Earnings Call: Q3 2015

Oct 29, 2015

CEO and President Magnus Groth, who together with the CFO Fredrik Rystedt, will go through the highlights in the report. Afterward, we will have a Q&A session. With this, I hand over to you, Magnus. Thank you, Josephine. We continue to have good momentum in most segments and in most markets in our business, which is very positive. During this last quarter and also after the end of the quarter, we have also continued with several strategic initiatives for two reasons. One is to accelerate our profitable growth, both through acquisitions but also investments in our existing businesses. At the same time, we're also addressing a number of low-performing parts of the business, primarily in the forest products business, as we will talk more about today, but also in the baby business. This is something we will go through in more detail and also the financial effects of this. Looking then at the numbers briefly, Fredrik will talk more about this, we have a continued sales growth organically of 5% and an operating profit before items affecting profitability of 10%, leading to an improved operating margin of 50 basis points. Looking at earnings per share, it's significantly down, this is of course then after items affecting profitability. If you add that back, we actually see an underlying earnings per share growth of 20% quarter over last year's quarter, we continue to show a strong cash flow development. As mentioned, we have a number of important events since we last met after the second quarter. Looking at the first one, dividing the group into two divisions, this is a project that we have started, we are progressing well, we still aim, as we have earlier also informed, that this will be finalized by the 1st of January 2017. The new hygiene organization is actually also in place and working, this has gone very smoothly. There's always some concern when moving into a new organization if there will be a loss of momentum, I feel that, on the contrary, we have a lot of new energy and it has vitalized the organization. The final bullet point here, we are included in the Dow Jones Sustainability Index as an industry leader, which makes us very proud. We are the leader in the household products group also, this relates to our code of conduct work and sustainability work and social responsibility work. This is something we work with very hard every day. I want to bring up also, in line with this, some news that came out just last night regarding an antitrust process in Chile that we announced already in May this year, where there's been another step in this process. Still, we don't see that this has a material financial impact on the group in any way. Just, again, being transparent, it's very important for us to state that this is completely unacceptable, whether it's a fully owned company or partly owned company, and that we are also always cooperating fully with the governments and the bodies that are working with this. I just want to bring it up. No financial material impact, but still. Moving on then to our strategic priorities, this is a picture that we stick to, I think some examples over the last quarter is when it comes to profitable growth is our acquisition of Wausau Paper in the U.S., our investments in the pulp mill in Östrand in Sweden, and our investment in Brazil in incontinence care. Moving over to efficiency, some examples of work we've done to improve efficiency in the group is, of course, the restructuring of the Ortviken paper mill that we announced today. Again, the pruning of the baby positions that we have done over the last six months, also the divestment of Bromma Business Jet, which we announced a few weeks ago. Today, we also announced that we are divesting our Asian Pacific business to Vinda. As you know, we are the majority shareholder of Vinda with a 51.4% stake. This divestment and integration, actually, I am absolutely convinced will have a very positive impact in all these three areas because we will achieve synergies on the cost side. This will increase our growth because this will make it much easier for Vinda to expand in tissue outside of China and make it also strengthen Vinda's efforts to develop in personal care in China because we have very strong positions in Malaysia, for instance, and also the exchange of product innovations, not only then with SCA, but also between these two entities. Those are some examples relating to our strategic priorities. Then I have three slides on some of the three major strategic initiatives that we've taken recently. The acquisition of Wausau is actually very complementary to our business, both in terms of paper qualities, where they have a premium paper quality that we do not provide currently in any large extent in the U.S., so very strong complementarity there. Also when it comes to customer segments where we are very strong in restaurants and catering in North America, and they are very strong in washrooms. The initial response from customers is very positive because they see the benefit of a one-stop shop that the combined entity can really provide them all types of qualities and also products suitable for all different types of segments. Initial response from our customers and Wausau's customers, what I hear we are, of course, competing vigorously is positive. I also want to note that we have signed this agreement, but the completion is subject to Wausau Paper shareholder and regulatory approvals, which we expect at the end of the first quarter. Over to the divestment of SCA's Asian Pacific business to Vinda. I think you have the number. Again, I think it's important to note here that this agreement is also subject to approval of the independent shareholders of Vinda, and we expect closing first quarter. We had the board meeting yesterday, and of course, the independent shareholders have their representatives and participate. Still to make this clear, again, I see this as a very positive development for our Asian business in total. Finally, the intended closure of paper machine number two at Ortviken, followed by an impairment of the entire Ortviken mill. The paper machine that we are closing is the oldest and smallest machine with a capacity of 135,000 tons. After this, we will still have a capacity of 765,000 tons. It will still be one of the world's largest publication paper mills. We see that we can achieve a huge efficiency improvement by focusing on the remaining three bigger and more modern machines going forward, and that this plant will now be very competitive going forward. Okay, Fredrik, if you want to get into the financials. Yes, I will do that, Magnus. I'll start with net sales. As you can see from the report, we grew our net sales by 9%, out of which 4% is simple currency translation, mainly coming from the Swedish krona. You've noted perhaps also in Q1 and Q2, that price and mix were significant contributors to our growth in sales, and that is the same also for this quarter. In fact, if you look at all our business areas had a positive development in price and mix, and especially so in this quarter for Personal Care. We have raised prices in many different places. We've done it predominantly in Latin America. We've done it in Russia. We've done it in the European Away-from-Home business and now in Q3 in the Consumer Tissue business in Europe. From that perspective, we have been able to compensate a large portion of raw material impact and of course, adverse currency impact. Volume was also positive for Tissue and Personal Care, both grew by 4% each. A slight difference for forest, there we had actually slightly lower sales coming from publication paper, and that we'll talk some more about later. We look at the growth for organic growth level for the group and the different parts of the group for this year. We've had a strong quarter. Both Q1 with about 6%, Q2 and now Q3 with about both being 5%. That as before, driven to a large extent by innovation and in Personal Care, also new customer contracts that we have alluded on before. We have also, of course, for Personal Care and Tissue, both had a significant contribution from price throughout this year. You may, of course, remember that Vinda is a fast-growing company. Particularly for tissue, that's certainly helping growth and the organic growth level for tissue and for the group as a whole. If you just look at Vinda and take that as a part of the total group, it accounts for approximately about 1% of total growth. Again, a strong performance by Vinda in terms of growth. If you look at the operating profit, we increased by, as you can see here, 14% and 10% roughly is organic. If you exclude the pure translation impact from currency, we grew organically by 10%. We did that despite a very significant raw material impact. This actually accounts for approximately 25% of the quarterly profit, so it's a very significant raw material impact. A large portion of this comes from tissue. If you look at the Tissue operation, it is of course, the fact that pulp is denominated in U.S. dollars. The U.S. dollar is strong, That causes, of course, a very significant increase. Approximately of all the Tissue impact of SEK 560, roughly 90% is attributed to currency. If you look at Personal Care, it's approximately SEK 110. Actually even more than, it's a very negative, and we've been compensating in other areas such as oil-based products for taking it to the full level of increases in Personal Care. Very significant. We have compensated, as you can see, with SEK 688 million in price increases, and this is particularly strong for Personal Care. SEK 320 out of these SEK 688 relates to Personal Care, SEK 258 or SEK 260 in that ballpark relates to Tissue, and Forest also has a positive price mix. Price mix continues to be very positive. You may wonder, savings. We have said previously that our ambition is to continue to save approximately in line with what we have done in the previous couple of years, and that's also the case in this quarter. It's a good result in savings. You will actually find that in the other line here, the SEK -41. Of course, it doesn't sound like good savings if you have a minus there, but it's actually a lot of different components. Basically, three things that are negative: inflation, normally salary inflation and all other inflation. We have a fairly large increase, as you have seen also in previous quarter, of A&P, and this has to do, to large degree, with Personal Care and the inco efforts that we put in place, also FemPro to some degree. Finally, we also have much higher SG&A, primarily actually in Vinda, but more generally more sales efforts in the group. All those three components, SG&A&P and inflation, is more or less fully compensated by the efficiency gains that we have in our business. Once again, a strong performance in efficiency. Look at the cash flow. Magnus alluded to it. On the operating cash flow level, we have improved by 7%. If you look at this slide, you can see we're actually slightly lower than we were last year. The difference between what Magnus showed and this is that here we include also strategic investment. It's all investments that we have in the group. This may not appear to be a good performance, in fact it is actually a good performance because last year we had a really exceptionally strong performance in working capital, but it also had very low investment. If you look at the capital expenditure here, the SEK 1.7 billion, including strategic investment, it is pretty much in line with our full-year forecast of between SEK 6 billion-SEK 6.5 billion. This is very much as expected. As before, cash surplus increased a little quicker than EBIT. Of course, that has to do with the higher depreciation of approximately SEK 130 million or in that ballpark. Finally, we have in this quarter a very high number on items affecting comparability, as Magnus already alluded to. Of course, Ortviken and the publication paper, the closure is a very significant part of that, as you can see. We've also done two other impairments. If you look at the first one, the Mexican baby diaper business, this is a non-profitable business that we have in Mexico. We are not shutting it down. On the contrary, we've taken actions to improve that profitability from the loss-making situation it is at this point. It is our estimate that we will never be able to achieve a profitability level that supports the value we have of these brands that we use in the Mexican business. There's a similar story relating to predominantly Cedel and Dr. P for the ABBA Beauty acquisition. These are pure impairment. They have no profit impact going forward, but we don't amortize on those items. Georgia-Pacific, this is predominantly Orion that we have already announced. We've also closed that facility and the rest divestment of Bromma Business Jet we have announced. This is the cost for that divestment. The last portion, the SEK 111 million that you see on this slide, is predominantly advisory fees relating to the two transactions, Vinda and Wausau. Just a final comment here. This is close to SEK 2.5 billion. Out of this, SEK 460 million approximately is cash related and the rest is more balance sheet adjustments. With those words, Magnus? Thank you, Fredrik. Quickly, a closer look then at each of our three business lines. For Personal Care, we see good growth both in sales, operating profit, and operating margin. When looking at the operating margin, which improves with 90 basis points, actually that is including headwinds from raw materials of 240 basis points. The actual improvement, taking that into account, is over 300 basis points. Very good work with increasing prices everywhere where we have had these raw material headwinds. Return on capital employed, this is now before items affecting comparability, is actually above our target rate of 30%. I think this is a good step. Moving on then to more of the market conditions and how this growth has occurred. We have a good development both in mature markets and in emerging markets. What is keeping down incontinence products, again in this quarter compared to last year, is the development in Inco North America retail, where compared to a year ago, we lost approximately 2.2% market share. In all other markets, the incontinence care business is doing really well. Of course, we are working hard to address the issue in Inco North America now with the new organization we have in place with the transatlantic Inco business. Other than that, very strong volume development. Both baby diapers and feminine care have exceptionally strong volume growth. Fredrik mentioned the fact that we are investing more in advertising and promotion, A&P. Actually, this is a very profitable investment when it comes to these categories, and especially feminine care, because we really see the profitable growth with high gross margins and high EBIT margins. It seems as though the more we spend here in feminine, the more actually profit and margin we get out of it. A&P is not only a cost, of course, it is an investment also in growth and profits. To mention then some of our innovations, I would like to bring up Libero Touch, which 8 out of 10 parents in Sweden say is softer than the competitive diaper. Looks like this. It is the best diaper we ever made, and it is the softest diaper we have ever made. Not only that, this is our first global launch of a new platform. We launched this now in Sweden and in Finland. We are launching it in Malaysia, which is the Drypers product. You see it looks exactly the same. We are now rolling it out also in Russia and looking at other markets. It is aligning on one brand platform, one technical platform. This takes time, but we are moving in that direction. Please feel it. Some of you are young enough to still have maybe some babies at home, and then go out and buy it. Moving on then to Tissue, similarly improving net sales and operating profit. The margin is down by 40 basis points, but in this case, the raw material headwind quarter versus last quarter is 350 basis points. Again, very good compensation through better price mix, better volume, and saving initiatives. Return on capital employed before items affecting comparability up 0.4% compared to last year to 13.5%, and our target is 15%. Then digging into the different markets and products, we have reasonably good growth in Consumer Tissue everywhere and in Away-from-Home in North America with zero growth in Away-from-Home in Europe during the first three quarters of this year, partly due to the price increases that we have prioritized before volume. As you can see also in the split, Consumer Tissue and Away-from-Home, that also is reflected there. Overall, good growth in the Tissue business. Some innovations, I will not get into them. Again, this shows the importance of being relevant with both the retailers and the distributors when it comes to talk and always having new news to show and present. Of course, this contributes to our improved price mix and our improved volumes that we are continuously talking about new, attractive, innovative products with our customers and consumers. That's why I keep bringing this up. It really underpins the development we see financially. Finally, Forest Products that has zero growth and underlying volume growth are slightly negative. The growth comes from price mix and currency. Operating profit increased substantially 13%. This is very much based on higher prices, including exchange rate effect. The weaker krona and the stronger dollar really helps our Forest Products business. We continue to see very good cost efficiency savings in Forest Products as in the other business units underlying. Also remember that in Q3, we have seasonally low energy costs, for instance. We are also helped by some seasonally low costs here. To summarize then, good organic growth in sales and Operating profits, both in Personal Care and in Tissue. We have seen a very good price realization, and we have earlier communicated that we will see a gradual improvement of price realization during the second half of the year. Now with the good improvement we had in the third quarter, I think we have seen most of it. Most of the initiatives that we have taken, then we, of course, always adjust to changing currency, taking the opportunity to increase prices. In Personal Care, the very good margin we also saw was partly supported by a lower promotional pressure than the same quarter last year. This varies depending on promotion schedules a little bit between quarters. Forest, very good result. In the material, you can see that we will have some stops for planned maintenance in the fourth quarter. We continue to have very strong efficiency gains. I mentioned the seasonally low energy prices that we had in Q3, normally then in the next two quarters, we see the effects of winter. When it comes to the strategic initiatives, we are working very hard both to accelerate our profitable growth through different initiatives, also to really address low-performing parts of the business. That's what makes up the initiatives that we have presented over the last quarter. Thank you for listening. Good. Thank you, Magnus. Let's start the question and answer session. Please state your name and where you are from. We have the first question there. Oskar Lindström from Danske Bank. I have more of a general question here with regard to the strategic initiatives That you presented today, but also earlier now after the summer. The ones presented so far this year have tilted very much towards forest products, with the investment in the pulp mill in Östrand and towards tissue with the proposed acquisition of Wausau. I've also looked at historically, let's say over the past five years, the Personal Care division, which is your most profitable division, has only received some 20% of strategic CapEx. Are you happy with that distribution of strategic CapEx? Do you see that changing going forward, or should we expect roughly a distribution similar to what we've seen in the past? We want to invest in the profitable opportunities that really enhance margin for the group as a whole. If you look at the Östrand project, for instance, this has been prepared for the last two years. It happens to happen now because of a change in strategic direction or anything like that. Ideally, we want to invest, of course, more in the high margin, high growth parts of the business. What we have seen is, for instance, the initiative in Brazil, the initiative in India at the beginning of the year, and we are also investing quite substantially in modernizing our machine park and also our product assortment, both in incontinence care and feminine care. The good thing is that these investments are relatively very low. Of course, that's why we want to do more of that. Still, it doesn't show compared to some of these other bigger investment. I agree that, of course, we would want to do even more in Personal Care, which has high margins and higher return on capital employed. Can I just add maybe one thing? Generally, we also have a lower capital intensity in personal care, so it doesn't actually take that much strategic investment to grow significantly. Generally speaking, of course, acquisition-wise it takes a lot of money, but if you just grow the business, it has a much higher capital turnover. That's one issue. The other thing is there are more ways of investing, and of course one is A&P in sales. There we have invested a significant amount both in Inco and FemPro. From that dimension, we continue to invest a lot in personal care. If I may, just to follow up on organic growth within the personal care business area. In this quarter, and if I remember correctly, also in the previous quarters now, we've seen the highest organic growth in feminine care and baby, and at least in this quarter, the lowest organic growth within the incontinence business. You mentioned that this was due to some of the challenges from competitors in North America within the incontinence business, and that you hope that the new transatlantic organization would help to remedy the low organic growth within Inco. Do you feel that there's more you need to do structurally to drive that organic growth from relatively low levels of around 3%? We're in good shape in Europe, and we are taking more and more initiatives in emerging markets where this category is tiny typically, but we need to really establish ourselves early, like we're doing in Brazil, for instance. Yes, we want to grow faster incontinence care. There's also a certain price increase effect in here also that baby and feminine is very strong in some of the markets like Latin America and Russia, where we have increased prices substantially. That accounts for some of the growth that you see in those categories. I don't know if you want to fill in. No. Yeah. All right. Thank you. Yeah. Next question. Thank you. It's Linus Larsson with SEB. If we could talk a bit more about organic growth, which accelerated in the third quarter if you compare with the second quarter, I mean year-over-year, maybe we could drill down a bit on that. Where do you see organic growth going forward? You had, for instance, eight product launches in the third quarter. Is that a pace that we should expect going forward? Secondly, if we try to break down organic growth into volume versus price mix, then maybe divide price and mix, could you say something about that? To what extent have we seen the price impact already from inflationary environments, et cetera? Could you say something about what the mix component has been and might be going forward, also with regards to launches on the volume side, please? If I start then hand over to you about the price mix issues and so on. It's very difficult to give an estimate on launches per quarter, I think if you sum up what we're doing this year, I think that's a good pace. What we're also looking at with this global platform is that every launch should have a bigger impact that we launch on a bigger market, of course, that we use the same investment in technology, but also in developing the advertising, the branding, and so on globally instead of in one specific small market, which we've done and still do to some extent still. It's not only the number of launches, but also the scale of each launch that we want to make them bigger. That was an easy question. Yeah. Yeah, the price of mix, Linus, that varies, of course, over quarters. We have a positive mix also in this quarter, a positive mix contribution to profit, if that's your question. We have that predominantly of the SEK 688 that I showed in this quarter is actually price, it's two parts, as Magnus alluded to. The first one is actual price increases in LatAm and Russia and all the Consumer Tissue, et cetera, that we talked about. The other is a relatively low sales promotion level in comparison to what we had a year ago. Price is a higher part of the development in the quarter than mix, sometimes it goes the other way around. It depends on the launch pattern of new products, et cetera. Mix is clearly positive, it will probably remain that as we go forward, or will remain positive. Do you have initiatives out there which haven't yet filtered through in terms of price increases in the Russia, LatAm, Asia, what have you? If we look at the big initiatives in markets that are more stable, like Consumer Tissue in Europe, most of that price realization we see coming through now in quarter three, so don't expect significant continued improvement going forward. In these more volatile markets, we will always adjust with price increases as necessary as the currencies fluctuate. What you just said, does that go for the European tissue business as well? Have you already realized the price hike gains that you're expecting to compensate for raw material cost increases? A large part of it for this time. Of course, we have new negotiations coming up next year. In Away-from-Home, we are still in negotiation and pushing price increases that will then take effect beginning next year. Okay in Europe and in North America. Great. Thank you. Next question, over here in the front row. Thank you. Mikael Jofs from Kepler Cheuvreux. I'd like to continue a little bit on this price discussion as you talked about raising prices in emerging markets. Is there somewhere a sort of threshold where the consumer in those parts of the world will have a difficulty in continuing to pay up? I can say that we are positively surprised by how that our category seem to continue to grow at a pace that not some other categories do, so that our categories are quite resilient because, of course, in countries like Russia, in Malaysia now, the purchasing power of the average consumer is down 20%, 30%, 40%. At some point that should impact growth, one could assume. So far, we continue to see a fairly good growth because, of course, the penetration is still so low in these markets, and you still have a growing middle class. This is also the categories that consumers still want to buy and invest in, even when their overall purchasing power comes down. I mean, that's a very important essential. Thank you. Just a housekeeping question. On the sale of your Asian business to Vinda, did you state anywhere what sort of the benefits or cost savings from that would be? No, not other than the fact that we are closing our Asian Pacific business unit office in Shanghai, that we will have costs, SEK 90 million. Yes of costs relating to that. That's kind of a short-term synergy, we foresee big synergies going forward. Those we haven't stated, no. Okay. Thank you. Any other questions? Okay. Oskar Lindström from Danske Bank again. Coming back to your changes in emerging markets where you've now sold most, I would assume, of your East Asian hygiene business to Vinda. You previously reduced your stake in or sold off your Australian and New Zealand business. Today, what % of your exposure to emerging markets within hygiene is in joint ventures? Do you have a sort of It's Vinda, which is not a joint venture, we're still the majority owner, and Familia, which are the big ones. What could that be in billions? It will be over 10% of sales- Yep would be the more exact number, of our overall sales. If you have 32% in total sales, it would be then a little over a third of our emerging market sales that is in either Familia or in Vinda. Do you have a strategic view of that you prefer joint ventures, or you like to be a full owner, or is it more sort of whatever works in each specific market, which is the preferred strategy? With a choice, full control and full ownership, definitely. What you can actually achieve varies from market to market. If you look at the trend over the last couple of years, we've been rather pulling out of joint ventures. We pulled out of the joint venture in South Africa, for instance, one that we had in the Middle East that we did last year with the majority stake in Vinda. It's still, of course, we have an important Partner, and it's listed, but we're still the majority shareholder there. That's our preference, and that's the direction we're moving in. Don't expect to see any more joint ventures going forward. All right. Thank you. Next question. Okay. Let's open up for the telephone conference. Operator, please bring us the first question. Yes, your first question today comes from the line of Kartik Swaminathan from Merrill Lynch. Your line is open. Hi, everyone. Kartik Swaminathan from Bank of America Merrill Lynch. Thank you for taking my questions. The first was on your EM footprint. With regards to the Vinda transaction, I've only just started to get through the material that Vinda has been distributing, and I appreciate that given they're a listed co, certain comments will have to be relegated to their own management team. I wanted to clarify, where does the transaction leave your balance sheet if it's going to be financed partly with their own equity and also through, what I'm guessing to describe as an intracompany loan? The second part of that was, given that you've made very substantial progress on your EM footprint, where does that leave you towards your target of bringing up your EM margins towards that of your developed market businesses? How does that translate into your group target of hitting, if I recall correctly, 30% return on capital? After these initiatives, should we assume that the company should be hitting that run rate either Q1 or Q2 2016? The second question I had was on raw materials. Just some clarification on what could be happening with pulp into Q4 and the remainder of the year, and of course, plastics and polymers, given there seems to be a clear dislocate between what we're seeing on the screen on Bloomberg relative to what the company's experiencing. The final question is on adult incontinence. If you could perhaps qualify or give us a qualitative opinion as to how much the North American retail business is a drag on this year's 3% growth run rate. Secondly, whether there's been any change to the intensity of promotional activity in Europe from the likes of P&G and some of your other competitors, given that you're talking about a very positive return coming out of the A&P investment that you're currently putting into the market. Okay. Starting with Vinda, initially, the gearing of Vinda will increase. We will support Vinda with an intracompany loan, as you mentioned. Over time, we have a plan that gearing will come down so that Vinda can continue on their very ambitious growth trajectory, and while still keeping the balanced ownership stakes that we have today, which is very important that free float stays above 25% and that both FAM and SCA keeps our current stakes. Can I just add maybe to that? Yes. Your question, I guess, on balance sheet. First of all, we consolidate Vinda already today, so it's already part of the group, and the actual transactions will have very limited impact on the balance sheet of the SCA group. Just a clarification. Yeah. Okay. More specific questions regarding Vinda, you will have to ask the management of Vinda. When it comes to the emerging market footprint, this is an ongoing process, and we don't give any forecasts regarding margin improvements going forward. Of course, we hope and expect that the work we're doing will have a positive effect eventually, but I can't be more specific than that. The North American Inco drag. Maybe I leave that to you to think about, Fredrik, but when it comes to the P&G launch that we saw now over a year ago in Europe and in North America, and they're still rolling out in some markets. They are still hovering below 10% market share in almost all markets where they launched, also in the U.S., actually. We feel that we have lost some market share to P&G and also in that initial phase to private label, but we feel that market shares are now stabilizing, and more positively, the underlying market growth has really increased in Europe and in North America. It's double digit and remains double digit in many markets because of the increased, again, advertising and promotion pressure from us, from Procter, and from others. Of course, that's helping us in Europe, where we are the incumbent and have a very strong market share. Less in North America, where we are reviewing our strategy. Again, remember that if you look at our overall Inco portfolio, it's a mix of healthcare and retail, where retail is the smaller part, and where Inco North America is a quite small part of our overall Inco portfolio. Yeah. I think your question was whether inco U.S. was a drag on profitability. We don't actually give numbers for individual categories or geographies for competitive reasons, so we don't comment on that. Needless to say, of course, there's been a significant launch in the U.S., so profitability has been impacted, needless to say, from promotional things and more competitive pressure. We don't give away numbers for individual geographies. Finally on raw materials, if I may. What was your question on raw material? Sorry, yes. It was on understanding where pulp is heading, given we've seen quite a lot of negative pushback from apparently Chinese purchasers. Secondly, on plastics and polymers moving into the fourth quarter. Again, we don't really forecast. It has been a fairly stable level now on pulp, and over time, of course, in USD terms, it should be stable or perhaps even slightly increasing, but it's always difficult to predict. Our main issue, as you have seen, is, of course, the exchange rates. That's the impact for us, not the actual pulp level, if you take the hygiene business. If you look at the oil-based material, it's been fairly, you can say, odd, the trend. If you look at the plastic indices, they were coming down quite significantly in the first part of this year, so the first quarter, then we saw an increase, a considerable increase, back again, back up to higher levels than at the starting point during summer. Now we've seen plastics indices trading down. Again, this is at the same time as oil prices have been very low or stable or very low. Of course, if this stays the way it is now with a lag, we should have a slightly positive impact towards first or second or maybe more second quarter next year, but it's really difficult to predict at this point in time. It should be slightly positive. Right now, plastics indices are coming down, and that should mean over time that oil-based materials should come down. That's great. Thank you very much. Operator, you can take the next question, please. Sure. Your next question comes from the line of Céline Pallini from J.P. Morgan. Your line is open. Yes, good morning. I would like to follow up on that last point on raw material. I think in previous quarters, you kind of helped us understanding the moving parts for the next quarter. Could we do the same here? I understand your point on the absolute US dollar-based raw mats, then FX, as you pointed, has had a big impact, and we should anniversary that given that the dollar trends really started in Q4 last year. Could you please maybe, if we look at Personal Care and if we look at tissue, give us a bit of an estimate of how we should model those raw material impacts in the next quarter? That's my first question. I can try and do that. It's always difficult without having a real good crystal ball, Céline, but I'll try to do that. First of all, we don't expect any major changes in comparison, if I start in that end, in comparison to Q4 versus Q4 of last year. If you look at Q4 versus Q3, if you take Personal Care, we expect slightly higher raw material costs, and this is more negative transaction effects and predominantly actually coming from emerging market currencies. They continue to become weaker, and therefore, we expect a slightly higher raw material level. If you take tissue, also there, slightly higher prices, and this has to do with hardwood pulp in US dollars. That's an underlying price increase in hardwood pulp. For forest products, basically stable. This is pretty much the outlook. Again, of course, currency has such a big impact. Depending on what the dollar will do and not do and emerging market currency will do, that of course will impact more, I think. Just to recap, if I look at tissue, it's slightly higher in U.S. dollar, but the U.S. dollar, I think you mentioned, was kind of 90% of the hit. Yes. That should anniversary in Q4. You're right in comparison. If you look at the comparison Q4 versus Q4, the U.S. dollar rate was I think 125 in average during Q4, and it's clearly lower now. If you look at Q3, it was roughly about 135. If you just compare it. Last year. Last year. If you actually compare it with the change Q4 or Q4, then that is, of course, a lower number simply for the dollar reason. All right. If you look at the absolute level that we are now buying at, of course, that's the same. Okay. If you look at the SEK 700 or SEK 1 million hit from raw mat that you had in the quarter- Yes Maybe let's be a bit clearer there. What should be a kind of a broad-based number for Q4 as we stand today? We don't give that forecast, Céline, of course, for obvious reasons. It's really difficult to do that. Of course, as I just said, generally, if you compare it to Q3, the absolute level that we're trading at, we expect for tissue higher cost. This has to do with higher hardwood costs or hardwood pulp. Of course for personal care for Latin American currencies predominantly. If you compare it to Q4 of last year, it should be slightly lower simply because we have an easier comparable in the U.S. dollar rate. My second question would be on the category growth. If we look at personal care, of course you had a big pricing benefit that you mentioned in emerging market, volume growth was as well quite good. Can you talk about the category growth maybe on a global basis and in your key region and how your market share are trending against that, and whether this kind of 3%-4% volume run rate is sustainable in that category. I will have a last question on tissue. Overall, we have been gaining market shares in most categories except the incontinence care because of the negative development in North America. Also the shares we lost when P&G launched last year in Europe. That loss has stabilized. We have stable shares in incontinence care, stable to slightly growing shares in Away-from-Home, improving market shares in Consumer Tissue, baby, feminine care, in general, actually. We have, of course, exceptions in baby, where we decided to ramp down or to leave the market. Of course, we gradually lose market share. In general, that's how we are performing. Otherwise, when it comes to the overall market development, it is still the same as we have stated all through the year actually, which means that in general, continuing good growth in emerging markets and very slow growth in mature markets, maybe with the exception of Inco in Europe, which is growing faster than before because of the reasons I already mentioned. Did you say double-digit growth for Inco? Was it globally, or was that Europe included? No, that was Europe. That was retail Europe. Retail Europe. Yes. Not overall Inco. Yeah. Okay. On tissue, so two things there. You said that you put all the pricing you wanted in Q3. Does that mean that you had the full benefit already of pricing in European tissue already in Q3, or the full benefit will be there in Q4? In tissue as well, volume were quite good. In fact, they have been good all year, so around 3%-4% run rate. Is that as well a run rate we should be looking at as sustainable? First, when it comes to the pricing increases, yes, I think we have seen most of the expected price realization already now during quarter three. Actually faster than previously predicted when we said that this would come gradually under quarter three and quarter four. Maybe make an indication then for the next quarter. Of course, we always continue to work with our price mix, I mean, in the long term. When it comes to volumes, yeah, I think we have good products and a good sales force, and we want to keep on growing. Right now we don't see any reason why growth should be either up or down. All right. Lastly, what about your market share in Consumer Tissue in Europe, branded versus private label, or in both branded and private label? We're growing most of our branded positions, with exception if we have decided to really go for price again before volume. In our overall mix, it's unchanged this year, and that's because of the price increases that we are doing. On the private label side, it's a temporary mix issue. Our long-term ambition is always to grow the branded part of the sales, this year it's more or less unchanged. All right. Thank you very much. Thank you. We continue, operator, with the rest of the questions, please. Your next question comes from the line of Rosie Edwards from Goldman Sachs. Your line is open. Yes, good morning. Just a couple of quick questions from me. Just firstly on the Vinda transaction. I know when the same was done in mainland China, you talked about wanting to capitalize from Vinda's extensive distribution network, and I think you said their point of sales was over sort of 300,000. Can you give us any sort of similar data points to understand the rationale behind the further transaction today? First talking about that transaction, we see actually very good growth in feminine care and in incontinence care now through Vinda, but that you can also see from their own numbers. I won't dwell more on that going forward. What we have in Malaysia and in some other markets is a very strong competence and very strong market positions in personal care. We believe now taking some of those key persons into the management team of Vinda will really support Vinda's effort to continue to grow in personal care. This is also one of the reasons why the new CEO of Vinda is Christoph Michalski, who is an expert in branding and innovation in personal care, that used to head up the global hygiene category for SCA before. That's one synergy to the benefit of Vinda. On the other hand, Vinda has almost no sales of tissue outside of China, and we have a very strong distribution network in some Asian countries like Malaysia, Korea, Taiwan, Philippines, Thailand to some extent, where of course over time we will start to market, where Vinda can be expected to start marketing tissue products. Okay. Then could you just remind us in your personal care business, how much Russia is? Or roughly. How much Russia is- Sort of having looked when I last looked, it was about sort of 8%. Does that sound- Yeah, it's close. If you take the whole group, Russia accounts for approximately 3%. That's a good question, actually. You're probably roughly about right. In personal care, yeah? Okay. Slightly lower for personally. Slightly less than, yes. It's actually slightly less than 8%. Okay, perfect. Then, you've obviously been very clear that in personal care and in diapers, that pricing has been a significant part of your growth. Are you saying of that 12%, are we looking at sort of 70%-80% of that being price, or is that too much? Of the SEK 688? Yeah, we don't disclose it, but it's a big portion of the number is, of course, price. Yeah. No, sorry, of the 12% organic growth that you did in diapers in the quarter. How much is price and how much is volume? Right. Yeah, actually, we have a good volume growth in diapers. We have a really good volume growth, in Europe we have it in many places. The exact proportion, it's actually good volume and good price. It's both. What's driving that volume growth in Europe? It's predominantly new customers. I mentioned that previously, but it's new customers in the European market. In private label, but we're also growing market shares in the Nordic region and in Russia. Yes Since the beginning of this year. Okay, fine. All right then. Thank you very much. Let's have the final question now, I think, before we end this meeting. The final question, operator, please. Sure. Your next question comes from the line of Robert Waldschmidt from Liberum. Your line is open. Good morning, gentlemen. Excuse me. I just wanted to come on to your reorganizations of the business and how you expect to attack things on cash flow, supply chain logistics, et cetera. I believe that's been a point trotted out before for a key focus. We've seen some improvements in cash flow to date, but I think there's quite a lot of scope to further improve. How should we think about that going forward, and what plans do you have in place and on what time frames? We don't have any specific savings programs running that we announce externally. We have very clear targets internally and with the new hygiene organization, with two persons specifically responsible for the supply chain, which accounts for 75% of costs in relation to sales. It's the big cost part, cost of goods sold. With the new focus that these two persons have, one for personal care, Ulrika Kolsrud, and one for tissue, Donato Giorgio, we are now reviewing completely our entire footprint and logistics setup and operations. This is something they are just starting now. Of course, other than that, we continuously are working with improvements in all markets. I guess it's fair to say that improvement in both working capital and cash conversion would be a very critical focus go forward. Absolutely. It has been and it will continue to be. Okay. Thank you. Okay. Magnus, any final conclusion before we end this conference? No, I think we made those conclusions. Good growth and profit and many strategic initiatives to accelerate growth and to also address low-performing parts of the business. Yep. Okay. Thank you very much for joining today. Goodbye.