Hello, and welcome to SCA's year-end report for 2016. I am Joséphine Edwall-Björklund, head of communications, and today our CEO, Magnus Groth, will together with our CFO, Fredrik Rystedt, go through the highlights in the report, followed by the Q&A session. With this, I hand over to you, Magnus.
Thank you, Joséphine. For the full year, organic sales grew by 2%, in spite of partly difficult market conditions, and also in spite of the fact that we reduced capacities both in hygiene and in Forest Products during the year in order to increase efficiencies and margins. The hygiene business grew by 3%, Forest Products had a negative growth of 3%, and in emerging markets, a healthy growth of 7%. Both operating profit and operating margin increased, and we continue to see strong contribution from efficiency gains. For 2016, mostly in the hygiene part of the business. All of this together with an improved working capital has resulted in a strong cash flow for the year. We also continue to introduce innovations at a high rate, and the board of directors propose an increase in the dividend by 4.3% to SEK 6 per share.
The SCA transformation journey continues. In January 2016, we completed the acquisition of the away-from-home tissue company, Wausau Paper. We also divested SCA's Asian Pacific business to our subsidiary, Vinda, and this integration has progressed extremely well. During the board meeting yesterday with Vinda, we could conclude that it is now a very strong pan-Asian hygiene company that we are seeing coming out of this deal. We have also announced restructuring measures in tissue, specifically in France and Spain, and just this morning, also in the U.K. This is following our long-term tissue roadmap, where we have the ambition to have the lowest cost and highest quality tissue in every market and in every segment where we choose to compete. We also announced in August the potential split of the group in two listed companies, Hygiene and Forest Products.
As a consequence, we presented a new vision and enhanced strategic framework, specifically then for the hygiene part of the business. During the year, we also decided to close our baby diaper business in Mexico and to discontinue our hygiene business in India. These decisions are always very difficult. When we have a category in a market that is struggling with profitability and growth, we always try to turn that around, to put in our best people to make sure that we can find a way out of it, and of course, improve performance so that it contributes in a positive way to our business. Now and then, our conclusion is that it will take too long, it will be too costly, and that's the case in Mexico and also in India.
Just before the closing of the year, we entered into an agreement to acquire BSN medical, a leading medical solutions company. I will say a few words more about this. An overview of the financials of the full year 2016. We saw net sales and organic sales growing 2%, and a faster growth in our adjusted operating profit of 8%. Operating margin, as I already mentioned, increased by 60 basis points to 11.9%. Earnings per share were down by 20% to SEK 7.93. However, if you exclude items affecting comparability and a one-time tax effect, the earnings per share actually increased by 7% in the year. Operating cash flow very strong throughout the year, ending at nearly 15 billion SEK.
One of our targets is to achieve a 13% return on capital employed, and year-over-year, we are moving towards that target and getting quite close. Again, a very important step up. Of course, what contributes to this is both our growth in profits, but also the fact that we're using our capital more efficiently, so that the efficiency measures that we're taking are really showing here in our improvement in return on capital employed. The dividend, a proposal to increase by 4.3% to 6 SEK per share, completely in line with our dividend policy of stable and increasing dividends. Also, of course, taking into account our wish to have a strong financial and strategic flexibility also going forward. We feel that this is a good proposal from the board to the annual shareholders' meeting.
Our strategic framework that I presented before acknowledges the fact that hygiene, health, and wellbeing goes together. This is all linked. This is the framework that we developed after actually announcing, not the split, but even before that, when we decided to work in two separate divisions, Hygiene and Forest Products. As a consequence of this new strategic framework, we had the opportunity to enter into an agreement to acquire BSN medical, because the closing is expected during the 2nd quarter. We don't foresee any issues with the closing, but of course, there are some time lags in getting all the necessary approvals. I will not go through this in detail. We have talked about it a couple of times. What's super exciting is that because we are not competing, we have been able to start to plan for the integration work.
Of course, we cannot influence the BSN business in any way, and this means that we had the opportunity to meet between SCA and BSN. The working groups, the integration streams, the top management teams. After these meetings, I feel really excited, and I actually am completely convinced that we are moving in the right direction and that this will be even better than we expected when we made this acquisition. Of course, the strategic rationale, as you know, is that if you look at the underlying market characteristics, they are very similar.
The customers, the channels, the way of selling these products, and we see good opportunities for cross-selling opportunities and leveraging both SCA's knowledge about consumerization in developing the BSN business in a really positive way, but also taking all the knowledge from BSN, which of course, is a medtech company with a higher portion of R&D than SCA, and use that to leverage our SCA business. A very good strategic fit. Innovations, 23 of them, and a big difference, I spoke about this now for a couple of years, is that we are moving towards bigger launches, so that when we have a good innovation, we don't roll it out under one brand in one market.
We roll it out as globally as possible, and that's why you can see that, for instance, at the top left there, an innovation that is launched in all our markets under different feminine care brands, Nana, Nosotras, Libero, and Bodyform in this case. To the right at the top, you can see the same innovation being launched under several different brands in different markets. Really getting scale into our innovation. Moving over to the fourth quarter, we continue to see good growth. Net sales growing with 6%, organic sales 2%, and adjusted operating profit continuing to grow faster than sales. Adjusted operating margin stable in the quarter. This is a tough comparable to the fourth quarter last year when we had a very good performance in forest products and also this was before the acquisition of Wausau. Earnings per share are down.
This is again a difficult comparable because in the fourth quarter of last year, we had the divestment of the Industrivärden shares during the quarter, which had a very positive effect on earnings per share. Again, very strong cash flow in the fourth quarter, close to SEK 4 billion. With that, we have changed the layout of our presentations a little bit. I'd like to go straight into the different categories and segments. Starting with personal care, we had flat net sales, and organic sales decreased by 1% in the quarter, and I'll get back to that in a minute. Profit increased by 5% due to better price mix, cost savings, and of course, negatively affected by lower volumes and investments in increased marketing activities.
We have a significant negative impact both on top line and margins on the negative GBP and the MXN, Fredrik will show the exact impacts of this, but it has a significant impact both in tissue and in personal care. Operating margin ended up at 13.1%, a healthy increase here of 60 basis points. Adjusted return on capital employed remains over the target for personal care of 30% and climbing up to close to 35%. Looking into the sales, as you can see from this picture, the total sales development was very positive in feminine care while negative in baby diapers and flat in incontinence products. In Western Europe, we saw flat sales for incontinence products. Behind this, we have good growth in the retail part of the business, so that momentum continues.
We had a slower development in the healthcare part due to negative tender balance, which happens now and then when you have a very strong market share. We continue to see higher sales for baby diapers in Europe and also in feminine care. This continues to progress in a very good way. In North America, we had lower sales for incontinence products. However, I want to emphasize that the turnaround process that we have been in now for the last year and a half when it comes to incontinence care in North America has been really successful. From a profit perspective, we have an important improvement now. Actually, our North American Inco business is now at a much healthier level than it was a year ago. I'm more positive about the future for our North American Inco business than when I stood here a year ago.
Behind these lower numbers, a very good development. In Latin America, we continue to see good growth for incontinence products and feminine care and lower sales for Mexico, which is, of course, partly now impacted also by the decision to move out of the Mexican baby business. In Russia, 30% lower sales. A couple of reasons behind this. One is phasing. All our competitor relaunched their assortment at the end of last year, and we are doing that now. We're in the middle of that right now. We are expecting to come back here during the second half of 2017 in these categories. Again, a difficult comparable during the fourth quarter in Russia last year, some of our competitors had out-of-stock situation, which benefited us significantly during the fourth quarter of last year. North Africa, they're negatively affected by the difficult market conditions in general.
Moving over to tissue, net sales increased by an impressive 10%, 5 out of this is Wausau. Organic sales increased 4% in the fourth quarter, and adjusted operating profit increased by 14%. Here we see high volumes, better price mix, cost savings, and also a positive impact from lower raw material and energy costs. We are also, in this category, investing in increased marketing activities, especially in Vinda, in China. Again, a very negative impact from the GBP and the MXN. Adjusted operating margin increased by 40 basis points to 12.3%, and return on capital employed getting close to the 15% that we have as a target for this category. Of course, excluding Wausau, it's now well above 15%. Looking at the sales development, a lot of this comes from volume, which is quite natural.
2016 and the fourth quarter was not a year to do big price increases when raw material prices are coming down, but a good volume growth here. In Western Europe, we had lower sales for consumer tissue, where we are working with the restructuring, and we have reduced the sales of mother reels, which is kind of the semi-finished products. While having a good momentum in away from home now both in Europe and in North America, developing positively. In emerging markets, you can see behind Asia there, Vinda, they had a super strong fourth quarter. Big differences between the quarters, but overall a very good growth and higher than what we expect to be the market growth of 6, 7%, showing that Vinda continues to take a large part of the market growth in China.
Latin America and Russia continues to grow in a good way in emerging markets. Forest Products had a pickup in sales in the fourth quarter. Organic sales increased by 4%. Behind this, volumes in pulp and in solid wood products, primarily. Adjusted operating profit is down 10%, so down from SEK 14.8 to SEK 12.9. This is due to higher energy and raw material costs, and in spite of higher volumes and lower distribution costs. We also have as a bullet here, a biological assets adjustment, and Fredrik will talk more about this in a short while. As usual, I'd like to say something about the outlook for the first quarter when it comes to prices for the most important products in Forest Products, since these are global market prices. For publication paper, we foresee stable outlook for the first quarter.
Of course, in the longer term, we have a bleak outlook for publication paper. Kraftliner, a stable outlook for the first quarter, even though we are starting to see some price increase announcements coming now in the market. Looking beyond the first quarter, maybe slightly higher prices. The same for pulp, slightly higher prices in the first quarter. In solid wood products, also higher prices. With that, I'd like to hand over to Fredrik.
Thank you, Magnus. Okay. That's unusual. As usual, I will give some additional flavor to some of the financials that we have presented in the report today. I'll start with sales. As you can see here, our growth of sales was 6%, and out of that, 3% relates to the Wausau acquisition and 1% to more translation-oriented currencies. The rest is volume, and that comes from predominantly Tissue, but also Forest. Both of these areas grew in volume quite well, whilst Personal Care was the opposite, as Magnus alluded to. If we look at the trend, sequentially, we of course reversed that trend, we now have a positive growth in the second quarter. This was, as I said, driven by Tissue and Forest Products.
It's important to note there that the growth, organic growth, in Tissue is a volume-driven growth, the price environment remains competitive and challenging as we've also presented in the report. As to Personal Care, of course, this is impacted by the things that Magnus also talked about, but also just to repeat that, a very strong fourth quarter or tough comp that we had last year. If you look at the corresponding quarter in 2015, the growth was actually 9%, a tough comp in comparison. Magnus talked a little bit about the weaker UK pound and the weaker Mexican peso, that has had a very significant impact, as you can see, both from transaction and translation.
If you would look at just the fourth quarter, as you can see to the very left on this slide for GBP, you can see that the total impact was SEK 200 million roughly, and out of that, SEK 135 million was relating to transactions, so basically where we import products into the U.K. This has had a big margin impact. If you look at Personal Care just isolated, the margin impact in the quarter alone was approximately 50 basis points. If you look at the same number for Tissue, it was 25 basis points. But the biggest impact was actually for Forest at about 1.1%. Of course, Brexit has had that big impact on margin and total profit. You can see that from this slide that the impact in the fourth quarter and for the full year, of course, relating to the MXN was also quite significant.
The difference here is that we've been able to compensate to a large degree in Mexico with increased prices. That was not the case in the U.K. We've shown this slide before, and it's quite telling. As you can see here, the share of net sales in the top graphs and also profit in the bottom pie charts there, you can see that largely comparing with 2004, we don't have a significantly higher share of sales in emerging markets in 2016 than we did two years ago. However, having said that, two things. Of course, the acquisition of Wausau has impacted this, and the second thing is that generally, emerging market currencies have actually reduced, and the underlying growth rate remains attractive in emerging markets.
You can see here from this slide that we have continued to improve the margins quite substantially in mature markets, and that, of course, comes from the things you know everything about, innovation. It comes from efficiency, it comes from price management and corresponding things like that. It's been a very good development. In emerging markets, margins have improved from 2014 and marginally also in 2016. But of course, we are still impacted by the investments we have done in countries like Brazil, in countries like also India. And of course, now, as you know, we have addressed many of these issues that have taken the margins to lower levels. We have announced, of course, as Magnus alluded to, the exit from India, from the baby business in Mexico. We are addressing other underperformers with our Cure or Kill program.
Of course, while we are addressing margins, this takes some time to achieve results. It's worth noting that all of these issues I just mentioned, the exits from Mexico or India or from other Cure or Kill activities, also has an impact on organic growth. Of course, for instance, as we go forward in 2017, the exit of baby Mexico, the exit of India, of course, will have an impact on the organic growth for Personal Care. If you look at the group bridge, so to speak, we've had good contribution in our organic growth from volume price mix and, of course, also from volumes and from raw materials. The organic growth in profit here of 5% consists of all of these different parameters.
If we start with price mix, the overwhelming part of that price and mix improvement actually comes from personal care, whilst in the volume side, it's much more from tissue. Actually, all of that comes from tissue and forest, whilst personal care is negative. The same goes for raw material. Almost all of it is actually relating to tissue, so a good performance, and of course, a lot of it comes from pulp. We still have a negative currency impact. Of course, due to the strong dollar and, of course, other currencies that impact us, we still have a quite significant negative currency impact. If you just take that number of SEK 184 million, within that, we have a positive underlying price impact from pulp of SEK 400 million. It's a significant underlying pulp contribution or price contribution and a corresponding negative currency impact of SEK 185 million.
That becomes the net, so to speak, and the rest of the difference there is mainly higher recovered paper prices that we have in particularly our away-from-home business. If you look at the other line, the SEK 232 million there, that consists of everything else, of course, that we have in our business, including SG&A, et cetera. Here, worth noting is that the negative value here has been impacted by higher A&P spend. We continue to increase our spending there in A&P. If you just look at this quarter, we have a ratio to net sales of approximately 4.7% versus 4.3% in corresponding period last year. An increase of A&P is one big portion. Higher R&D cost, and as usual, we have good efficiency gains going against this, so a good performance in efficiency.
If you look at the cash flow, and Magnus alluded to this, the cash flow development, it continues to be strong here. You can see that the total cash flow has increased, including strategic investment, with approximately 17%, despite much higher strategic investment. If you look at the working capital side, this is an ongoing process, and we have continuously improved here. If you just compare the number here at the end of the year, that's just one point of time, but we are now at approximately 7.4% of working capital to net sales. If you look at last year, we were at 8.1%. This has been going fairly well for a couple of years now, many years.
If you look at the next line, other operating cash flow restructuring, it's a big number, but this was actually impacted by close to SEK 300 million of the payment of a fine relating to the antitrust case in Colombia that we have informed about. That's a big part of that line. Capital expenditure is relatively high, as expected in the quarter, so we ended up as roughly as planned for the full year at about SEK 9.5 billion. If you look at next year, we expect a number which is higher than that at approximately SEK 11 billion. Out of that SEK 11 billion, we expect that SEK 7 billion will relate to hygiene and approximately SEK 4 billion to forest. Those are the corresponding numbers for 2017. Look at the group items affecting comparability.
Most of these issues are known to you, of course, the first one there relates to the closure of our Indian business at SEK 375, transaction costs relating to the BSN acquisition of close to SEK 150, Wausau Paper, that is perhaps worth pointing out that the integration of Wausau is going exactly according to plan and delivering as expected, the corresponding cost that we have still for the integration is SEK 50 million. The rest is restructuring that basically we have announced, including Hondouville, also now today as announced in Chesterfield. That's the cash flow. Overall, +17%, quite strong. Magnus talked about the biological assets, I would just start by saying what this actually is. What we do every year is an adjustment or evaluation in accordance with IFRS in biological assets.
The way that works is that based on the harvesting plan that we do every eight years, we haven't done that this year, but we base the valuation on that harvesting model. What we do is we assess a starting value, then we assess what the inflation is, both for the cost and for the wood prices. In that sense, it's a completely static model. We assume a starting price, then we also assume that that will increase with a certain percentage every year. We look at all the costs, including the harvesting cost, replant, et cetera, those kind of costs. We also assume that they grow with the corresponding number, in this case, both for price and for cost with 2% per year.
Then we take the net of this for the next 100 years, we discount it back to the starting value, that's basically what we do every year. This, therefore, is not a market valuation, because it's completely linear and static model in the sense that we don't estimate any potential future price increases that may come out from higher demand or perhaps more use of biological assets for biofuel, et cetera, or other kind of things. We just have a static starting point for our valuation. We have historically used a 10-year model, if you look at the graph there below, you can clearly see that over the last several years, because of many things, including storms and other things, prices of wood have actually come down.
The 10-year average, which is clear from this graph, is much higher than the corresponding spot price at this point of time. That means that we have adjusted now, we've gone to, instead, a five-year model, which is very close to where the actual spot prices is. The result of this is that the average price has come down from SEK 467 to SEK 432 as the starting point of the valuation. We've also done one other change because of the sustained low interest rate environment in which we live. We have reduced our WACC rate from 625 to 525. If you look at the impact of all of this, you can see that we started with a value of SEK 30.1 at the start of this year, or 2016, we ended with SEK 30.8.
The adjusted WACC has had a positive impact of about SEK 7 billion, and the adjustments of prices and cost of negative SEK 6.7 billion, and all other, including the result of this year, etc., is plus SEK 0.3 billion. This is what we have basically done as an IFRS adjustment in the fourth quarter. We have also, perhaps somewhat premature, because we haven't actually even put forward the proposal yet to the AGM, this is premature and, of course, also subject to a decision from the shareholders to execute on the spin-off. Subject to that decision, the cost of a potential split would look approximately as you see here. Project and listing cost of SEK 320 million. We have a one-time foreign tax or stamp cost on actually real estate, which is in the hygiene business outside of Sweden.
We have the cost of rebranding the hygiene company to a new name. Those are the three parameters. Including in these SEK 320 million that you see on the top there, a fairly substantial portion of that is the cost of transferring debt from SCA AB to the hygiene company, which has largely been executed during Q4. Therefore, as you can see at the very bottom of this page, we also have approximately SEK 180 million, or SEK 182 million to be exact, included in the Q4 numbers, costs relating to this spin-off. The wonderful world of accounting is not always easy. Just for your guidance, should this actually be materializing in our books during 2016, you can see at the bottom there how this will actually play out. Totally, SEK 120 million out of we've taken some in Q4 will come in the financial net.
There will also be a direct equity adjustment which will not come into the P&L. That's actually going to be very difficult for you to see, but it will be there. You have the rest, the SEK 795 million in items affecting comparability. This is basically what you can see going forward. With those words, Magnus?
Thank you. To summarize, we continue our efforts during 2016 and, of course, going forward to create shareholder value in all dimensions, both making sure that our business is increasing its financial performance in every dimension, taking actions for continued profitable growth, also continuing the SCA transformation journey into a forest products company and a health and hygiene company that will have a new name subject, of course, to the approval of the split. Also through a dividend proposal of SEK 6 per share. With that, we are ready for questions.
Okay, who wants to start with the first? Yes, over here in the front.
Linus Larsson with SEB. Can we start with the discussion around the forest value? You're in the middle of a SEK 7.8 billion investment in a new pulp mill at Östrand. I would expect that to have, if anything, a positive impact on pricing for wood in the region. I would expect that to have, if anything, a positive impact of any harvesting plan that you have for your forest land. Against that background, I must say I'm a bit surprised by your move from a 10-year historic model to a five-year historic model. Could you talk a bit more about that? Also, when is your harvesting plan up for review next?
Okay, I can start. I agree with your expectations from the SEK 7.8 billion investment and the positive effects from that. However, this is a model that we produce and that we calculate based on IFRS requirements, not taking into account, as Fredrik also explained, those expectations, but actually starting from the current spot prices and then having very static assumptions about the future growth. One thing is the expectations and something else is the model and how we do that. Of course, at some point when you have a big discrepancy between the actual spot prices and what we have in our model, we have to adjust the model. Fredrik?
It's quite easy to understand your arguments, and we have no other. This is just kind of simple because if you have a too big gap, you just need to adjust. This is not a market valuation model. It's as simple as that. This is a static and linear IFRS model. It's no more than that. It's not an estimate of the value that we are making. It's simply just a calculation.
Okay, very well. Then if I may also ask a question around your very active margin management in Tissue and Europe in particular. You've made a number of actions, and you very precisely told us what they will cost. Do you have any kind of guidance what the benefits might be in, say, 2017 on Tissue margins from your very active cost improvement work?
Of course, we have calculated this as a basis for our decisions, we don't give any guidance. However, I think that the improvement in margins that you see are a combination of all the different things we're doing. It's efficiency improvements in our existing facilities, it's the restructuring, it's of course lower costs or changes in prices and so on. All of these actions clearly contribute very positively to the margin development.
Thank you very much.
Linus, you can actually hand over the mic.
Olof Gimare, ABG Sundal Collier. If I may continue then on the forest side. You gave us some extraordinary costs here in relation to the coming split up. If you could, first of all, please repeat what you said in terms of what we will get in information regarding that split up, the timeline, if you could elaborate possibly about what you will give for information. Secondly, regarding these biological assets, you have deferred tax assets related to this of SEK 6.7 billion. Will that go along with the new company or SCA?
Maybe I can just take the second question first. Yes.
Okay.
That's the first one.
Regarding the timeline and possible information, what is it there?
Should you or I? Our financial presentations will start to change here in the coming quarters. What we're planning to do now at the time of giving information for the AGM is to also provide an information brochure on the split. Then, of course, the AGM on the 5th of April is the big day when the decision is then supposed to happen. For our financial reporting during the quarter, since we will also then present new segmentation for the different parts of the business and so on, I hand over the details to Fredrik.
As we have promised, we've said that all along, that regardless of a decision from AGM, we will present more detailed information relating to Forest. Of course, you will see that in the Q1 report, as promised. We'll come back to the exact details on segmentation and how the P&L will look, et cetera, you will get much more information in Q1.
It is on April 5th then, it's not before then. Is that right?
No, the Q1 report is later in April. That's when you will see the Q1 report.
Got you. Thanks.
Yes. Thank you. Mika Liows, you're not giving a number. We know that both recycled fiber prices and virgin fiber prices will be very volatile going forward. They will change over time. Thank you.
Mika, normally we give a directional guidance, as you know, on raw material prices for the different parts. If you look at just Q1, what we estimate, if you look at Personal Care, we believe it's going to be slightly higher. This is chemicals and SAP or super absorbent, basically oil-based. If you look at the Tissue side, we believe it's going to be stable in comparison, once again, to last year's quarter, and for Forest, slightly higher. This is basically our directional guidance. Perhaps in this context, maybe also sequentially is important. What is it going to look like in comparison to this quarter? For Personal Care, we expect prices or cost to be higher, for Tissue stable, and for Forest, also higher. That's pretty much the directional guidance.
Many thanks.
Okay, next question. Stellan, over there.
Stellan Hellström from Nordea. First question on the personal care business and your organic sales decline. How do you feel you are maintaining market shares in the various markets? Maybe also if you can comment on how you view the tender balance for this year.
Absolutely. The overall trend continues that in feminine care, we are broadly gaining market shares in most markets. In incontinence care, it's quite stable. In baby, we're actually doing well in our core areas, which is then Europe, Malaysia and Colombia and parts of Latin America where we are having baby businesses. While of course we have a negative growth impact then from the decisions we have taken then to step out of some baby positions. In our core baby areas, we are doing quite okay. Yes, I guess that was the three categories. In tissue, quite stable overall, with actually growing market shares in China and in Mexico.
The tender balance was?
The tender balance has been negative throughout the year, which means that looking at the upcoming healthcare tenders for incontinence care, we have a high proportion of the tenders are ones that we already have. A higher probability of kind of losing than gaining. It's been negative this year, and it will continue to be negative throughout the first half of 2017, then it will be easier again.
All right. Very well. Also a question on the price pressure that you're seeing in tissue now. How do you expect that to play out in the coming quarters? Do you expect to see some easing given the higher raw material costs that are coming in this year?
I think it's unchanged. No change. We continue to see tough competition in tissue. In our overall efforts to balance growth and margins, I think we are overall feeling okay, pretty good about it. We're continuing to see some growth where we need to grow and where we have high margins. Then of course, taking out growth like for instance, with some of the mother reel sales that we had in Europe where margins have been low. I don't see any changes in the market environment.
All right. Thank you.
Any more questions? Then let's go to the telephone. Please, operator, you can open up the lines.
Certainly. It's star 1 to ask a question. Your first question comes from the line of Oskar Lindström from Danske Bank. Please go ahead.
Yes, good morning. Thank you for taking my call. A couple of questions. The first one is around organic growth, and given that you're sort of saying that the difficult trading environment of 2016 will continue into 2017, what measures are you taking to either take market share or drive category growth in that environment? Follow up on that, what kind of impact will that have on A&P spending? Should we expect A&P spending as a share of sales to continue to increase sequentially in 2017 versus what we saw in 2016? That's my first question.
You're absolutely right that the way to grow is, of course, to introduce innovations and to then have efficient advertising and promotion to support that, to improve, of course, also in the in-store execution. Not only above the line advertising and promotion, but also below the line advertising and promotion. We are working in all of these areas, improving our go-to market, improving our efficiency in all parts of our business. Specifically, your question about A&P and if that percentage is going to increase, I have to ask Fredrik, and my assumption is that it's quite stable.
Yeah. We don't normally give forecasts on that so.
All right. If I may, a second question sort of following up on Stellan's question there around the pricing environment in tissue. You have cut, as you mentioned, quite a bit of mother reel capacity in Europe during 2016. Should we expect that, or do you expect that to have an impact on the market balance in Europe during 2017? Sort of what kind of outcome do you expect from that?
Any capacity reduction has an impact, even though I think in the big picture, this is a minor contribution. The reason why we're doing this is because for us, volumes are not contributing to enhancing our margins. The overall supply-demand balance for this year is there continues to be some new capacity coming into the market, primarily in Spain, Portugal, and one or two other smaller plants. But overall, I think we had a big increase of about 2% of supply in 2015, and slightly lower in 2016, and then maybe slightly lower now again. We also have quite some new capacity coming into Russia and Turkey, the Russian volume is not really impacting Central Europe. The Turkish volume could impact the European business to some extent.
Do you feel that the supply-demand balance in Europe, as we speak and looking ahead, is under control? Is this a problem for you?
It's not a bigger concern than it has been over the last five or six years. It's business as usual.
Okay, thank you. Then finally, just you mentioned this information brochure that you will distribute ahead of the AGM. I presume that's the one that's going to include more detailed financials for the forest products business. That's the first part of that question. The second one is also, once you report Q1, will you also change your reporting structure for the hygiene business?
Maybe I can answer that, Oskar. The information brochure will not contain that broad information on forest. That will be a Q1 issue, as we have stated before. As it relates to the potential future segments of hygiene, we have no answer for you there at this point. Of course, as part of this entire project or potential split, we're also reviewing how to best present the hygiene business as we go forward. We believe we presented in a good way today. This is an ongoing review. We may or may not change that. We have taken no such decisions at this point.
All right. Thank you very much.
What is new is that we will have to take into account then the acquisition of BSN in our overview of how we are going to present the new health and hygiene company.
Yes. All right. Thank you very much. Those were my questions.
Thank you. Your next question comes from the line of Alice Baghdjian from Bloomberg. Please go ahead.
Good morning. Thanks for taking my question. It is a clarification question, really. You mentioned some timelines in getting approvals for the BSN deal. What approvals are those, and do you still expect the acquisition to close in the second quarter? Thank you.
We feel highly certain that the acquisition will close in the second quarter. All of these approvals relate to competition authorities, and since we don't have any overlapping products, we are not competing. We don't foresee any issues. It's just a matter of taking the time to process this in various countries.
Okay, thank you.
Thank you. Your next question is from the line of John Ennis from Goldman Sachs. Please go ahead.
Hi. Thanks for taking the questions. I've just got two, actually. The first one is, within the baby division that declined in the fourth quarter, I wondered what proportion of that was associated with the exiting of certain businesses, such as Mexico. The second question, you gave us some CapEx guidance for next year. Working capital is obviously quite a big boost in the fourth quarter. I wondered if you could give us any kind of steer on the working capital line for next year. Thanks.
Your question, the first one was how much was Mexico of the total business, I think?
Baby decline in fourth quarter.
In general, the other exits that you've had over the course of the year.
Impact of that for the total group. Yeah.
Yeah.
Good question. That slide we actually took away, John. Let me come back to that exactly. It had a material impact, of course, of the growth because that's where we saw the sales going down. Of course, it had an impact. The second thing on the working capital, we don't give forecasts there. We are constantly working to, of course, reduce working capital in all parts, including the inventory and accounts receivables and increasing accounts payable. We have reduced, I mentioned from 8.1 to 7.4 now in just this year, and we had a corresponding decrease last year as well. We've had a good performance, and of course, there's always a limit to how far we can go or how low we can go in working capital.
We've come a long way, and of course, we will continue to strive for an improved efficiency, but it's very difficult to give you an estimate of that.
Okay, that's fine. Thank you very much.
Thank you. Your next question is from the line of Jen Simpson from Societe Generale. Please go ahead.
Thank you very much. My apologies if this has already been asked, you talked about SEK 11 billion of CapEx this year, of which SEK 4 billion is in forest, and I think you've also said that the forest spin-off will have SEK 5 billion of debt. Is that SEK 5 billion of debt on spin-off, how much CapEx will the forest business carry out post-spin-off in this year? How much of that SEK 4 billion is pre-spin and how much is post-spin? Also, if you could just tie that back to the Östrand plant expansion in forest, how much of the total cost of that do you think will be outstanding by the end of this year? How far through that does the SEK 4 billion take us? Thank you very much.
A lot of questions. I will try to give you an answer. If I start with your question on the SEK 5 billion, what's that going to be at spin-off? First of all, the SEK 5 billion was actually at the 31st of December 2016 as an estimate. That means that all cash flow after that date will sort of add to that debt. When I said add, it's because we expect a negative cash flow from forest due to the Östrand investment. In fact, you can say all of that SEK 4 billion that I just alluded to in terms of CapEx will actually affect that SEK 5 billion if you understand. That, I think, takes care of the question.
If you look at your first two questions, if you look at your last question, the total investment of Östrand is SEK 7.8 billion, and so far we have spent SEK 2.6 billion, roughly. That leaves another SEK 5.2 billion to spend, roughly. For this year, of course, a very significant part of that SEK 4 billion relates to Östrand. Hopefully, that will give you a rough feeling of the numbers.
That's very clear. Thank you very much.
Thank you. You have no further questions. Please continue.
Okay. With that, Magnus, any final remarks before we conclude today?
No final remarks.
Okay.
We are looking forward into 2017, another busy and exciting year for SCA.
With this, thank you for joining this conference. Goodbye