000 2016, was one of the biggest companies and would then be on the big list of companies at the Stockholm Stock Exchange. If we then look at our activities within hygiene and health and here we've added hygiene Monday when we completed the acquisition of BSN. Our vision is to improve well-being through leading hygiene and health solutions particularly. I've already mentioned one of our world leading global market positions that's within tissue away from home with Toricke's brand. But another as leading position is that within incontinence products with the brand Tina. Both these brands in themselves are bigger than €15,000,000,000 of turnover in second, both have over 20% global market share. There was lots of other strong market brands. You recognize at the bottom of page, Libero and Libres naturally, very strong brands here in Sweden, for instance. And we've got number 1 and 2 positions in many countries of the world. The underlying driving forces for this type of part of SCA is, which I've partly touched upon, growing an aging population in the world in combination with an increasing awareness of the hygiene is an important condition for health. And all this increases demand for health product hygiene products in many parts of the world. As you can see, in this box, you can see the turnover was in excess of yearly with BSN and 6,000 employees to the number of employees in this area. And with this, I arrive at the last slide of this presentation, which is regarding why we propose to split the company in 2 parts. SCA consists today of 2 very strong businesses both when it comes to market position, but also financial strength and cash flow and with lots of good prospects for the future. At the same time, these two business have grown apart over the years to a greater extent. And the truth is very little is common ground between hygiene and forest. And we noticed that when we work in board and the management team. It's almost like you're working with 2 different businesses. And to give some figures to support this, SCI Hygiene is one of the 5 largest customers of forest products, but not the biggest customer. And about 3% of the sales of the forest go to the hygiene part, but not more than 3%. And if you look at from the other way around, about 5% of the pulp that hygiene buys, and SCA hygiene is their biggest buyer in or pulp comes from SCA Forest. So that's the connection there is. But that's commercial contracts that have been on arm's length for decades. The other reason, apart from that there is quite a few things that keep them together today, is that we naturally see a possibility to strengthen further the great development both companies have so that they can focus on their strategies and different businesses with different and committed board and management and access to capital, which alternatively aims at increasing the value for you as shareholders. And since we haven't taken any decision yet, I'm not going to show any new brands here, but I choose to finalize this presentation with a picture describing our different businesses. Thank you for listening.