Hello everyone, welcome to this telephone conference about our announcements today about SCA enhances its organizations and investments. Today I have Magnus Groth, our President and CEO of SCA, and we also have Fredrik Rystedt on the line, our CFO for the company. With this, I hand over to our President and CEO, Magnus Groth.
Thank you very much, thank you for calling in. We actually have three announcements today. One is that we are clarifying our organization further by starting the work to create two divisions, a hygiene division and a forest products division. The reason for this is that we want to emphasize the value that we have in both these two different businesses, also show and actually enhance the synergies that we have specifically within the forest products division, where we believe that by having the actual forest land, the forest assets, and the related industry in one company creates a huge value that is not matched by many peers in the forest industry.
Secondly, we announce investment in our pulp mill in Östrand in northern Sweden. This is a very exciting investment that will give us a world-class cost position for the future, in NBSK pulp, which is a high-quality, long fiber pulp, that will also double the production in this facility. This means that we increase actually the value add that we add to the forest land that we are managing and operating today. That's the second announcement we make, the third announcement regards the 85% of our business that is our hygiene business. We have a strategy that we've been delivering on over the last four or five years, very much focused on globalization, emerging markets, efficiency, innovation, and growth. This is another evolutionary step in that direction, with the clarification that Latin America is now a major growth area for us.
This becomes a separate business unit with direct line responsibility for the two supply chain organizations, to further enhance our focus on efficiency on a large part of our costs. Thirdly, to increase the speed of innovation and customer focus in our two global brands, Away-from-Home with the brand Tork and Incontinence Care with the brand TENA. Those are the changes in hygiene. With that, I would like to open up for questions.
Please, Operator, you can start the session, and we have the name and where you are calling from.
Ladies and gentlemen, thank you. As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from the line of Celine Pannuti from J.P. Morgan. Please ask your question.
Yes, good morning. Well, I will ask a few questions to start with. The first one is on the CapEx spending in the investment that you are doing in the pulp mill. Can you give us an idea of what it means for the CapEx layout? What is incremental and what will be already encompassed in the current CapEx forecast that we have? Then, can you explain when you look at your decision to allocate capital, the capital allocation to the forest and the return you are going to make on that investment? If you could explain what kind of return are you looking at, and what kind of value creation you were talking about, the value creation derived from this investment. If you could pinpoint that and give us maybe some number in order for us to get that clear.
My second question is, you said that there would be some synergy of having the land and the forest under one unit. Can you as well explain what you mean by that and trying for us to understand the value creation you seem to be emphasizing in your preliminary remarks? Those would be my two questions. Thanks.
Thank you, Celine. We typically have a CapEx of around SEK 6 billion per year in the group, and during the investment phase, CapEx levels will be higher, but at the same time, we will do quite some prioritization in Forest Products area. They will actually reduce CapEx levels in other parts of Forest Products. The entire amount of SEK 7.8 billion will not be the increase during these three years. The increase will be less. That was question number 1. When it comes to the allocation of capital, we have the capital and we have the balance sheet to invest in all attractive opportunities that we see, both in Forest Products and in Hygiene. I think it's important to emphasize that we are a Hygiene and Forest Products company, and we believe that we want to operate these two businesses as efficiently and successfully as possible.
It's not one supporting the other. They both have their own merits. This investment doesn't have any negative impact on any future positive investments in Hygiene. When it comes to then value creation from the investment in the pulp mill in Östrand, the value creation comes from two different perspective. One is that we actually increase the cash flow from our forest assets, and this also has to do with the synergy between the forest land and the assets, because without adding value to the forest land the trees aren't really that valuable. We'll increase the cash flow by just increasing the pulp production. Secondly, we will see a significant reduction in our cost because there are just huge benefits of scale in making pulp. This means that we will be more competitive on the market and our margins will go up.
We will start ramping up this new facility, it's not a new facility, but this investment in mid-2018, then ramp it up over a period of a few years. Yes, fourthly was about the forest synergy valuation, I think I already touched on that.
Yeah. Is it possible to have an idea of this when you talk about significant cost reduction and being competitive? A, am I right to believe that will start only from 2018? Number 1, B, can you give us an idea of what kind of magnitude we are talking about? Then a follow-up question on this cost reduction. You also mentioned that the Hygiene restructuring was the premise for further efficiency. Can you as well explain that? I haven't seen you allude to that in your preliminary commentary.
Last question, Celine, I didn't get that.
The last question?
Yes, please.
The last question was in the press release you talk about efficiency for hygiene. Could you as well explain what kind of efficiency this new organization will allow? If there is any number you could share, would be even better. Thank you.
Okay. Starting with, yes, the added capacity will start ramping up mid-2018. We will run the current pulp mill at full speed until that date. It's not that there will be any shutdown of the current pulp mill. That one will continue to operate, and that's a very profitable business already today because of the pulp prices and the dollar exchange rate. The benefits we should start seeing then in 2018. The magnitude of the efficiency improvement, I don't really want to elaborate on further, but it's a significant improvement. When it comes to efficiency in hygiene, as I stated before, this organizational change is not related to a big cost saving program or anything like that, but the increased focus on supply chain efficiencies and on global innovation and customer focus will bring synergies to the hygiene business.
Thank you.
Your next question comes from the line of Linus Larsson. Please ask your question from SEB.
Yes, thank you very much, and good afternoon. Very exciting news this morning. Let me ask a couple of things. You talk about creating two new divisions, how does that actually change anything? Is that not how you already are organized and already are operating? If your intention is to actually break up the company into two separate parts, why don't you clarify that, please?
You're right that this is how we are organized and how we are operating today. If you look at the assets, they are actually in different parts of SCA, with most of the forest land in the parent company and the actual industrial assets in various other parts of the company. It is this that we will put together into one division, and this will require quite a lot of legal work and other work, and that's why it will take until end of next year until we're done with that. That's the actual difference from today. To be very specific, the aim is that the forest division will be a daughter company with the parent company then including the hygiene business. There are different ways of doing this, and we're still looking into different options.
That's the change from how we are set up today.
Wouldn't you agree when you talk about emphasizing, you want to emphasize the value, that's what you said initially when you talked about the reason for creating two divisions. If you want to emphasize the value, wouldn't you agree that the only real change that will emphasize that value is a true separation of these parts, i.e., breaking the company up into two parts? How does this actually change anything until you've done that?
No, you're right. This is a journey that we have started now, to make this separation of the assets. As I said, it's quite complicated, so it will take a year and a half. In the meantime, of course, we are also making this huge investment that we are very excited about. We think it's a great investment, and that's why we're doing it. In the meantime, we are continuing to operate the business, of course, to improve every day and to improve our performance every day.
That's very interesting. I think all parts of the company have their merit on their own basis. When you say this is a journey that we have started, is the end, is the goal of that journey a separation into two distinct entities truly separated from each other? With that I mean, obviously, just to be crystal clear, two entities which can be invested into separately by equity investors.
The decisions we have taken are what is stated in the press release, that we are starting this process now with the aim of having these two divisions in place 1st of January, 2017. We have not taken any other decisions.
Okay. Can you also talk about your thinking around self-sufficiency in pulp when it comes to your hygiene products operations?
This is more of a financial hedge based on the fact that as we see currently today, when pulp prices are quite high and the U.S. dollar is quite expensive to the EUR we get quite significant increase of our pulp purchase cost in the hygiene business. To the contrary, we then have a very good profitability in our pulp business in forest products. This is the financial hedge that we usually talk about. When the pulp facilities that operating at full speed, our self-sufficiency would increase from 26% today to 43% going forward. Again, only part of the actual physical pulp that moves from our forest products business to our hygiene business.
Yeah. That's the result of what you are doing today, assuming that the group is kept together. How important is it for, if you look at the hygiene parts of the group, to have that high self-sufficiency on pulp, in your opinion and from a long-term point of view?
Yeah, it's a financial hedge that's nice on group level. When we meet now every quarter, we can show the good results from the forest products business, while we are at the same time then working very hard to compensate for increased raw materials in hygiene with price increases, with efficiency improvements and so on. That's the benefit, but both these parts of the business are self-sufficient today financially, and they can both develop going forward without any financial, that you would have to subsidize one of the units with the other. They are both very strong financially.
I think Linus, as you already know, it's important to note that of course, all raw material or pulp transfer in the group is at arm's length market prices already today. From that perspective, the result you see in hygiene or the results you see in forest already today is a sort of true market result.
Got you. Many thanks. Just one final question. Would you care to share any guidance on what kind of returns, ROCE or any other math metric that you would expect from the investment on its own?
Linus, we don't disclose that, of course, for competitive reasons. We never do that for CapEx, as you already know. Of course, we wouldn't have done this investment if we didn't believe it will yield a good return in excess of our requirements and our weighted average cost of capital. It's a good investment. Of course, it creates a cost advantage, a very cost competitive position. That also, as you've seen from the press release, leads to higher income, but also a very good margin and good return.
Can you just remind us what your hurdle rate in terms of-
We haven't stated a specific hurdle rate, but it's clearly exceeding our cost to capital, Linus. Again, we don't disclose return on capital for individual capital expenditures, because that gives competitive knowledge that we simply think is unwise to give.
Okay. Very nice. Many thanks.
Your next question comes from the line of Oskar Lindström from Danske Bank. Please ask your question.
Yes. Good morning, gentlemen. I have a couple of questions. Linus ticked off a few. Starting off with the forest products reorganization and Östrand investment. I have three questions, maybe I'll read them off first for you. The first one, is the forest land move to the forest products division connected, or will it entail any financing or balance sheet changes? For example, what's the impact on the deferred debt? That's the first question. The second question is, you talk about synergies to be created from having forest land and industry in the same division. What synergies will you achieve through this ownership change that you can't extract already today? Preferably if you could quantify this. Finally, on the Östrand forest products part, what kind of changes to wood supply in northern Sweden will this investment entail?
Do you need to make any further forest land swaps or purchases or changes to accommodate the increased capacity? Those are my questions on the forest product side. Maybe you could answer those first, and then I have two more on the organization.
Okay. When it comes to wood supply, we see all of northern Scandinavia as the wood supply area, and we have worked very hard with this entire project for the last couple of years. We have a very efficient wood procurement organization. We already have, I think, both the infrastructure and the knowledge and the contracts in place to manage this in a good way. Of course, this supports the value of the forest land. This is something we can manage with wood supply from the region.
To follow up on that specific question, what would be your sort of self-sufficiency throughout the group in terms of wood supply?
50% approximately.
Sorry, 50%?
50%, yeah, which we think is a good balance because then it gives us flexibility also.
Where are you today?
We're at a similar level today.
This will just basically consume increased growth and harvesting.
Yeah, also whatever changes you can foresee in going forward to 2018 and 2020, where we have a declining demand for publication paper, for instance.
Yeah.
Your first question was.
I think.
Maybe I'll have. Yeah
Any cost. Just to give you a little bit of perspective, the total land is 2.6 million hectares, as you know. Most of that, not all, but most of it sits in the parent company, SCA AB, and of course, that will be transferred into one unit. That's one of the actions that need to be taken. This is not just one piece of land. This is a significant number of different plots that we own and then that we will transfer. It's premature to talk about the total cost implication of it, but we think this could be done at reasonable cost. Your question, is there going to be a change in the balance sheet or net debt? No, we don't anticipate that to happen. We don't believe that's going to be impacting that.
Okay. Likewise, just to be clear, no impact on the deferred debt?
No, that's not what we envisage.
Okay, when it comes to the synergies, yes, you're right that the operational synergies we are very much focused on, and we are realizing those to a high extent. In the longer term, this will also open up for opportunities to have, I think, financial synergies between the forest land and the industrial operations that have quite different characteristics, as you know, from a cash flow perspective and a value growth and stability perspective. Overall, if you look at the overall SCA situation, we have a hygiene business where a lot of the value comes from growth and from margin improvements, and strong cash flows.
In the forest part of the business, specifically the forest land, the value is derived partly, of course, from selling the timber and the wood, but to a large extent also from the pure value enhancement, which is non-cash of the forest growing every year. While we have a cash flow related growth or value created in the industry that's quite volatile depending on raw material prices and currencies and so on. We see that having then the forest land and the industrial assets together is also good from a financial perspective in the long term.
If I follow up on the financial side, the financing for the Östrand investment, will that be done by SCA AB, the parent company, or? I'm trying to get a feel for if the financing will be done by the forest products division.
No. Today, of course, all the funding in the group as a whole is done by SCA AB as one group. We don't envision to change there. Already today we have balance sheets, of course, for all our businesses, but we look upon ourselves as a group. We also tax consolidate. We fund as one. We will continue to do that also after having done this.
All right. Thank you. If I may have just more general questions on the reorganization, the hygiene part of the business. I understand what you're doing. You say that it will intensify growth in the pace of innovation. Open-ended answer, how exactly?
Okay. I think to be very specific, in Away-from-Home to start with, we are extremely strong in washrooms in Europe, but weaker on the hotel restaurant catering side. In the U.S., it's actually the opposite. We are very strong in HORECA, quite good, but not as strong in washrooms. Having this under one management, working then very closely with our global category, we think we can do a lot of knowledge transfer, best practice sharing, align also the innovation and the product assortment over the Atlantic. This will definitely speed up then innovation and growth where we are under-trading in these two parts, even though we have strong positions in both those areas. North America plus Europe accounts for about 90% of our Away-from-Home business, which means that we are slightly under-trading outside.
Outside of this area, the regional R,D&E growth-oriented business units work with all our brands because we don't have the scale yet to have a category-based organization. To be very specific about Incontinence Care, we have a very strong position in Europe where we are completely. We have, in many cases, close to half or maybe even more than half of the market, both in retail and in healthcare. While we have the same in Canada, very strong positions, but in the U.S., smaller positions. We believe that we can develop the Incontinence Care position in the United States better with this transatlantic setup. That's very specific. Also, the other benefits of having done 80% of the Inco business in one business unit and working very closely with the category on innovation and brand development and so on.
Latin America is doing extremely well. They're growing market share and becoming important part of the group, and we've also recently decided to invest significantly in Brazil, SEK 650 million. I think with this, I personally want to be more involved in that exciting opportunity going forward. The two supply chain organizations, it just becomes even more clear who has the efficiency responsibility in the group for a large part of our cost of goods sold. The supply chain, including purchasing, and it's now these two persons who are responsible. It makes it easier to really set the targets there. The P&L responsibility is still with the other business units.
Right. Thank you. Very good answer. Those were the questions I had. Thank you.
Thank you.
Your next question comes from the line of Stellan Elenström from SCA. Please ask your question.
Yes. Hi, Stellan Elenström from Nordea. It seems to me a bit hard to see the operational or financial synergies from moving forest assets and products into one common company, or do you see any such? It seemed to me that the logic for this is potentially allowing for a further separation of the businesses. Even as you have no such plans, would you at least agree that this increases your theoretical ability to eventually truly separate the businesses?
I will not say no to that. The decision we have made in the board is to start this process.
With that.
Putting the assets in one Forest Products division. That's the decisions we have taken. This will take until the end of next year.
Okay. Very good. Okay, thanks.
Your next question comes from the line of Kari Rinta from SHB. Please ask your question.
Yes. Thank you. Kari Rinta, Handelsbanken. First, on the hygiene reorganization, just a clarification, since it seems to be that you discontinue a specific U.S. organization. To me, that tells that you have taken a sort of strategic decision to not to seek or expand your presence when it comes to the U.S. You're happy with the segments that you're in, and you are taking some effort to be stronger in those segments, but you are no longer looking at expanding into new categories in the U.S. That would be my first question.
That's absolutely the wrong conclusion. We are strengthening the business we have. Yes, that's very true, but that doesn't mean that we're not continuously looking to strengthen our position in important markets. The U.S. and North America, and Mexico, if you want to include it, but that's definitely a high priority for us.
Okay, about the Östrand investment. Can you confirm that this capacity expansion would increase your wood consumption by roughly 4 million cubic meters per year, and that if you want to keep your self-sufficiency unchanged at 50%, you would increase your internal harvesting by some 2 million cubic meters?
I don't foresee that. We will need around 4.5 million cubic meters when the new facility is up and running at full capacity.
In order to keep your self-sufficiency at 50%, you would then increase your own harvesting by half of that?
I can't answer that question. I need to check then with our Forest Products division. Maybe we could check that and come back to you.
Right. Then the investment cost, it's on the high side, because I had expected this to be more of a brownfield investment, now the investment cost per ton implies that essentially you're building a new pulp mill, or not new pulp mill, but there isn't that much that you can reuse. Can you quickly go through what exactly are you investing in this almost SEK 8 billion?
I think if we could do that together with the Forest Products division, I would appreciate that. We are replacing many components, but not all of them. I don't agree with your conclusion that the investment is on the high side. That's not the benchmarking that we have. Let's look into that specifically.
Okay. Then finally, this announcement that you will investment, why do you announce it already today when you don't have all the permits in place?
We are very certain that we will get the permits because of all the pre-work we have done over the last couple of years and the very close dialogue we have, also for the reason that this facility will have absolutely world-class environmental performance. This will be best available technology and best-in-class environmental performance. We feel very confident about that.
Okay. Thank you.
Your next question comes from the line of Mikael Jåfs from Kepler Cheuvreux. Please ask your question.
Hello. Good morning, everybody. Most of my questions have been taken, I have one housekeeping question and then another question. Is it so that, with this new organization of hygiene, could you just confirm if you will sort of change the reporting accordingly as well, or if the reporting will stay the way it is currently for the hygiene part of the business?
I can take that question. It's a little premature. The assumption is, of course, that we will remain with the current setup with tissue and personal care for hygiene. Of course, during the course of this next year, we'll look through that as well, if we can further enhance or create additional transparency that may be requested. Our assumption for the time being is that we will remain as we are today. We'll come back with that.
Okay, thank you. My second question is more sort of on the history and sort of more of a discussion point, that is, in the old days, we analysts learned that the strategy of SCA was always to be clearly short of pulp because of the market dynamics on the pulp market, where you constantly seem to have new capacity flowing in, pushing prices down. Now we've had a period of elevated pulp prices, still, post these new investments, you will be at a self-sufficiency rate of only 43%. Do we see a change of this sort of old SCA mentality, or is that premature to think along those lines?
The self-sufficiency rate, I think it's only interesting to the extent that I mentioned before, that it creates a bit of a financial stability on the group level for the two different parts of the business becoming divisions, still the two different parts of the business, they can both manage the volatility on their own behalf. The pulp sufficiency doesn't have a strategic benefit from that perspective. Both businesses can do well separately. On a group level, there is this financial hedge effect.
Okay. Many thanks.
Your next question comes from the line of Mikael Hedlund from Nordic Paper Journal. Please ask your question.
Good morning, SCA.
Good morning.
Interesting news this morning. We just heard that the pulp increase in Östrand is for SCA's own use. Can you explain the flows of the approximately 500,000 ton extra pulp?
That's not correct. As Fredrik already mentioned, this is purely a financial hedge. We have some internal flows just because of the proximity of plants using pulp and Östrand also producing pulp. I think today approximately 150,000 tons of the pulp made in Östrand happens to end up in SCA hygiene facilities, and that will increase to some extent to about 250,000 tons going forward. You have to then remember that there will be a growth both in the hygiene business and then the expansion, of course.
Okay. Thank you very much.
Thanks.
Your next question comes from the line of Cole Hathorn from Jefferies. Please ask your question.
Morning. Please could you give us a bit of a breakdown of how the SEK 7.8 billion CapEx will be spent over the next three years?
Yeah. I can do that. If I start with this year, 2015, there's going to be a small portion, but not a big amount. Then if we take the final year, 2018, of course, that's basically when we'll finalize it. There'll be a very small portion also in 2019. The majority of the money will be spread relatively evenly between 2016, 2017, and 2018.
Thank you.
Just one clarification there. I think Magnus already alluded to it, but of course the total amount of SEK 7.8 is the investment, but we'll also reduce a little bit in the forest business for other investments. The net impact for these three years, 2016, 2017, and 2018, will be considerably less than SEK 7.8.
Thanks.
Your next question comes from the line of Kartik Swamy from Bank of America. Please ask your question.
Hi, everyone. Kartik Swaminathan from Bank of America, Merrill Lynch. Thank you for taking my questions. A couple of quick ones, then one on strategy. Firstly, I was wondering whether this new CapEx investment and the reorganization of your divisions could result in a lower focus on M&A, so some clarity on your strategic direction would be useful. Secondly, I was also wondering whether the collapse of the legal structure and focusing on one daughter company to hold all of your forestry operations could result in a reassessment of book value, and could that trigger you to revisit your accounting assumptions? The final question was on the reorganization of Latin America. In my mind, it seems to be completely consistent with the strategy you'd stated earlier of making bigger bets on a smaller number of large emerging markets.
The question is: Is there any kind of similar shift or reorganization that may be necessary in Asia or China as part of this process? Thank you.
To answer your first question, no, there is an unchanged high focus on M&A and to continue to grow in the hygiene business. We have the financial firepower to do that. There's absolutely no change in that. When it comes to if there are any balance sheet, I will leave that to Fredrik.
No, this process doesn't trigger any of that. Of course, we already have, as always, a normal IFRS accounting and the normal impairment testing of all the assets, so there should be no specific actions from this reorganization or this legal restructuring. There is no such change.
The third question. Yes, I am happy to hear that you see that this is in line with fewer, bigger bets. This is now the organizational change that we have announced today. That is all I have to say.
Understood. Thank you very much.
Your next question comes from the line of Oskar Lindström from Danske Bank. Please ask your question.
Yes. I had a final question. You mentioned in the press release, I believe, that you will expand reporting for the Forest Products division. First, when will that happen? Only once you have transferred the forest lands, i.e., 1st of January 2017? What kind of new information do you see already that you will be communicating?
Oskar, maybe I can answer that question. We haven't actually finalized exactly what that's going to look like, of course, the first or initial thoughts is that we'll basically provide full disclosure there. You'll have an income statement and balance sheet for the different parts or for the Forest Products division. You'll see much more than you see today. Exactly how that will look, we'll finalize during the course of next year, and will be out there in 2017.
Basically, it will be as a separate daughter company.
Hygiene operations.
Sorry, you were saying?
Will you do the same for the hygiene operations, as giving us a full P&L?
Of course, the group will consist of the hygiene division, if you put it that way, and the forest division. Of course, by definition, if you do one, you have the other.
All right. Super. Thank you.
Yes.
Your next question comes from the line of Celine Pannuti from J.P. Morgan. Please ask your question.
Yes. Thank you for allowing me. I have a few follow-up. The first one is, maybe I misunderstood, but on the forest book value that you have currently, I think there's been question in the past on whether you had maybe a cautious view in terms of some of the assumption you were taking. Question here is that, are you looking at that and will there be a revaluation of the forestry asset book value? The second point is, if you separate the balance sheet of these two divisions, to which extent that could have an impact of your ability to finance a large acquisition in hygiene? Because I was thinking that some of your debt capacities, as well as the debt agencies, are looking at your forest asset as a collateral. Wish you could come back on that.
Third point, is there any further view in terms of further assets to be trimmed in the forest division? I think that was as well what previous management team aimed for. Do you see a better outlook there? Finally, since we last spoke after Q2, there's been a bit of wobble on growth, FX, raw material changes. I just wanted to see if you have any short-term message for us to take into account for the second half of the year. Thank you.
I will start with the last question. We have no new information, of course, on performance. We report that quarterly. When it comes to a future balance sheet split and using the forest as collateral and debt capacity, I'm happy, Celine, that you see the benefits of keeping forest and hygiene together. I'm a little bit cheeky here now, anyway, from an SCA perspective, we're a hygiene and forest company, and it will not change the group's ability to finance growth, either through acquisitions or organically going forward. Maybe you want to fill in on that, Fredrik.
We are still just one group, that doesn't actually change, of course, the funding of the group, as we've already elaborated on. We will still fund as SCA. Maybe also your first question there on the revaluation. I actually didn't fully hear your question, the way we do this is we look at a harvesting plan, which is basically 100 years, we calculate at the market prices and the estimated cost. We calculate the net present value of all the forest land. That's the accounting method that we apply and have applied for quite some time, and we'll continue to do that. This creation of a division doesn't actually change the way we do things. There should be no anticipation there of any change of method or change of valuation as far as I can't envisage that.
You had a third question.
A fourth question about further assets in the forest business that I didn't really hear. If you could take that again, Celine.
Sorry for that. Yes, on the forest division, I think there's been a few disposal over the years, and I was wondering whether you see the outlook for further disposal opening up or not. I'm thinking maybe in the newspaper side. Just to follow up on the harvesting plan, wouldn't it be the case that the harvesting plan will increase under your methodology and therefore the value at least would increase? I think the work taken is quite low versus your other players in the industry. Those were my question on the revaluation.
Well, we don't have any news on further assets to be trimmed in the forest part of the business. Nothing to add there when it comes to the harvesting plan.
No, you can say the harvesting plan, Celine, is done independent of usage. Just because we maximize the volume and value of harvesting, that's the way it's done, depending on growth, et cetera. This doesn't actually change because of the investment in the pulp mill. The harvesting plan is still there. We do that every eight years, as you know, and then we recalculate based on market prices and estimated costs. There's no change in assumptions because of this investment.
Thank you.
Your next question comes from the line of Chas Manso from Soc Gen. Please ask your question.
Yes, good morning. I have a few sort of housekeeping questions. Was the forestry merger a necessary precursor to the pulp investment, given that you're using timber from the land, or could you have done the two separately? Secondly, is there any sales benefit of your pulp investments? I get the cost benefit, but is there a sales benefit? Thirdly, when you now include the forestry land in your reporting, is there any income uplift from including the forestry land? Lastly, on the hygiene announcements, I confess to being confused. At the beginning, you were talking about it as Latin America becoming a separate business unit. When you were talking about the benefits, you were really talking about integrating Western Europe and North America.
Could you just clarify exactly what is happening with the hygiene division, the structure today, and how the structure will change? Thank you.
Okay. We could have done the investment in the pulp mill separately, yes, without starting the separation into two divisions. We think that this fits very well together for the reasons already mentioned, that in this way, we even strengthen the internal synergies in this future forest products division and create even further value from it through this investment. Yes, there will be a sales uplift from the investment in the pulp mill because we double the capacity. Yes, definitely. If there's an income uplift from the forest land, I don't think so, but Fredrik? No. There's no change there. Again, there will be no change in how we treat the forest land in our accounting. The last question about hygiene.
Basically, where we are big from already market share-wise and sales and turnover-wise and with big organizations and big categories, I see that the organization is mature to take the step to be category-oriented. That's why we're doing these two kind of transatlantic organizations for Away-from-Home and for Incontinence Care, which then include Europe and North America. While in the very dynamic emerging markets, we keep to a geographical organization. That's why we have one business already today called MEA, one called Asia Pacific, this will be a third geographical business unit.
The reason why we're not yet moving to another structure is that typically in these markets, we are selling all our categories through the same distributors, and we don't have the scale yet in terms of our own organization or how we go to market to move to a category organization. That's why we have a mix.
Okay, just to clarify what you're doing in hygiene, you had Europe and North America run separately-
Correct
for Away-from-Home and for Incontinence Care, now they're going to be run in an integrated fashion, and you're adding a third geographical unit. Is that right?
Yes, that's right.
Thank you.
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Sorry about that. Sorry to get back to the forest land discussion, you say that you want to maximize the value of your trees, you are increasing your consumption of wood quite significantly. To me, that would suggest that you will increase your own harvesting levels as well, even ahead of the ramp-up of this new capacity. If you do that, the formula that you use to value your forest land tells quite clearly that you should increase the value of your forest land that you book on your balance sheet. What am I missing when you're saying that you don't see any valuation impacts from this on your book value of your forest land?
The plan is not to increase the harvesting, that's planned. That's the reason why there will not be any corresponding value increase then on the assets. The value enhancement comes from the fact that there's, in general, of course, a bigger demand for wood in the area because of this additional capacity coming in. This creates value in general for any standing timber in the region.
Okay. All right. I don't get it, thanks.
There are no further questions at this time. Please continue.
Okay. Thank you, operator. With this, we will end the Q&A session, and I hand over to you, Magnus, again, for any final remarks before we end this telephone conference.
Thank you, Josephine, and thank you, everyone, for calling in and asking all these questions. Very useful. We are continuing to develop SCA as a global hygiene and forest products company, and these are steps, I think, very much in line with our strategy and on a very evolutionary path going forward, not revolutionary, but moving forward both in hygiene and in forest products. Thank you very much.