Thank you very much, and good morning. I have a severe cold, but I will do my best anyway to keep my voice intact. Just let me start a little bit with the macro environment that we are living in. As you all know, we still have a very weak development of the global economy. Europe, we don't really see any positive development. We see currency being difficult in many countries in the emerging markets. China's growth is also slowing down. We still have a lot of geopolitical problems in the world that is, of course, impacting demand in different areas. In spite of that, we still have a reasonably good growth in our hygiene business, even in the mature markets. We also, with the strength of the USD, of course, have a headwind when it comes to raw material, because most of the raw materials is priced in USD.
Having said that, coming into our result, we do have the highest profit before tax in the history of SCA. We have good organic growth. We have a very strong cash flow. We also, as I'll talk about a little bit later, very strong growth in our emerging markets. We have higher sales and profits in all our business areas. We continue to work with efficiency, and we are in line with our plans in efficiency. I've talked a lot about innovations earlier, and I will come back to that also. We're having a very successful year when it comes to introducing new innovations to the market. We have also successfully transferred our business in China into Vinda. That creates a very interesting potential for further growth. We continue to be including in key sustainability index, which is also very important for us.
We propose an increase of dividend by 10.5% to SEK 525. Just one comment around this also, just to see the impact of raw material. If you take the full year, we have about SEK 1.2 billion increase cost in raw materials. Of that, 40% is impacted by currency. We have been able to offset that by reduced costs and price mix, et cetera. Another way of looking at it is in this way. We have an increase of sale of 12%. If we exclude acquisition is about 7%. We also had divestment that had a negative impact of 1%. Organic sales growth, 3%. Including Vinda's organic growth, it's actually 4% because Vinda had quite a good growth during the year. Operating profit increased by 14%.
If we take away the big profit we had in forest swaps last year, it's actually an increase of 18%. Also, operating margin is going up, earnings per share up by 19%. We also had a very strong cash flow. Efficiency program, we have been talking about that since we started it. If we look at the hygiene business in total now, we have implemented the blueprint in all our sites. That doesn't mean that the impact of the blueprint is yet seen in all operations. Now we have a very clear way of how we should work, how we should improve, how we should reduce cost in our operations. We also more and more are using our scale when it comes to buying raw material, et cetera. We also in some areas cooperate with other buyers like in pulp.
Today we are the biggest pulp buyer in the world and that of course helps to get good terms in the market. The warehouses is a bottleneck many times, and we used to have too many warehouses, maybe in too many places. Now we are looking into that. We are changing that. We are combining warehouses with different categories. That's the work that's been ongoing, but that will continue also. That will improve, of course, the efficiency in transportation, efficiency in stock handling, et cetera. Forest also in line with plan, and we will reach the SEK 1.3 billion this year. We were at SEK 1.2 billion in the end of the year. We have been closing two sawmills, and in doing that, we actually keep the same volumes as we did before we closed them, which means quite a big productivity improvement in our sawmill operations.
We also have combined the maintenance organizations up in the north of Sweden, and that's also a very good efficiency impact on maintenance. We work continuously, of course, on the harvesting and how we harvest and improve the productivity in that. Of course we had a storm that had a negative impact on that because it's so much more expensive to walk into forest that is lying down than actually do it in a planned way. Georgia-Pacific, we reached SEK 80 million and the target to 2016 is SEK 125 million. blueprint has not finalized. It's ongoing in the Georgia-Pacific synergies. We feel quite confident that we will reach the target that we have communicated to you. Another way of looking at this, 10% machine efficiency improvement in Personal Care.
4% in converting and tissue, 3% in paper making, of course, the 3% in paper making is a much more bigger impact and more difficult than maybe to do it in the converting side. Sourcing costs down by 5%, logistic cost 5%, energy consumption 6%. We can truly see that what we are doing has an impact in all areas where we actually are working. This work is, of course, not going to stop once we have reached the target of the different programs we have announced. We will continue with this, and we still see some interesting potential going forward. We are not going to set up a new program, now we will do it in the day-to-day business. Innovation, as I said, very important. We launched four very important innovations this quarter.
One in TENA Pants, which is 20% thinner, it's safer and it's more comfortable. Same with TENA Lady Normal, also safer and kills some of the problems with odors in the diapers. We also have introduced our baby diapers with the longest lasting, as long as 12 hours. New Tempo with a new exclusive theme around scents that has been introduced during the fourth quarter. Looking on a yearly basis, we have introduced about 30 new innovation globally. As we have talked about a lot of time, we have a much more efficient innovation process than we used to have. The bottleneck should be in the market, the bottleneck should not be in the innovation. We are in a situation now where the bottleneck is in the market. That is a position we should continue to have and continue to work to have.
Just to show a little bit the change in the company and the difference between mature and emerging market. 2012, we had about 24% of our sales in emerging market. This is now on group level. I will get back into the different hygiene areas. In 2014, about 31%. If you look at the margins in mature market, we have come from 10.9% to 13.5%. In emerging market, we of course invest to get the growth, and that has an impact of the margin. That's why we see a lower margin in emerging markets. All in all, it's still an improvement from a group level in the margin from 10.1% to 11.4%. This is, of course, the balance we try to keep in the company. How much should we invest in growth in relation to which margin we want to have?
We could grow faster, then it would have a negative impact on the margin. We could grow slower, and then we would have a positive impact on the margin. This is a balance we try to keep all the time. I think this is at least a good picture of you to see that the mature business is actually improving. We invest the cash flow from that into the emerging markets. Another way of looking at that is also on return on capital employed. You know we have a target in group of 13%. If you look at the mature market, we have reached 13% return on capital employed. Then, of course, we invest in emerging market, and that is bringing down the return on capital employed. Still, we will have the same target. As you know, we have different targets in different business group.
As an example, Tissue, we want to reach 15%, in Personal Care, 30%. Forest, we want to be in the top quartile of our competitors. Those targets are, of course, still valid. Looking how the net sales has grown Q4 to Q4, we have a positive price mix of 1%. We have a volume of 3%, then we have acquisition, and we do have a positive currency impact when it comes to sales. The organic sales growth all in all is 4% during the quarter. I think we are in a good position when it comes to this, even compared to our big international competitors. Looking at where the growth is coming, we can see in total 4%, mature market 3%, emerging market 9%. We do have some very sweet spots when it comes to growth. We have shown some examples here.
If you take incontinence Russia, it's 23%, Tissue Russia 16%, incontinence Latin America 19%, feminine Latin America 20%. We do have some very strong position in some categories in markets where you do still find some organic growth in the market. I'm very happy with that. We will, of course, continue to emphasize the growth in emerging markets. We look at operating profits, all in all, it's 3%. As you remember, we had about SEK 455 million gains in forest swaps last year, and we have SEK 3 million this year. If you compare apple to apple, it's actually an improvement of 20% of operating profit. We had better price mix, as I said. We also have higher volumes, cost saving. Over quarter, it's about SEK 385 million in cost savings.
We have consolidation of Vinda, quite a lot of headwind in raw materials, about SEK 600 million Q4 to Q4, of which 55% is currency. If we remove the forest swaps in this, then the margin in 2013 would have been 11.6%. Like for like, it's an improvement in margin also. Earnings per share is, of course, impacted by swaps, but also of item affecting comparability. As I said, also very strong improvement of cash flow. Walking into Personal Care, an improvement of sales of 7%, operating profit 8%, and also 20 basis point improvement of the margin. One thing you could, of course, be a little bit worried about when you see the mature market and the growth, and probably in particular when you look at incontinence. If we look at Europe overall, we have 5% growth in incontinence. Western Europe, 3% growth.
The hit in growth here is actually mainly or only in North America. When we talk about Personal Care, of course, we need to come into Procter & Gamble and their launch in Inco in Europe. If we look at the past four weeks, of course, we follow this closely every week, they have not really gained any more market share. In the U.K. now, when they started, they had 2% market share. They have gained 5%, so they are now at 7% market share, and it's been sort of a standstill on that level. During the same time, we have been growing 2.5% in sales. The market has expanded. As we also assumed, you remember we talked about that if we get another big company driving penetration, then the market will expand. That's actually what we're seeing in the U.K.
You see a similar situation in France, of course, they will go into more countries like Germany, et cetera, going forward. So far, we have been reasonably successful in defending our position. As I said in the third quarter, the truth will come when you see the second and third repetition of buying, because now everything is sold on promotion. It's very difficult to say if the consumers actually like the product or not. Once more, I want to emphasize there is nothing unique in the product. It's a similar or same product as we have. Then, of course, brands is very important and the perception that the consumers have on the market. We don't underestimate them. It's a strong company. It's a big company, and we will continue to do our thing, and we'll continue to monitor this extremely closely.
You can also see here that in Personal Care is the category where we have the highest presence in emerging market. We have 43% presence in emerging market, I think I gave a statement a couple of years ago that we're aiming at 50% of our sales in emerging markets. We are well ahead to that target. Coming into Consumer Tissue, here we have the impact of Vinda because that is now, of course, consolidated in the company. We have overall a growth of 24%. Excluding Vinda, it would be 9%. We don't include the organic growth in Vinda Q4 to Q4 because they don't present that. These figures, we have excluded that in the presentation. Operating profits improved by 17%. It would be 7% excluding Vinda, so still a good growth in operating profit.
If we exclude Vinda, we would be on the same level when it comes to operating margin because they're operating in a slightly lower margin than we are. Here we have 31% of the sales in emerging markets. The reason for that is also, as we have discussed, the defensive investment in Georgia-Pacific in Europe to get the consolidation and synergies. That, of course, reduced the sales in mature market because that was quite a big company that we did acquire. We have raw material cost increase of some SEK 265 million Q4 to Q4, of which 70% is currency. Going into forest operations, they have quite a substantial improvement. You can't really believe that when you look at this picture. Once again, SEK 455 million in the forest swaps last year and SEK 3 million this year.
If we compare apple to apple, the margin would have been 30% and 12.6% instead of 25.1%. In that perspective, quite a substantial improvement in operations. We have improved all the different parts in forest. Looking at the different parts, of course, we continue to see publication paper going down. We, of course, anticipate that it will continue to go down. The last estimate is that this year we will see somewhere between 5% and 6% less volume in the market. The situation in publication paper has not improved. It's still a huge overcapacity, and it will still continue to be a very difficult operation for anyone in Europe today to reach any profitability. We need much more closure of paper production if this is going to be a good business.
Kraftliner, well in balance, we have increased prices that we got during fourth quarter. Excuse me. Our sawmill operations, volume-wise, quite good. Growth is still coming on, in particular in North Africa, China. Since we had price increases last year, now the supply has increased, and that is putting some pressure on price, not the pressure on volume. Pulp has had a little bit strange behavior in the market, because normally you see a clear correlation or a negative correlation between the U.S. dollar and pulp prices, and we haven't really seen that last year, which is a little bit surprising. We do see now prices coming down in the market, and they should come down with the strengthening of the U.S. dollar. My at least guess is that we will see a pressure on pulp, all qualities, during this year.
Some, of course, are suffering quite a lot on the high pulp price. We have an advantage since we still have an internal hedge on pulp. From a group level, at least we gain something on that. Doesn't help tissue or Personal Care, but it helps the group. Well, once again, increased by 10.5% up to SEK 525. We believe that we have a very strong balance sheet. We are on the low side when it comes to debt. We have a very strong cash flow. We have improved our profit generation quite substantially, so we believe that this is a level that we can absolutely be in without risking any future potential acquisitions or expansions in the company. To summarize, highest profit before tax ever, good organic sales growth, strong in emerging markets, strong cash flow, higher sales and profits in all our business area.
Risk, the major risk is, except geopolitical risks, which we do not really know where they are, is the FX. Where is the dollar going? Where are the other currencies going? In the countries where we have a dramatic change in currency, like in Russia, we have also dramatic increases on prices, and in Latin America the same. It is more difficult in Europe. We are increasing prices in Away From Home. We will push whatever we can to increase prices in Consumer Tissue. It will not have an impact in first quarter. It then will have an impact on the second quarter. Sawmill operation, probably not the possibility to increase at least the first half year. Kraftliner, probably another price increase or price increases late in the year that will impact this year. Personal Care is a completely different game, as you know. It is innovation.
It is not really just a price increase. We do have a benefit in Personal Care, and that is that oil price is going down, and we have a lot of raw material that is oil price connected. We have a lag of four to six months before we have it in our P&L. Pulp, we have a lag about four to five days. It is a longer lag to oil-based materials than we have on the pulp. With that, I will end my presentation, and I will open up the floor for questions. Joséphine?
Okay, we ask Fredrik Rystedt also to join on stage. I just want to say, Jan will, of course, comment everything that has been in Swedish media regarding business jets and hunting hospitality. I think from the media who is here from Sweden, you have time after the press conference, we can focus now on the quarter report and from the investors and the people who are on the call. Let us focus on the quarter report now on the Q&A session. Yes, the first question here. Okay. Linus.
Thank you. It is Linus Larsson with SEB. I will start in a somewhat different end. Maybe if we could clear the table when it comes to the non-recurring items in the fourth quarter. They were SEK 887 million, from what I can understand, you specified SEK 540 million of those in the report, I assume that a large part of the remainder is relating to previously announced cost savings program. If you maybe could just comment on the residual SEK 347 million of non-recurring costs in the quarter, please.
Fredrik?
I'll do that, Linus. Again, we have continued the operation, as Jan alluded to, with our Perform to Grow and GP. The absolute majority relates to those two. We also had a closure of a part of a facility in Germany, and we had one in the U.K. That's pretty much all of that remaining part. Normal efficiency work as we have done before.
You wouldn't give a figure on what's relating to the previously announced cost savings program, the GP and EUR 300 million program?
If we take the U.K. and the German facility in combination, totally it's a bit over SEK 150 million. Another SEK 150 million roughly relates to GP and Perform to Grow.
That's great. Thank you. Thank you very much for that. Just looking more at the operational side, the raw material headwind in the quarter was SEK 138 million across the group. Just taking into account what you just said about the lag effects, the currency which is embedded in this, will that impact sequentially be bigger in Q1 versus Q4? Or how should we think about the timing of the FX related cost inflation in particular?
We have, of course, some delays in the system due to some hedges and the contractual situation, but they are quite short. Of course, if you look at the FX development, it will come in during the first quarter. Mainly, I would guess. Absolutely. We will have it continuously, because if we assume that the average U.S. dollar rate will be for the year as it is right now, then of course it is going to be a stronger U.S. dollar throughout the year, so we will have negative impact. Of course, Q1 will compensate to some degree by the oil-based products, should the oil price stand. Of course it is a higher U.S. dollar rate, and therefore higher raw material costs. We will see that throughout the quarters.
The oil, in which quarter should we expect that oil cost related tailwind to occur?
We will see that to some degree in Q1. I think Johan alluded to, we got a 4-6 months lag relating to oil products. It is nonwoven, for instance, or SAP and backsheets and those kind of products. Of course, oil does not necessarily play in all of it. If you have a 50% decrease in oil price, that does not necessarily translate into 50% to SAP, but it has a large impact. It has a large impact with approximately 4-6 months delay. The net impact of currency and oil price in Q1 is of course likely to be, or it is going to be negative. We have, as you know, seen oil price coming down gradually. Of course, if you go four, six months away, then of course that will kick in now.
Just finally, if I may, on the first quarter and the start of the year. Sometimes in the past you have talked about the seasonality of your hygiene business, that Q4 tends to be strong, Q1 tends to be somewhat weaker. Could you comment to any degree upon that on, I guess, volumes in particular in hygiene?
I think normally, the major impact of that was in incontinence, because there was a lot of pre-buying if institution had cash left in the end of the year. We have tried to even that out by different way of giving bonuses and things like that. Of course, seasonality in terms of how much snow it is, and if the people are getting cold as myself, then we will sell more hankies, et cetera. That still remains. In U.S., for example, the strongest season is when the ice cream season starts. That means that when it's cold and snowing, it's a lower season. You have some seasonality, and Q1 is normally the weakest from that perspective. Sorry. I'm talking too much with my hat.
Thank you very much.
Now we have mic.
Thank you. Mikael Jåfs, Kepler Cheuvreux. I have two questions. The first one is around the forex effects for this year. I mean, you have an excellent table in your annual report regarding the long-term effects from currency changes, there are a lot of them going on now. In your words, if you try to summarize what we have seen so far from all the currencies, net-net, is the currency effect a positive or a negative for SCA's operating profit going forward?
With the currency rates we have today, it's a negative.
Okay. Thank you. Then the second question is on advertising and promotion. Last year, you said that you would keep the budget unchanged but reallocate. Can you give some guidance for the coming year?
A&P and trade spends are obviously two items that we can very short term have impact ourselves. Looking at the situation we have now with incontinence, we need to keep a readiness to do things if Procter suddenly change their plans, et cetera. Having said that, I think you will see a slight increase next year in relation to sales, but it's not going to be anything dramatic. If we need to do something dramatic, we will reallocate. That's a good thing with these two. You can manage them.
Perfect. Many thanks.
Next question. Yes.
Yes. Thank you. Karin, Handelsbanken. If I look at the report, it seems that Vinda had a strong fourth quarter, especially compared to the third quarter. Is that sequential increase fully due to the changes that you made with them so that they take care of the Personal Care business as well, or is there something else that helped them to perform so well in the fourth quarter? How do you see the 2015 outlook in near term?
The benefit in the Vinda operation is that when we transferred all our business to them, we took a lot of restructuring costs in SCA. That's what you see also in the quarter results. From that perspective, of course, because they had all the infrastructure, they didn't need all the sales people, they didn't need everything. They took it on their own platform with a few people coming in. The business we were managing is of course now giving a better result in Vinda. Partly it's due to that. They are also doing very strongly in the core business, in the tissue business. It's a combination.
Okay, thank you. The incontinence market, I think in the report you wrote that in the U.S. you lost some volume.
Yeah.
Is that because U.S. is a different animal in terms of market structure, or is it basically since P&G, that's their home market, and that's where they have put most of their marketing efforts, and you have maybe backed out a little bit?
The reason is, of course, that P&G is going into the market, but the most impact is that Kimberly-Clark is defending their position as we are defending our position in Europe. I don't think they have been more successful in U.S. than in Europe, if you look from a Procter point of view. There's a massive promotion, massive advertising, and we are a reasonably small player in the U.S. From that perspective, we suffer more than we would have done in Europe with the position we have here. We have lost volumes during this war between Kimberly-Clark and Procter. We haven't lost much positions, though, which is probably more important.
All right. Thank you.
Yes. Stellan?
Hi, this is Stellan Hellström with Nordea. I had a question on the planned price increases in tissue. They're obviously only to a small part realized as of now. The plans that you have, how far will that take you in terms of being able to offset the FX raw material headwind this year?
Well, if we look at Away From Home Europe, as I said, there is a price increase from 1st of January. Consumer Tissue, with the contractual situation we have, it will not have any impact in the first half of the year. That means that if the currency continue as it is, it will be difficult just by price increases to offset the impact of the currency. We do have more tools in the box also, we need to work even more with cost saving, and maybe even more with innovations, we can get new products out on the market. Only price increases for this year, everything else alike is difficult in Consumer Tissue.
Just also a follow-up on that-
Having said that, it's necessary with the price increase. We have to do it, and all the market is in the same situation. Maybe we are in a little bit better shape because we are a more efficient operation, but there needs to be a price increase.
Sure. Question is also on the sort of cost savings. There are no big programs or additional programs planned for 2015. You have had quite a lot of restructuring costs in 2014. How do you see that in 2015, then, with the process?
Well, we still have some left in the Georgia-Pacific, but if we don't start any new programs, then of course they will fade out.
Okay, good.
I don't know if you have a comment.
No, not really. They will continue in GP, as you said.
Thanks.
I got a sign we also have questions from the telephone conference. Just one question before from the floor before we open up.
I'm Johan Hellekant from Svenska Dagbladet, and we know that there is a very big also international interest concerning travel policies in SCA. It's been written about in Financial Times. Please, Mr. Jan Johansson, could you tell a little bit, how can it be that you use a private jet or a business jet to go to Brazil for the final in championships of football?
A company like SCA, as many companies in the same situation with the same market presence, we are more than 100 countries today, need to use business jets, because otherwise it's impossible to really do a good job. Sometimes we do combine business trips with representation. That was the Brazil trip, for example. When I was there, I did a lot of work. I was actually invited. I did not participate in the program from the person who invited me because I was working during the days. It was a combination of work and representation, and it was absolutely in line with our old policy that we had.
Can you comment on that your daughter should have been with you on this business trip during the championships in Brazil?
Well, I can comment on the internal rules in the company. I think those are probably the same in many companies also, is that if we have a business trip, we are allowed to bring a family member as long as it's not increasing the cost for the company and as long as we pay for that person flying in the plane. As you know, we have changed the policy now, so now it's not allowed. That was according to the previous policy that we had.
Did you take this business jet to different cities in Brazil to assist to football matches?
I was not in the cities mentioned in the newspaper. That's the only thing I want to answer on this now.
You went to different cities with this plane.
As you know, there is an external auditor and a previous judge of Supreme Court who is going through all our travelers in SCA now. Why don't we wait until we see the result of that, and then we can have a discussion on it?
Well, we are now telling more and more about the travel policies and how they have been applied. We see that there are lots of traveling that has not been told about with this private business yet.
I don't think it's in my job to talk on all my travels with the news, because we have commented on all the travels that you have brought up.
Yeah.
If you're going to follow me around the world, then it's a lot of travels.
Could it be that it is like SEK 3 million to go back and forth to Brussels?
No, that's absolutely wrong. That will be part of the investigation. I've been asked by the people who's going to do this, not really to talk about it anymore until they have concluded their research. It's ongoing as we're speaking. Why don't we wait and see on the conclusion, then we'll see if we're doing something wrong or if not.
There has been a lot of turbulence in the leadership of the company. Sverker Martin-Löf has left, it's normal to ask questions about this. What do you think about the continuation?
Sverker's in the board of the company.
The board, yeah.
He's not in the management of the company. That has been solved by the main shareholders in Industrivärden. I have not really participated in that process, you have to ask them about that.
Thanks.
Do we have any more questions from the floor before we open up? We open up from the telephone conference. Operator, can we have the first question, please?
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone. Your first question comes from the line of Celine Pannuti from JP Morgan. Please ask your question.
Yes, good morning. A few question from my side. First, on Personal Care, you commented on the growth rate in Inco. Sorry. Can you as well comment on what has driven the strong feminine care performance as well as diaper? How much of that strong growth is recurring as we go into 2015? My second question is on Vinda. You mentioned about the good Q4 as well as the restructuring that has had margin. Do you think that we are now in terms of margin and pressure in China have we reached a bottom? What do you see for 2015? Finally, can you comment about what should we be looking at sustainable tax rates? Thank you.
Well, if I start with the Vinda situation, our assumption is that there will be a major reconstruction in China. I think I talked about more than half of the market has an average capacity of less than 5,000 ton, and the rest in 20,000 ton. We do see that happening, and it's also being more pushed by the government because the environmental problems with these small sites are quite enormous. I also believe that we have seen some of this huge investment announcement in new capacity has been withdrawn, as we also anticipated. The competitive situation is still very strong, but Vinda has a very strong position, and Vinda is the only one with absolutely premium products, only virgin fiber products, the most modern machines you can imagine. So they are in a very good position, really, to be a winner in this consolidation.
Whether or not the pressure will ease up this year or not, I think it's too early to say. Tax rates, same level as-
Approximately 26%, roughly, Celine.
Yeah. I missed your first question, Celine. It was a little bit bad.
Yeah. In fact, yeah. My first question, it's a follow-up as well on Vinda. My first question is, the growth rate in Personal Care, sorry, in feminine care and diapers has been quite strong, especially at the end of last year. What have been the drivers of that? What should we expect for 2015? A follow-up on Vinda, at which point can we expect that the newly acquired asset from you in terms of Personal Care will start to benefit as well the top line for the Personal Care division?
If we look at the driver, we have had some very successful innovation launches in Latin America that has been driving the growth and also in Russia when it comes to incontinence. We actually had also good growth in baby in Europe, but less so in Latin America. The target we have is around 5%-7% organic growth, and that's still the target we have when it comes to Personal Care. We have the currency situation, et cetera. We have been quite good at dealing with that in emerging markets. When it comes to Vinda, I think they, or I think I know that they are taking on this new business extremely seriously and with great passion.
We have education ongoing for all the people who are working in the Personal Care area in China with all our best staff, and some of them are actually attending twice because they thought it was so good and so interesting. I feel very optimistic when it comes to the potential growth in Personal Care. We do need to upgrade some of the products before we can really push a hard launch in baby and maybe also in feminine. Don't expect any miracle this year, but maybe next year.
Okay, operator, you can keep on with the questions.
Thank you. Your next question comes from the line of Kartik Swamy from Bank of America. Please ask your question.
Hi, everyone. Kartik Swamin athan from Bank of America Merrill Lynch. Thank you for taking my questions. I had two. The first one was on the hygiene business. Could we please get some color on the operating profit drivers for Personal Care and tissue? It wasn't quite clear what the big drivers were behind the other line. Could I just clarify whether it was all cost-cutting or there were some other factors in play? My second question was on Personal Care. I think I recall comments on the management commentary part of the presentation mentioned the pipeline is full and that the market is really now the constraint for launching new products, which is, of course, a good position to be in internally. Could we get a bit of elaboration as to how this potential constraint, as you put it, will impact your price and mix into 2015?
Whether you still see scope to launch new product and push up pricing?
If I take the second one, then you take the first one. To start with the second one, we do have some interesting innovations in the pipeline that absolutely will be launched during 2015. I think I talked a little bit about that also maybe last quarter, that we have a very detailed 8-quarter plan on the launches. This is the only way of actually communicating with the consumers, is to have a new innovation and upgrade on innovation, et cetera. If we don't have that all the time, then we cannot really improve the price mix and drive the growth. I feel as positive for this year as we actually executed last year.
Just a quick follow-up. Is the ambition really to try and offset all of the cost inflation that you have seen and are seeing in pulp? Or is this business as usual?
When it comes to Personal Care, it's absolutely part of the solution. Then we are helped also, as we thought previously, by the lower oil prices, which is a big part of the costs in Personal Care.
Shall I take the first question, maybe, Kartik? I guess your question is on the other remaining parts, and there are several components. If I just take the main ones, of course, efficiency by far is the biggest item. A bit over SEK 200 in tissue, close to SEK 200 in Personal Care, that's a very substantial part. Then we have had some, as we've had also in Q3, some negative distribution cost influence, primarily that comes from France and from the U.S., as we discussed in Q3. The final part is, of course, the acquisition of Vinda, which contributes with their profit this year. Of course, we had some share of earnings in Q4 also last year. Those are the main components. There are bits and pieces, of course, more than that, but those are the main.
Excellent. Of these, just to be totally clear, we don't expect any further negative distribution costs. I guess it would follow logic that the internal efficiency would still have a positive impact into 2015 along with, of course, Vinda.
If I may comment, I think we will expect some further distribution costs relating to these tax items. In the U.S., it had to do with the number of hours that drivers can actually run their vehicle before they took a break, and in France it was road tax, and we have a couple of other things. That happened largely in Q3 and Q4. Q1, Q2 will have that adverse impact as we go forward.
Understood. Thank you very much.
Okay.
Question comes from the line of Iain Simpson from Societe Generale. Please ask your question.
Thank you very much for taking the question. Couple from me. Firstly, looking at the input cost picture for first quarter 2015, you very kindly quantified the impact in fourth quarter 2014. It's a SEK 600 million in Personal Care, SEK 265 in tissue. Clearly the quarter's not done yet, but if raw materials and FX kind of stay where they are, how should we think about the input cost headwind you'll have in first quarter 2015? Will it, I'm guessing more than fourth quarter 2014, but kind of how much more? Secondly, just in Personal Care, you flagged that you'd had a couple of good innovations that had helped to drive the top line. Just checking on top line, is that a sort of completely cleaned number that we've seen in the fourth quarter, or has it been flatted at all by pipeline fill associated with your innovations?
Thanks very much.
The answer to the second question is no.
Actually, we will not give an exact number. I can only give you the components. We'll have continued negative dollar impact, which is, of course, not insignificant. We'll have some positive oil-based raw material with some lag, but it will still be positive. We'll also have some diesel cost positive impact and perhaps some energy. The net impact of this will continue to be negative as it has been also in Q4. We're not going to be able to quantify, because partly it's also dependent very much on how we're able to negotiate, for instance, with various suppliers and of course also dollar rate development and other currencies. It's difficult to give you an exact number, but of course we'll report as we have done in this quarter, we'll also report for Q1.
You have, of course, cost saving, price mix, et cetera, offsetting it also. It's a complex material.
Thank you. Your next question comes from the line of Oskar Lindström from Danske Bank. Please ask your question.
Yes, I have a number of questions. The first one is coming back to this other line for both tissue and personal care, which was significantly larger in Q4 than it had been for the first nine months for both of these business areas. I understand that it's cost savings, and Vinda also in the case of tissue, why were those factors not impacting to a similar size for the first nine months? That's my first question.
I can only comment, first of all, we had a good quarter in terms of efficiency, and then Vinda had a good result. Those are the main differences.
Right. Which was not been the case in the first nine months. Okay. A second question comes in a little bit, the group net pulp purchases for 2015 and the net exposure to the US dollars. Are those numbers that you could give us already now?
You mean how much we are buying in pulp?
Yes, because now we have the old figures for 2013, but of course the company has grown also through acquisitions since then. I was wondering a little bit if you have updated net exposure towards pulp in terms of tons being purchased.
I think pulp is one thing. Of course, I guess you're all after about the dollar base. We have raw material purchases, as you can read, roughly about SEK 27 billion. Approximately SEK 13 billion of those are clearly exposed to the USD. That will give you a magnitude. It's actually more than that. We also buy in USD in the U.S., for instance. What is currency exposed is roughly about SEK 13 billion of that SEK 27 billion. That will give you a rough idea.
Right. In terms of tons, if we're talking about the net pulp purchases?
We can't give out any figure for this year. We have just started the year, but if you use last year, I guess you get pretty close.
All right. What were those for 2014, if you're referring to last year?
I don't have it in my head. Can we get back to that later?
Certainly. Talking a little bit about M&A, what's your outlook for M&A in your case for 2015? What are the opportunities out there? What are you interested in? What can you say about this? This was a big theme a couple of years ago, less so in 2014. What should we look forward to in 2015?
I think we have been doing some 30 acquisition divestment at a value of SEK 40 billion. We have been concentrating that maybe to consolidate that. We are actively looking for new acquisition, and I've been quite clear myself that Brazil is one of our main target when it comes to acquisitions. We are working very hard to find something that fits into the company. Would something interesting come up in U.S., we would absolutely have a look at that to strengthen our position in the retail side. India organic. I think that would be the main geographic areas where we're actually looking at acquisitions today. We are growing extremely strong in Brazil, in incontinence. We are in par with number 1 when it comes to volume now in just a short time.
It's not enough with incontinence if you want to be strong in retailers. We do need some more categories in a country that is lower penetration and still some interesting growth.
Following up on that answer, primarily when you say new categories, are those categories where you are present today in other markets like fem care and tissue and so on? Or would you also consider completely new categories for the group?
We are looking into new categories also, yes. That fits into our system.
Right. Another question comes back to the costs for cleaning up after the storm, which I guess were included in the Forest Products division for 2014. Can you give a number for how large those, I guess, extraordinary costs were for Forest Products in 2014?
If you look at it from a P&L impact, of course, we did have some substantial increase in harvesting costs. At the same time, we had lower cost in buying external materials. I would guess over time that they will sort of take out each other from a P&L perspective. I'm not going to dig in exactly on the cost on this side, but it's sort of a wash from that. Time-wise, not necessary in that, but over time, absolutely.
Okay. Finally, you mentioned organic growth for tissue, including Vinda. Was that sort of like for like as if you'd had Vinda also in the fourth quarter of 2013 included?
I did that on a yearly basis. I did not do it on a quarterly basis since Vinda is not reporting that. Before we consolidated Vinda, we did not have sales or anything in our account. It was just a, what do you call it?
Share of earnings
Share of earnings, which improved the margins, of course, because you didn't have the sales. When we consolidated, you get the sales, and you also have a double negative impact, lower margin in Vinda and removing it from the margin previous years.
Can I come back to your question on pulp consumption? Again, 2015, we don't comment on the exact consumption, but if you take 2014, we consume 2.8 million tons. Out of that, we are to roughly 25%-26% self-sufficient in our own pulp operation. That will give you a hunch of the number of tons.
The number which I was looking for. Thank you.
Okay. Oskar, I think we need to have another question because there are people waiting on the phone line.
I'm done. Thank you.
Okay, thank you.
Thank you. Your next question comes from the line of Guillaume Delmas from Nomura. Please ask your question.
Good morning, gentlemen. My first question is on tissue. We saw some nice organic sales growth acceleration, both in Consumer Tissue and mature markets, 2%-3% sequentially. Could you shed more light on this acceleration? Still on tissue, if we look back at Q1 2013, you were off to a slow start in U.S. Away From Home because of the tough weather conditions. We are currently seeing a snowstorm on the East Coast of the U.S., should we expect, again, a slow start for Away From Home? My second question is on Personal Care, the acceleration in Q4 in baby diapers. To what extent is that reflective of the new private label contracts you got in Western Europe? My last question, I think I missed your answer on an earlier question on your tax rate. What is your guidance for 2015 tax rate?
Thank you very much.
Similar as this year. North America, of course, if we will have a similar situation as we had last year when people were forbidding to go outside, it will have an impact on all the business in U.S., in any company, in any categories. I guess the storm that we get a warning of that should be one meter of snow was one decimeter of snow, and that will, of course, not have any impact. If you have a similar situation, anyone doing any business in U.S. will be impacted. I forgot the first question already.
I think you had baby diapers there, if that new contract has had an impact.
Yes.
The answer is yes, it has had an impact. We talked about that previously in the few quarters, we've done some rebuilds on machines, and of course, that's also part of the volume increase during the fourth quarter.
Sequential tissue.
Sequential.
Yeah.
Yeah, the diapers. Can I just comment on the tax rate? We had a fairly low tax rate, as you may have seen in Q4, so that pushed the tax rate down a little bit. For next year, we will be roughly in line with 26%. I think I had that question before, and I said 26%. That's our estimate. It will be some volatility, but roughly in that order magnitude.
Okay. With that, I think we need to conclude this press conference. Jan, any final comments from you?
Thank you very much. Well, the conclusion is that we did have a very good year, best in history. We have had strong development in all our areas, including important part as innovation, and our forest operation has also been doing very good during the year. From that perspective, I think at least we are reasonably happy with the year. Also, since the interest is very high on how we travel in the company, I will just mention that we do use business airplanes. About 6% of the management's travel is with the business airplanes. About 4% of our travel costs is in business airplanes. There will be two investigations in the company now looking into this, if we have been violating any internal rules, external rules, et cetera.
I very much welcome that, and in particular welcome that we get an external one that has been accepted by our shareholders. Then we will see if we have made some mistakes in the company or not. Thank you very much.