Hello, and welcome to SCA's first quarter result for 2016 and the press conference. My name is Johan Karlsson, Head of Communication for SCA. Today our CEO and President, Magnus Groth, together with our CFO, Fredrik Rystedt, will go through the highlights in the report. We will have a Q&A session in the end. With this, I hand over to you, Magnus.
Thank you. I'd like to start by thanking everybody who's here in person today because we have terrible weather in Stockholm. It's more wintry than springtime, so thanks for that, and thanks to everyone listening in, of course, also. Looking at the first slide, we were happy when we discussed the front of this slide that it's more or less exactly the same as the last five quarters. A very similar positive development, both on growth, on sales, on cash flow, and very importantly, on efficiency improvements. We also continue to keep a high pace on innovations, where our plan is to launch approximately 30 new products every year, and we did 10 now in the first quarter, so that's a good start. At the bottom there, we have two new bullet points, which are actually important milestones for us.
It's the finalization of the acquisition of Wausau. As you can see from the numbers, they're already contributing very strongly both to top line and bottom line. This we finalized on the 21st of January. Integration is ongoing. It's working really well. We have not lost any customers, and there's a good momentum in the integration process. Another very important milestone for us going forward happened just after the end of the quarter, on the 1st of April, which is that we finalized the divestment of SCA's business in Southeast Asia to Vinda. We're integrating these businesses to create a very strong Pan Asian hygiene company, and that integration work is starting now. Those are the overall highlights. To summarize the numbers, we had a sales growth of 1% with some effect of currency affecting the overall sales.
However, organic sales growth reached 3%, and behind this number, as you will see, we had a very good growth in the hygiene part of the business and a negative contribution from forest products in this quarter. Operating profit improved 13%, and this had a positive effect on margins, earnings per share, and also on cash flow, which continues to be very strong. All of this together, looking at return on capital employed for three months, this is the first quarter of this year compared to return on capital employed for the first quarter last year, improved by 1.5% to 11.9%. Still some way to go to our long-term target of 13%, but moving in the right direction. Something about our innovations, starting with two baby innovations. Last year, we launched our first super premium product, the Libero Touch.
What we're seeing now is that some of the innovations from that product range is now trickling down to our premium assortment. We continue to widen our assortment and also to upgrade our assortment, which is something we're doing continuously. In feminine care, as you know, our target, and we also achieved this target last year, is to be the world's fastest global feminine care brand. We fuel this growth with innovations, and there are two examples here on this slide. Moving over to incontinence care, we are competing to an increasing extent in the retail part of our incontinence care business, but very successfully. As you know, Procter & Gamble launched incontinence care products two years ago.
As part of this competition, we are launching a number of light incontinence care products specifically focused at the retail part of this category, and Lights by TENA and the TENA Lady Pants are examples of that. Finally, in the tissue area, the Tork SmartOne dispenser might not look that new, but what it shows is that, again, it's a Georgia-Pacific product that we are adapting to our own assortment and range. Maybe more importantly, we are now rolling out making our entire assortment sensor-enabled, so that also these products now can be fitted with a sensor to make it possible to follow then the consumption of toilet tissue remotely from a device. The Tork SmartFresh and Tork EasyCube products that we're rolling out now, of course, need this type of technology in the dispensers.
Finally, a strategic growth area for us is wet wipes in different formats, and Lotus Wet toilet paper is an example of that. With that, Fredrik, I think we should move over to the financials.
Yes. I will talk a little bit about sales and earnings. If I start with the sales side, as you can see, we continue to have a positive contribution from price and mix in our sales development. We had, as we've had before, good contribution from personal care, and we've also had it from the tissue side, but not this quarter, and I'll come back to that in the results side, in the forest side. There we have a slightly negative contribution. Volume continues to be strong, especially in the personal care side. We grew by 5% in the quarter in personal care and with 2% in tissue. Continued strong growth and slightly declining sales in, or volume development in forest, but largely flat, you can say.
As a consequence of the stronger Swedish currency, the krona, you can see we have a big translation impact in the quarter, minus 4%. You can also clearly from this slide see the contribution, or just over SEK 600 million contribution from the Wausau acquisition. All in all, 1% growth in nominal terms and approximately 3% in organic terms. If you look at organic growth in a slightly longer term perspective, the hygiene business continues to do well. If you start with the personal care side, we have, as I mentioned, a slightly less positive impact from price. We have simply increased prices throughout 2015, also in the last quarter of 2014, on the back of higher raw material prices and of course also currency changes in Latin America, et cetera.
We raised prices throughout 2015 and partly of 2014. Of course, now they're becoming increasingly part of the comparables, hence the price mix impact and the result is slightly less in personal care, but still positive. Same for tissue, but there we raised prices, if you recall, in Q3 and Q4 of last year in the tissue business, and that's still there. Volume continues to be really strong, as I said, in the personal care and also in tissue, and not least in Vinda. Some of you may actually have seen this this morning, that Vinda reported an organic growth of close to 18%. That, of course, also contributes strongly to our volume numbers. Forest, a different story. Their volumes are largely flat, but prices are impacted by underlying price declines, but also currency or the stronger Swedish SEK. This is pretty much the development.
Strong underlying growth, volume and price-wise in hygiene and slightly falling in Forest. We look at the profit side, it's very much a similar story. Price mix is positive. If you look at the numbers here of SEK 100 million, this is slightly lower than what you've seen before, consistent with the story I just talked about. Here you have approximately SEK 40 million coming from Personal Care. Latin America and Russia are still key contributors here. We have approximately SEK 200 million coming from tissue and then a negative of approximately SEK 140 million coming from Forest. If you look at that SEK 140 million, and Magnus will show you some graphs a little bit later, of that SEK 140 million, roughly SEK 30 is currency and the rest is actually underlying price declines in kraftliner, sawn timber, and pulp. Volume is really strong here, as you can see from this slide.
Good performance. Here, Personal Care with that 5% growth contributes with SEK 200 million or just over SEK 200 million in profit enhancement just from volume. Tissue with SEK 155 and Forest largely flat or slightly declining here. Raw material underlying is coming down. You've seen that the pulp prices, not least on hardwood, we also see oil-based prices actually coming down. That is now positive for us, the underlying development. Of course, still the exchange rate, not least the U.S. dollar and some of the Latin American currencies, are still having a negative impact. If you look at the net of this, it is actually still negative with roughly SEK 145 million, as you can see on this slide. SEK 50 of this comes from Personal Care, about roughly SEK 90 of this comes from Tissue, and Forest has a minor impact.
This SEK 140, actually the negative impact coming from currency is a bit over SEK 170 million or SEK 175 million to be exact. The actual underlying is positive, but currency is still negative. Energy has developed in a good way for us, and this is of course largely Tissue. Here we see electricity, gas, et cetera. A positive development. Acquisition-wise, this is Wausau contributing with $9 million. A good quarter, as you've seen from the report. Then finally, the other line. Magnus talked about all the initiatives we've had, for instance, in Fempro, but also in other areas. A part of this, a big part is actually increased A&P spend. Not necessarily in percentage of net sales, but as our sales is growing, so does the A&P spend. We are spending more in A&P as we progress.
Of course, the rest of this negative number is largely inflation and some other things like higher SG&A and sales cost. We also continue to do well in terms of efficiency. If I then turn to the next slide, cash flow operating is increased by 40%. If you include the strategic investments, we increase our cash flow with 27%. A really good quarter. The improvement here is mainly coming from the operating surplus, as you can see on this slide. The seasonal increase in working capital that we always have has been a little lower this year than we had the corresponding period last year. You can also see that capital expenditure is higher, and this is of course, largely due to the strategic CapEx and not least the investment we have in Östrand.
If you actually take this number and you take it times four, you will get to a much lower number than the estimate that we have provided you with. We have said previously that our estimate is roughly SEK 9.5 billion in capital expenditure for the full year. That is still valid. The low number here is largely a phasing issue. We will actually have higher numbers as we progress later in the year. Finally, on the items affecting comparability, the main item here is the estimate we have made relating to the antitrust case we have in Colombia, and we have clearly stated that in the report. We just don't know this number here. This is our best estimate to date of what this could potentially cost. That is approximately SEK 100 million. SEK 50 million or SEK 47 relates to the acquisition of Wausau. This is revaluation impact.
This is restructuring transaction cost. The other, SEK 43 that you can see on this slide, largely relates to the transaction with Vinda, as Magnus talked about before. We only have minor restructuring costs in addition to that included in items affecting comparability. Thank you.
We'll dig in a little more into the different categories, starting with personal care. As we've heard already, we continue to have a very solid organic sales growth here of 6% and also a very positive effect on operating profit. This comes from all the factors that we've seen now over the last couple of quarters. High volumes, better price mix, cost savings, and as already mentioned, surprisingly, higher raw material costs in this quarter. The positive development we're seeing now, we didn't see here in the first quarter compared to last year's first quarter. We had an operating margin improvement of 150 basis points to 11.9%. Continue to have a good development, looking into the geographies and subcategories, we can see that this growth in sales is coming from all markets and from all categories.
4% in mature markets, 8% in emerging markets. The growth, as you can see, comes from incontinence products, feminine care, and baby. The growth in feminine care, we have found a winning recipe. We have, I think, surprised ourselves the last year or so in how well this is developing, but it continues. Very happy about that and good to see that all the categories are growing. If you look at the bottom of that slide, emerging markets, you can see how they continue to contribute in spite of the uncertain times in some of our main markets like Russia, Latin America, of course, with 17% growth in Latin America and Russia 42%. This is, of course, a mix again of volume and price increases that we did last year. Asia is a little bit softer.
This is primarily from Malaysia, where the Malaysian economy is right now in a very uncertain situation, and the general retail market is quite soft. We are doing well in market share, and we're expecting this to pick up going forward. Tissue, also a good organic growth, 4%, and an improvement in operating profit, which is 17%. Should be noted here that to some extent we have relatively easy comparables to the first quarter, and we discussed how we have gradually during last year increased prices. These comparables will become tougher and tougher as we move forward this year. Again, price mix, volumes, savings, some added benefit from lower energy costs in general in Europe primarily. Again, higher raw material costs this quarter. This an effect that we expect, and I'll get back there to see less of them going forward in the next coming quarters.
On this slide, it's pretty clear our strategy, especially in the mature markets over last year that we kept talking about, which was to go for price before volume. How important it was to close the margin challenge that we had in consumer tissue, especially in Western Europe with increasing raw material prices. We've continued to push for price increases, actually all the way into the first quarter this year. You can see here that this result is that in mature markets we had a zero growth, while in emerging markets, very strong growth, not only from Asia, but also from Latin America and Russia. In all the emerging markets, more or less.
This is now an opportunity for us internally to tactically, of course, look at our options that with the development in raw material prices, how should we now act, especially in Europe, the balance between pricing and volume going forward. That's a new and positive challenge for us that we have this opportunity going forward. Finally, forest products. As we have heard, sales growth down 6%, mostly from lower prices, and I'll get back to that. We had lower volumes, a slight impact, higher raw material costs, but support from lower energy costs also in Sweden. If we look behind the negative price mix here of 5%, that accounts for most of the sales growth decline. We have added this graph for clarity.
What it shows here for the various areas is the price in the local currency, but more importantly for us, since forest products is based in Sweden and exporting almost everything is the price in Swedish krona. Here you can see for publication paper, in spite of declining prices over the last couple of years, actually, from an SCA perspective, it's been quite flat. While in pulp and kraftliner, as Fredrik mentioned, we've seen quite a decline also now in Swedish krona terms over the last quarter. That's why we have this negative impact on growth. Solid wood products, as you know, has been soft throughout last year, also in Swedish krona. We have largely compensated for this by expanding volumes. Looking forward, we expect pulp and kraftliner prices to stabilize gradually. At this point, we don't see that they would decline further significantly.
In solid wood products, we are seeing some improvements actually in price recently, expecting an improvement in that area. While in publication paper, we know that the long-term trend is that this is a very challenging part of the business, but we have an efficient setup now in Ortviken and feel confident that we'll be competitive in publication paper also going forward. This is what's behind the decline in forest products and a little bit what we expect going forward with all the uncertainties regarding global currencies and global raw material prices, of course. To summarize again, it was steady as you go in a positive matter with good growth in hygiene, margin improvements, and we continue to deliver on all our strategic initiatives, which is efficiency improvements, innovation, and profitable growth. With that, I hand over to you, Johan.
Before that, Johan, I would like to mention, we have a Capital Markets Day coming up. You're all very welcome and invited, of course. It's coming up in May. To set the expectations for this capital markets day, we will have the entire management team in place, very exciting from all over the world, and many of them are new. We will also have presentations and opportunity to meet with the chairman and the CEO of Vinda to give their perspective on the Chinese market and on the Asian markets. I think that's also very, very exciting. We will have the opportunity to go more in depth into our strategies in the different categories. We will not make any announcement about the work we're doing about splitting the company into two divisions.
I can only reiterate what we have been stating since August last year, that we are working on this. We are making progress. We are at the same time, of course, doing many other things that we have seen here today. From the 1st of January next year, we will be providing more financial information about the two divisions, and we are also looking at ways to make it more clear the value that is created in the Forest Products division. No news about this at the capital markets day.
Let's open up for questions. Let's start.
Thank you very much. It is Linus Larsson with SEB. Could we just to start with, talk a bit about price and just as an update, if you could go through your potentially ongoing initiatives and how the previous initiatives played out in the first quarter? It is really about emerging markets that we have seen a positive price trend through last year, the tissue away from home U.S. initiative in the first quarter, and also maybe coming back to what you said about Europe vis-à-vis raw material cost deflation, please.
If we summarize last year, we were able to overcompensate the raw material headwinds in personal care with price increases. Looking now at the last quarter, we have continued to do price increases in some emerging markets. However, some of the currencies have started to strengthen significantly again, as you know, both for Mexico, Brazil, and Russia. As you know, we are very flexible in those emerging markets when it comes to adjusting prices to adjust to the changing currencies. In North America, we have some price increase initiatives, and that business is developing really, really well. In Europe, we have continued to push in the annual negotiations that we have seen with many big retailers all the way into the end of this quarter.
Now with the changes in underlying raw material prices, we will have to balance price increases with, of course, margin enhancement and volume growth. It gives us a bigger palette here to discuss with our retailers, and with away from home, we typically have the annual price negotiation, so they are done with a positive effect.
Thanks. That's helpful. Then a question on the changes that you're doing in the forest land operations, this legal change that you've started a process about doing that change internally. What is the cost estimate associated with changing the legal structure of the forest land in the company?
We don't have any cost estimates for that. Those are different options that we're looking at right now, and we'll have to come back at beginning of next year with more information on that.
What's the-
We don't see any major costs this year that you would have to include in any estimates.
Could you talk just briefly about how that process is ongoing and the choices that you might have to make in terms of timing and how you do that best?
Not really. I don't have that much more detail to provide, sorry. It's an important project for us. I can say that much that the president of our Southeast Asian business, that we now integrate into Vinda, is heading up this project since the 1st of April. He's the project manager for this. We're progressing according to our plans. Okay. Thank you.
You can actually hand over the mic to Stellan, I think.
Yeah. You talked about you didn't fully compensate the raw material headwind within Personal Care this quarter. I was just wondering if you have any comments on the outlook for the remainder of the year with regards to raw material, particularly as you mentioned some of the emerging market currencies have improved lately.
It's very difficult to speculate about the underlying oil-based products, how they will develop. The trend has been down now for the last three, four, five months actually, gradually. That's positive for us, of course, in the longer term. When negotiating with retailers, we always want to negotiate about innovations, about maximizing the profitability of the shelf, about developing the category. Of course, if raw materials decline significantly, that has an impact in the price negotiations going forward. Of course, that also helps us with margin enhancement.
Stellan, you were asking about raw material prices specifically, and always difficult, of course, to give an estimate. If you look on Q-on-Q for Tissue and Personal Care, probably slightly lower. If you look at sequentially, stable would be the best estimate for actually both of these. Sequentially, not really a lot happening, but in comparison to last year, slightly lower for both.
Maybe you did talk about it, but the other line or the group common cost were down quite a lot here, if you can, did you mention why?
Yeah. This, of course, consists of many different things, staff costs and other costs relating to IT, for instance, et cetera. This is slightly lower. If you take the other cost this quarter and once again, take it times four, it becomes lower than the total estimate we've had for approximately 700. We're still in that ballpark of SEK 700 million, hopefully lower than that. It was actually low more from a phasing perspective this quarter than we expect coming quarters.
Yeah. Finally, just on the lower raw materials prices that we see in Tissue, I guess what you're saying here is that we shouldn't factor that fully into a gain on the EBIT that you will have to maybe give away some to clients. Is that correct? Any comments?
No, this I didn't say. We're working very hard to improve our margins all over and, of course, specifically in Tissue, also going forward. I would say that it's a relief not to have the significant raw material headwinds we had last year. I think in the end, they ended up at over SEK 2.4 billion in summary. This is a better starting point, I would say, than to face those headwinds.
Right. Very good, thank you.
Okay. Yeah.
Olof
A question on the cash flow, please, again. You said that you had a little lower working capital than normal, but I did not quite understand why. What should we expect for the future?
The seasonal pattern is pretty much always that we build working capital during the first quarter. If Q4 is really strong, we reduce inventory, we have a positive cash flow normally, and then we build up during Q1. This is exactly what you have seen all the years now. This quarter was fairly good in terms of working capital performance in comparison to the expectations, if you put it that way. I think the seasonal pattern is largely similar. Q1, Q2, normally a build-up. Q3, Q4, normally a reduction in the relation to sales. That's the typical pattern for our seasonality.
Thanks. You said regarding sawmill products that you still saw a stabilization. I am just curious, normally at this time of the year, we see sawmill products stabilize. What is your best estimate? Is it a clear change in the market, or could it still just be a seasonal issue?
We see declining stock levels in many places, that's typically a good indication that prices will improve. I guess that's the same as what everybody else sees.
Go ahead.
Hi. This is Oskar Lindström from Danske Bank. I have a couple of questions. The first one relates to your negative organic growth in mature markets. If you could maybe provide a little bit more details of what was behind that, different categories, specific events. What I'm really looking for is, to what extent was it driven by one-offs, and what is something that we should factor into the rest of the year as well?
We don't see a change in the underlying market growth. We've been focusing, as I mentioned, very much on price and getting the margins up, this has an effect, especially during the first quarter, because in the negotiations with the retailers, it's not unusual that periodically we as a supplier get delisted during the negotiations. Of course, this is a very strong weapon for the retailer in the negotiations, this could have an impact on sales. In North America and Away-from-Home, we had some supply chain issues during a period. Those are all solved now at the beginning of the year. No major shifts going forward.
Just follow up on that, you mentioned some of these supply chain issues and also being delisted as part of the negotiations, perhaps for some private label contracts in Europe, I presume. Those are both just one-off in Q1?
Yes, exactly.
Have they been resolved?
It's all resolved and we're moving forward.
All right.
No change in our view of the growth opportunities going forward. We have a good momentum also in market share in most markets. Yeah, we're happy about the development.
Just another question on A&P spend, which you said was up in absolute terms, though maybe it would be stable in relation to sales. Where is the A&P spend increase going?
Is this something that we should lead us to expect sort of a kick in organic growth for certain categories year-on-year? I know that you also increased it last year.
If so, when?
What we have experienced is that when we invest more in A&P behind feminine care, incontinence care, retail, it pays off in faster growth with continuously good margins, both gross margins and net margins. This we want to do more of course, and you already see the effects, especially in feminine care, in the good growth we have there.
Oskar, can I just fill in on your question on mature markets, should you expect? I mean, just to clarify what you already know, in personal care, mature markets actually grew by 4%. If you look at tissue, was relatively flat, a fairly slow development in the first quarter, but not actually declining. The decline you see for the group as a whole, mature, is actually coming from forest, and that is a pricing issue, not a volume issue. I think your question, should you expect it, is very much linked to what Magnus alluded to before on the pricing development for pulp, of course, not least sawn timber and kraftliner. That gives you a fairly good sense of the underlying movement, so to speak.
Very good. Just a final question on, and maybe this is something you will discuss more at the Capital Markets day. From time to time, you've mentioned that you might be interested in expanding into new adjacent categories, partly to also support your presence in certain retail markets. Is that top of mind, or do you see that as something that we should think about, or has it sort of faded from the-
No
from the screen?
Quite the contrary, we're putting more effort and more focused efforts behind what we used to call sometimes our adjacencies, but that we actually renamed our new core. Two of those areas are wet wipes. There was an example here in innovations, and another area is soap, where we're also very much focused on growing wet wipes in all categories, actually, soap mostly in away from home. Those are definitely prioritized areas going forward. We are both investing in new equipment, and we are investing in SG&A to grow in these areas.
All right. Thank you very much. Those were all my questions.
Okay, any more questions? Yes, we have here in the front, Karim.
Thank you. Nick Aliofs from Kepler Cheuvreux. Three questions. The first one more general. I noticed in your report that you began working now together with Vinda to sort of leverage on your joint strengths. Could you elaborate a little bit on that and perhaps give some examples on what potential benefits could be expected?
Of course, the integration started 1st of April, quite recently, but we have been working with the plan since a number of months. We have a really good momentum in this process. There are three areas. One is that Vinda has been looking at increasing exports of the Vinda tissue products to neighboring countries. With the go-to-market and the presence we have with the old SCA units, that's much easier. We can start exporting and then start to invest locally where we already have sites, for instance. That's a very important synergy. A second very important synergy is that we have a lot of knowledge about the personal care categories in the former SCA Asian business. This knowledge we now leverage into China, where we have very ambitious plans for growing, especially in incontinence care and in feminine care.
Those are two very important synergies in the longer term. In the immediate term, we see cost synergies from taking out the SCA business unit head office that we had in Shanghai, that we have stated previously. That's an immediate cost synergy.
Okay, perfect. Thank you. I don't know if you can answer this, but since you're building your new pulp mill or expanding the pulp mill at Östrand, I'm guessing that you must also make some form of long-term expectations about the level of the Swedish krona. I wonder if you could, of course, you will not give us the number, but it would be appreciated, but some thinking around that, please.
We worked on this project for a year and a half before deciding to move forward. It's one of the biggest industrial investments in Sweden ever, actually, and we're very proud about that. Considering this, we have been very prudent in our assumptions, to put it that way, both regarding pulp prices and the Swedish krona. Of course, the only thing we know is that this will be quite volatile over the years, but in the long term, we have prudent assumptions, and what we feel very confident about is that we have the lowest cost for NBSK delivered to Rotterdam of any supplier. Of course, that's a very good position. We will always be the most competitive actor for delivery of an NBSK to Rotterdam. That was a very important driver of the decision.
Okay, perfect. Thank you. The last question, it's regarding the financial costs. You clearly state there why we are running at a higher level due to the repayments of loans, what should we expect for the coming quarters in terms of financial costs?
Higher for Q2. This is largely just a consequence of the fact that we don't have the dividend from Industrivärden. I think it was last year, SEK 77 million or something like that. That's not going to be there in Q2 since we no longer hold the shares. Other than that, no big changes as you've seen. If you look at Q1 without prepayments, it was kind of similar to what it was last year. This is what you should expect going forward.
Perfect. Thank you.
Okay. Any more questions from the floor? No? Let's open up the telephone conference, please, operator, help us here.
If you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Celine Pannuti of JP Morgan. Please ask your question.
Yes. In fact, we'll have a few questions, maybe if we can take one by one. First one on the outlook for forest. I just want to make sure that I understood well. You're guiding that the pricing was probably stronger in Q1, and we should not see as such as a negative impact in the coming quarters. If that is the case, what does it mean for the outlook on margin? Shall I also believe or deduce that the margin hit that we've seen in Q1 would not be as prevalent in the coming quarters? That's my first question.
Thanks, Celine. As you know, we don't provide any guidance, but I spoke a little bit about what we see right now in the development on some of the different products that we are selling in forest products, and I guess that's all the information we have to give at this point in time.
Just to be clear, Celine, I think what Magnus said was that we've seen a decline in kraftliner and sawn and pulp, and Magnus alluded to a more stable environment compared to Q1. It's not a temporary effect. There are signs of perhaps improving sawn timber, largely it's not a temporary impact, of course. It's similar to what it was in Q1.
All right. Okay, on that basis, if I look at forest product, probably the raw material cost has been much better than what we anticipated. Does it mean that you would probably see a much better cost environment than you thought even a few months ago, given maybe pulp prices are declining faster than anticipated?
I'm not sure I fully understand your question, Celine, because if you look at the raw material prices for forest, it's largely stable. I think I mentioned there is actually a slight negative impact Q1 versus Q1 of last year in forest. It's small. It's minus SEK 7 million, it's largely flat, you can say, raw material, there's no real positive raw material impact on forest. Maybe I misunderstood your question.
Sorry, on tissue. Maybe it was my mistake. I meant tissue at raw material cost came much better than anticipated. We're seeing that pricing in pulp is weaker in your forest division. Does it mean that the outlook for tissue raw mat is looking much better than it was looking two, three months ago?
Yeah, it's a difficult question. I think, once again, the major impact during, as you know, Celine, during last year was actually the currency. Now if you look at the euro versus dollar, it's 113 right now, so of course it will depend a lot on the currency. Of course, I mentioned that before, we see slightly lower tissue cost Q on Q for Q2. That's the estimate we have, and that's based on benefits on the underlying mainly hardwood rather than softwood, but that's the estimate.
Right. My other question would be the clarification on pricing. Again, can you make the difference, if I'm talking about hygiene here, in terms of pricing ability in emerging markets, what we should expect, and likewise in developed markets. Am I right in thinking flattish pricing? Is that what you're trying to aim for?
We don't give that type of guidance. We have shown throughout last year that we have been able to compensate price in a quite good way in emerging markets and in personal care, and we actually compensate for more than half of the negative raw material impact also for tissue, and this was because of, as you know, the big negative impact. Going forward with less of that impact, we have to look at the big picture where we're always looking at improving our margins through pulling all the levers, whether it be price or cost efficiencies, innovation, and so on. I don't have any more guidance to give you there.
Okay, finally, two more questions. On Wausau, could you explain why it was a positive contribution to profit? Sorry. Yeah, it was more positive contribution to profit than in sales, given that I was expecting it to be margin dilutive. A final question, I just wanted to rebound on one commentary that you made, in terms of the forest division, where you said you were trying to make sure that the market understood the value in it. Can you elaborate on that?
Well, starting with the forest, I think already this is what we stated already in August last year, it is just reiterating that and that we are working with this split of the group into two divisions, and we will have more information early next year.
Yeah, maybe on the Wausau side, it was a good quarter for Wausau, it had a good margin and accretive margin as you saw. If you look at the total impact, there are three different areas in which Wausau actually comes into our profit. First of all, of course, sales and EBIT, that was margin accretive. We also had it in items affecting comparability, the SEK 47 million that you saw there, that took away some of that. Of course, in the financial net, we had the prepayment. If you look at the total net profit contribution, it was actually pretty close to nothing. It was accretive from an operating margin standpoint and dilutive from a net profit margin standpoint.
All right. On the full year, does it mean that Wausau impact profitability is better than expected?
Yeah, that is correct. We had better margins in the first quarter than according to our estimates. A very strong start for Wausau.
Thank you.
Your next question comes from Justin Jordan of Jefferies. Please ask your question.
Good morning, gentlemen. I'm sorry, can I just return to Forest Products for a second? Firstly, just on kraftliner, you previously talked about potentially exporting some volumes of kraftliner from Europe to North America, to try and offset some of the price softness in Europe. Is that something you've done in Q1? Secondly, one of your major European peers in kraftliner production has announced a 40-euro ton price increase from 15th of June this morning. I appreciate that'll have little impact on Q2, but what's your thinking on potential for kraftliner stabilization potential or even price increases later in calendar 2016?
There have been product flows both ways of the Atlantic actually, both from American producer into Europe, but also from Europe and to some extent from us into North America, which shows, I guess, that these markets are quite balanced in different qualities of course. I wasn't aware about the price increase announced this morning, but I guess that's pretty much in line with what I stated, that we see that the kraftliner prices are stabilizing.
Thank you.
Your next question comes from Adam Kendrick of Morningstar. Please ask your question.
Good morning. My question is about CapEx. If you can just confirm that you stated that 2016 figure should be around SEK 9.5 billion, because that seems a very high percentage of sales. If you can maybe give us some sort of guidance for 2017. The CapEx seems to be much higher than my expectations.
Yes, Adam, it is higher. I can confirm that SEK 9.5 billion. It is an increase to sales, and that has to do with the investment in the pulp mill in Östrand. That is close to SEK 8 billion over a period to 2000, and it was a small amount, or small, but it was an amount of SEK 700 million in 2015, then we will have the rest, 2016, 2017, 2018, and a small amount in 2019. We will actually have approximately SEK 9.5 billion for this year. We have not given any forecast for 2017. We will be back in Q4 as we normally do. Of course, as you will see the Östrand investment progressing, you will see high CapEx also in 2017.
I think there was, just to follow up on that, I think there was also a new incontinence factory in Brazil as well. Is that quite a small one, though?
That's an investment of SEK 650 million that we are doing now, and we will be mostly done this year. I think there could be a little bit of overhang into next year.
Just to look historically at CapEx, if I look back since 2010, it's been very stable, around 6% of sales. Are we looking more or less towards the end of the decade to get back down to that sort of ratio again?
We don't actually disclose that. We don't disclose the long-term CapEx forecast. Again, we have some significant investment now in Östrand. You talked about Brazil, so of course, that brings the number up for a few years here.
There is no underlying trend towards higher CapEx with the exception of that. On the other hand, of course, we have growth ambitions in many places, and that of course takes also investments. All the investments we do, or the capital expenditure we do, we look at the IRR or the NPV of those and of course use return requirement and all the investments we are undertaking produces very good return figures. No long-term major increase of CapEx, but we'll disclose that as we progress in the years to come.
Sure. Thanks.
Your next question comes from Jeremy Fialko of Redburn. Please ask your question.
Hi, good morning. Jeremy Fialko, Redburn here. Really just trying to square a bit of a circle in terms of some of the comments that you've made. You've had a very good tissue margin expansion in Q1 up 120 basis points. You talk about tougher comparatives in subsequent quarters, implying obviously less margin expansion. At the same time, you've clearly got a more favorable raw material situation in tissue, because you're talking about tissue raw material costs being down year-on-year in Q2. Effectively, is it price that we should assume is the reason why we'd see lower margin expansion in Q2? Or are there some other issues in terms of the cost within the tissue business? Thank you.
Okay. Thanks for talking about the different parts adding up to the margin development. What I spoke about specifically was the comparables when it comes to price. Since we increased price during the year last year from a price increase perspective, the comparables are getting tougher because especially in the third quarter, we had significant price increases last year. As you also state, if you look on the cost side, there could be opportunities then when it comes to raw material costs, especially regarding pulp. We have also seen one positive cost component already in the first quarter that we'll probably see also going forward, which is energy.
Right. Okay. Effectively it's really Q3 where you're signaling that the price will come down materially year-on-year?
It's gradually over the year, I would say. It's difficult to be that specific with all the dynamics in the market. Added to all this, of course, we are continuing to work with our efficiency program, and they are especially focused on the tissue part of our business since it's such a considerable amount of our capital base. We should see benefits from that also going forward.
As you see things today, any quantification of the tissue raw material benefit based on current pulp prices and current FX?
No, we don't make those kind of exact estimates. Just to reiterate, slightly lower for tissue and for personal care.
Okay. Thank you.
Your next question comes from Charles Mansson of Societe Generale. Please ask your question.
Yes, good morning. Excuse me. Could you update us on, in incontinence, the category growth, particularly in retail and how SCA's market share is doing in that?
Actually, thanks. That's a great question. We're really excited about the recent development here during the last quarter because what we are seeing is that the slight market share decline that we've had on the retail side, especially in Europe, where we were by far the biggest player before P&G entered, that has stopped and we are now stabilizing our market shares. We have a lot of good things coming in the incontinence care area in retail during the year and especially even more during next year. That's going really well. We still see the benefit of the underlying higher market growth. We still see very good market growth underlying in retail. Also, last year, just to cover that, in healthcare, we actually grew market share throughout Europe.
This year we are working to at least keep those market shares stable and to continue our growth in retail. It's looking really good for our incontinence care category. In North America, we think we are stabilizing our healthcare business and seeing some slight improvements. In retail, we are still struggling. We are looking at ways of turning that around this, we've been stating now for at least a year and a half. We see some opportunities there as well. That's the reason for a slight decline in volumes in North America incontinence care, that we are kind of revising our strategy there in retail. Overall, a very positive development in incontinence care.
Okay. In fem care, this quarter was yet another quarter of very strong double-digit organic sales growth for you. Could you perhaps point out where the key growth markets are for you in fem care? Given such consistent strong growth, whether there's been any competitive responses yet?
The key market for us is Latin America, so Mexico, Central America, and South America, where we are typically number one and in some cases number two. This accounts for more than half of our feminine care sales, this region. We are growing in every market there. We're also growing in Europe, in France, in the U.K., in Russia. We are applying the same recipe in all these markets.
Okay. Sorry, just going through all the categories, really. In diapers, you mentioned intense competition. That's not new, a similar kind of question to the one before. Where do you see the biggest flashpoints for you in diapers, and what are you doing about it, really?
We're continuing to do well in Europe, growing volume. We have established a strong number 2 position in Europe with a mix of our own brand, Libero in the Nordics and Russia, and private label. That's developing very positively also from a margin perspective. Outside, we have a stronghold in Malaysia. We have a number of markets of which some we reviewed last year and actually decided to leave as part of our exercise to do fewer and bigger bets. One of the areas where we are making a big bet is India, and building up an Indian baby business, of course, has a drag on the margins for the baby care business overall. Other than that, we are getting in better and better shape, actually.
Okay, final one on tissue. In mature markets, the organic sales was flat, was stable this quarter. Could you perhaps tell us about the balance between volume and pricing in tissue mature markets?
The opportunity we have this year is to balance between these two, which we didn't have last year. Last year, it was all about price, this year we have the opportunity to balance between price and volume, let's see how that develops over the year. I prefer having those two levers to pull than focusing more on just one.
Okay. Between the two, which one was down and which one was up?
Pricing was up significantly last year. Also volumes, actually underlying volumes, we were able to achieve both. First quarter this year in the mature markets, we still had positive price realization, but not the volume. This is something that we're looking at balancing going forward, of course.
Great. Thank you.
Okay, with that, we conclude the Q&A session. Do you want to have any final words, Magnus?
Thank you very much for coming.
Okay.
See you next time.
Thank you and goodbye.