Hello, welcome to SCA's quarter report for the second quarter 2014. My name is Joséphine Edwall-Björklund, I'm head of communications for SCA. Today we have our President and CEO, Jan Johansson, will walk through the report, we will have a question and answer session where also our new CFO, Fredrik Rystedt, will join. With this, I hand over to you, Jan.
Thank you very much. As usual, I will start with a general market update, I think you recognize this now. It hasn't been changed, I think, for a couple of years. It's still quite a weak market in the mature market with some exceptions. I will get back to that a little bit later. We still have a good momentum in emerging markets overall in the hygiene business. If we look at the forest business, we still see, as also expected, that publication paper demand is coming down. I will get back to that also a little bit better, an improved market for solid wood. Going into our own business, we did have quite a good organic growth during the quarter. Strong EBIT development. Efficiency program is working according to plan. We also have several launches in all our major brands during the quarter.
We have now finalized the floating of our joint venture in Australia, we also, as you may have seen announced this morning, that we have transferred our operation in China into Vinda. Coming back to that deal that we have done, as we have communicated previously also, one of the major reasons for actually going out to the major shareholder in Vinda was to be able to capitalize on their extremely strong position in China with more than 300,000 points of sales. In doing that now, we will transfer all the Chinese operation, as you remember from our acquisition from Everbeauty, we also acquired some part of Taiwan. Taiwan will not at this stage be included in Vinda, of course the ambition is that going forward, that will also be a part of Vinda.
We want to start with China to make sure that we have a smooth transition, that we can get all the competence into Vinda in the right way. The transaction does not have any impact on our P&L. This is also a subject then to the approval by the shareholders of Vinda, there will be an AGM in the coming month. The summary of the group, we have an increase of sale of some 12% if we exclude Vinda. Vinda impact that with 7% of the sales. The organic growth is 3.3%, it's at 3% here. If we include the organic growth of Vinda after the acquisition, the growth would've been organically 4%. Operating profit up by 29%, of which Vinda stands for 6%, operating margin up with 150 basis points. Earnings of shares up 56%, operating cash flow 28%.
I will comment some of these figures of course a little bit later. This is also a good summary of the quarter. What is also very good is that we continue to launch new innovations under our major brands, and this quarter, we have had new features, new product coming into the market, both in TENA, Libresse, Libero, and also in Away From Home. These launches have, of course, as we also mentioned in Q1, had an impact on the cost situation because we have rebuilt machines, we have startup costs when we introduce new products on the market. Now we have the first one introduced to the market, and so far it's working as well as we hoped it should do in the plans.
In Away From Home, we have an innovation that we call Blue, and this is really changing the management of bathrooms in terms of toilets. It's a system that helps to clean the toilet. It's a system that kills odors from the toilet, but also maybe most important, it can actually reduce water consumption with more than 30%. In some countries, of course, water is a scarce resource, and it's already implemented in Holland, and now we'll start the launch in other parts of the world.
At the same time, also directed to facilitators of commercial bathroom is EasyCube, which will help the facilitators to really be at the right place at the right time where you need to clean the bathroom when you see that the traffic's very high, because they can't see that today, so they have to send out people without actually knowing if it's necessary or not. This will really help our customers to save time and to save money. We also have a very interesting new wet wipe, and this wet wipe is not only cleaning, it's also killing bacteria. It's a cleaning and bacteria killer at the same time. We introduced this in the U.S. now, but then of course it will also be launched in other countries.
From an innovation perspective, I think we've been talking about that quite a lot now, that the bottleneck is not now in innovation, the bottleneck is in the market where it should be, and we will gradually see new innovations coming out to the market. This is a few good example of what we've been doing during this quarter. Coming back to the group. As I said, organic growth of 3% or 3.3% and 4% with Vinda, and we have growth in all our business areas. In the emerging market, we have some exceptional growth in some markets. I will also touch upon that a little bit later. We also see forest picking up when it comes to increase of sales. Operating profits up by 29%, the organic profit growth 11%.
We try to help to divide from the organic profit growth including acquisition, et cetera. We have a better price mix. We have higher volumes, of course, cost saving is kicking in. Acquisition of China, which is not included in the organic growth, it's included in the 29%. Gain from forest swap this quarter also. We also have some substantial higher cost in raw materials, in particular in personal care, and I will get back to that when I talk about personal care. Sorry. Operating cash flow also increased by 28%. Another way of looking at the net sales growth is you can see on this chart where we have price, mix, volume, acquisition, and currency. Price mix volume is then 3% of the organic growth in the company.
Of course we add acquisition, and we also have a positive currency impact on the growth. Here you can see all the component that is actually creating the growth in the company. If we look at geography, I started to say the mature market is stable, which means that it's virtually no growth. You can see here that we only have 1% growth in mature market, but emerging markets we have 9% growth. In some countries, I give a few example here in feminine care Latin America, 19% growth. We have Incontinence Latin America, 23% growth. Incontinence Russia, 29% growth. Remember that we did have a problem in Russia when they took away 30% of the reimbursement overnight, and now we're actually taking that back without any change in the reimbursement.
That shows maybe a little bit the strengths of the brand TENA. Also tissue in Russia is growing by 22%, but also positively in the mature market, we are growing Away From Home in Western Europe with 5%, which I think is also strengths to the brand Tork. With the new innovations coming in, which of course will take some time, especially one on the bathroom, but that will certainly help us to get a stronger position in the markets. Some comments on this one and maybe one on operating cash flow, we do have quite a good increase on that. Overall, if we look at the cash flow year to date, we are not really satisfied with that. It should be stronger.
The main reason for that is actually all in receivables, which is of course possible because that will come into the company during Q3. Normally you should have seen a stronger cash flow, and the good thing is that we don't see any increase in inventory except some in forest because of the storm. We have to take care of the tree that has been falling, of course, and that has a slight impact on the forest inventories. Debt equity ratio 54-56 impacted by Vinda acquisition, but also increase in the pension debt due to the long interest rates going down, and that immediately have an impact on the pension, but still on a very low level compared to our target on 0.75. Coming into personal care. We had a cost increase in raw materials and currency impact of SEK 196 million.
If we just take the currency impact out of that and add it to the operating profit, operating profit would actually gone up by 9% instead of going down as you see in the result today. We did also communicate in Q1 that we saw higher raw material prices in fluff pulp for personal care, and we will continue to see some uplift in pulp price in Q3, but then it will come down. Since we have a delay in the market price into our operations, we can see fluff pulp actually is going down now. Since we have the previous quarter, last month or the second month of the previous quarter impact in Q3, there will be a slight increase even in Q3, not as much as you've seen from Q1 to Q2. The currency changes is not continuing.
We see the currency is also being stabilized in these terms. Also here, mature markets is no growth. The good thing is that the emerging markets today is 43% of our sales in personal care. We are growing that quarter by quarter. As you know, we also have a target to be at least at 50% and hopefully above that emerging market sales from the personal care. The good thing though is that Q1 to Q2, we have a growth even in mature market of 5% in personal care. Some examples here when it comes to growth, and of course, from a small base, still in a very competitive environment. We have grown TENA in China with 35%, Q2 to Q2. We have grown TENA in Latin America with 23%. We have grown TENA in Brazil with over 30%. Libero China growth 89%, Q2 to Q2.
We have some very good growth momentum in some of our growth markets, which we, of course, will continue to capitalize on. The main downside in Q2 in personal care is actually on the raw material and currency impact. Otherwise, we have a positive price mix, we have a positive volume growth in Q1 to Q2, even in mature markets, a growth of 5%. Coming back to tissue, sales growth of 18%. Of that, Vinda stands for 30%. We have an organic sales growth of 2% excluding Vinda, but also positive price mix and positive volume, and also very strong growth in emerging markets, as I comment. I can mention maybe a few more figures. Away From Home China is up 29%, Tempo China up 44%, Away From Home Latin America up 10% compared to Q2 last year.
Also comment a little bit on North America, since we did have the severe impact of the winter in Q1. We actually have seen the U.S. market coming up with as high as 21% Q1 to Q2. It was a winter effect, now we actually see the market coming back. When it comes to mature markets, which we also explained in Q1, was that we did leave some private label contracts that had an impact on the volume on sales, and that is taking down mature markets with 1% percentage point in sales. We have grown the branded market in Europe with 2%. We have shifted the private label to branded, but of course, the volume private label is bigger than the volume branded.
In a transition way, it's a positive thing if we can actually switch from very low profitability private label to higher profitability branded sales. We also have Q1 to Q2 an increase in sales in mature markets with 4%. It has been picking up since Q2 to Q2. Forest operations, we did have another forest swap this quarter, SEK 175 million. We had one in Q1 also, I think it was SEK 152, if I remember rightly. Q2 last year, we didn't have a swap, so that's of course the comparison you can see here. Even if you remove the impact of the forest swap, we have increased the margin to 10.6%, so it is really a good improvement in the forest operation. The difficult part is still publication paper, and it is all qualities in publication paper.
Consumption is down, as I said, with some 4%, we estimate that we will, in relation to this, see actual price decrease in publication paper for the second half year. On the other hand, solid wood stronger, and pulp is going strong. We did not get the price increase in kraftliner because the market didn't follow our announcement on price increases. We now see companies in Europe announcing price increase in testliner, and if that is sticking on, then of course there will be a price increase in kraftliner also, because if the difference is too big between kraftliner and testliner, you can actually swap some of the kraftliner to testliner. Not all, of course, but the relation needs to be within certain boundaries. Otherwise, it's difficult only to increase the testliner prices. Overall, a strong performance.
Some comment on Procter & Gamble, once again, entering the Incontinence market. They have started in U.K., and launched their new Incontinence under the same brand as the feminine brand. The result so far is actually that we have increased our sales in U.K. since their introduction. The good thing with Procter once again is coming into Incontinence is, of course, that it will help to drive penetration. You know penetration is very low in a mature market, it's below 40% in the European market. If we are too driving penetration, is of course better than if we are only one driving penetration. They are mainly focusing on retail, and as you know, we are of course very strong in retail in Europe, but we're even stronger on what we define in healthcare.
On a global level, it's more than 70-30, 70 home care and 30 retail. We have, of course, known about this for some time, that they were going to introduce Incontinence. We have been given time to prepare ourselves, and we will defend our positions. We have looked into the products. You should never, of course, underestimate Procter & Gamble. It's a great company, great innovation skills. What we have seen so far, the product is not very different from what you can find on the market. It's too early to see if we need to do something more or not. We don't anticipate that we will increase our AMP this year from what we've been communicating, but we will reallocate AMP from other areas to Incontinence to defend our position. We do have an extremely strong position with the TENA brand.
As you know, we are more twice the sale number two on the global market. We are dominating the European market. The U.S. market, which is probably the weakest position we have, the total incon market in the U.S. and Canada is about 10% of the incon sale. If you took a look at the retail U.S., it's about 5% of our sales and adding quite little to the profitability. Of course, we have the ambition to continue to be number one. We have done it before, and we will try to do it again to defend our positions in the market. Summarizing. Market, you know, good organic growth in the company, improved profitability, efficiency program is working. Several new launches, and of course, important to launch new features and new products under the brand TENA in a situation like that.
This will help us to defend our position. We have finalized Australia, we also finalized what we have communicated to integrate our Chinese business into Vinda. With that, I will open up the floor for question. I will ask Fredrik to join me.
Yes, Linus. Start with the first question.
Thank you. Thank you very much. It's Linus Larsson with SEB. You displayed a lot of big positive figures in terms of organic growth across your various categories. Could you maybe also highlight which the laggards are, where, because I understand you have some negative growth in certain categories or geographies within the group. Would you care to highlight those as well?
Well, we're still struggling with Sealer in China, which is a tiny part of our business. As I said, in Q1 also, it will take time before we're back to where we were one year ago, since we lost so much in Q3, Q4. That is still lagging behind, but that's probably the only one where you really see that we are not catching up as we were a year ago. Is there anything else, Fredrik?
No, I think as you saw previously, you had a very significant growth of all of these emerging markets, those examples came from that. I think the main issue is that growth on the mature markets are, this quarter at least, is slow.
Also that overall in any market, baby diapers is a highly competitive product. We don't really see any major growth in the baby business. Of course, in the mature market, there is no growth. It's not an organic growth. If you want to grow, you have to really gain market share. We have not been investing in getting market share in our branded business, but we have increased our sales in private label in Europe, as I talked about also the first quarter.
May I also ask regarding today's announcement about the Vinda transaction, how will the transaction itself affect cash flow? The value of the deal is SEK 1 billion. Could you say something about how that would enter into SCA's consolidated cash flow?
Actually, it doesn't, because we already consolidate Vinda, it doesn't have an impact. It only has an impact on the result, of course, in terms of the minority as we go forward. Very small impact, if any.
Great. Thank you. Also regarding forest products, the remark that you made about publication paper price declines, would you mind quantifying or estimating how much of a price decline there might be in the third quarter?
Well, it's more based on the fact that consumption is continuing down, we don't see closures of production facilities in the same level as consumption. That will, of course, increase competition, and that will drive prices down. Everyone want to have 100% utilization rate. It will be very surprising if you don't see a price decrease in the second half.
How far are you at this stage? Are you halfway through negotiations, or could you say something about that just to get a feeling for.
You want to have a figure?
No, I mean.
My guesstimate.
What kind of visibility do you actually have?
My guesstimate, 2%-3%.
Okay, that's excellent. Thank you very much. Just final question, if I may. The forest land gain this quarter, again, should we expect more of that to come in the coming quarters?
I don't think in near time, I don't see that we should have anything like that. Of course, we would love to have because we add value to the company. I don't see it in the second half of the year.
Okay. Thank you very much.
Mikael Olofsson, Kepler Cheuvreux
I'd like to continue a little bit on this Vinda deal. You say that they have more than 300,000 points of sale. Could you try to describe for us what will the benefit be for SCA?
It will be a cost benefit. There are, of course, cost synergies in combining two businesses in the same region. They have an extremely efficient distribution network. They have a very solid sales organization. If we can, when we have educated them in the personal care products, of course, we get much more power out to the market than we have today. That should, of course, have a very positive impact on sales on baby, on Incontinence, but even more maybe on Tempo, which we, of course, will introduce to China now. More than 70% market share in Hong Kong. We'll, of course, also try to boost Away From Home sales. The categories we're in now with the combined distribution skills and the muscles of both company is quite unique in China.
A second question. Recently, we've seen the Swedish krona depreciate. How and when will this potentially affect SCA?
It is already today. As you saw from my chart when I broke down the growth in sales, you had a currency impact on that. In particular, of course, in Forest, because we have on the opposite, emerging market currencies have gone down, which is affecting mainly personal care since we're bigger in personal care than tissue. The Swedish crown from translation already now, transaction Forest already now, but not the rest of the business.
Perfect. Thank you.
Well, just to add, we had a positive impact currency translation about SEK 100 million in this quarter, so it has impacted already, as Jan said.
Any more questions from the floor? Otherwise, we open up for the telephone. Operator, could we have the first question from the telephone, please?
Yes. Your first question today comes from the line of Kartik Swamy from London. Your line is open.
Hi there, thank you very much for taking my questions. Kartik Swamy from Bank of America, Merrill Lynch. My first question, apologies if I missed this, could you please let us know the split of Incontinence sales by channel in Europe with respect to retail versus healthcare? If you could please remind us as to your ambitions on new product launches in H2?
We have about 73% of our sales in Europe is what we define as healthcare, 27% is retail. North America, 59% is healthcare 41% is retail. Globally, 62% healthcare, 38% retail.
Thank you. On product launches in H2?
Since we now just have introduced new products on the market, we will concentrate to get them up on the shelves and impacting the sales in a positive way. We don't have any major new one. These ones are actually just now introduced to the market and not really in all countries yet. We just started with them.
Okay, thank you. My second question is on Everbeauty. Why is it only the mainland China operations that were sold into Vinda? If I recall correctly, you also have some operations in Taiwan, which are a big part of the sales that you originally acquired.
That's true. We have a strong position, in particular in incontinence in Taiwan, but also in baby. They also have quite a big export business to Philippines. Then we decided together with Vinda that we leave that outside until they have integrated the Chinese business. This is a big step for Vinda to take over the personal care business of SCA. Not to destroy the process or asking too much of the people, we better take it in two steps than in one step. That's the only reason, to be cautious with the integration process.
Okay. My final question was on what kind of investment you think would be needed in order to support your international brands. Clearly, I expect them to attract a premium on price relative to what's currently being sold by Everbeauty on the ground there in China. Should we be expecting them to require a significant amount of support given their competition keeps increasing daily?
We need to look into that when we have started the integration process. We still are waiting for shareholders' approval for the acquisition. I think it's a little bit too early for me to comment on that. Can we get back when we have all decided and finalized?
Okay. Thank you very much.
Thank you.
Second question from the telephone please, operator.
Your next question comes from the line of Peter Testa from Lugano. Your line is open.
Hi. It's Peter Testa from One Investments. 2 questions, please. One is just to make sure I understood this point on Personal Care FX and raw material effect. I'm a little bit confused because on the release itself, talks about the change in operating profit from Raw material being a significant negative and currency being a small positive in Personal Care. I was wondering where you described it the other way around in your comments. Can you just maybe help understand how I look at that table and what the impact is on Raw material and FX on the Personal Care profitability please, in the quarter?
Yeah, sorry, I should have been more specific on that. In the report, we are only talking about transaction impact. What I was talking about was, sorry, translation. What I was talking about was transaction impact. Translation positive, transaction negative. I should have made that clear. Sorry for that.
Okay. The Raw material -22% seems quite a big number compared to price mix 11%. Can you help us understand in terms of maybe that impact of Raw material, the price increases which are being put through, which will help further mitigate that, looking at the second half?
It should have a positive impact, mainly as we can see it now, without any further price increases or further cost cuts in Q4, since we still see fluff pulp coming up slightly a little bit more in Q3, since we have the delay in pricing. Of course, we can also see that it's coming down now, which means that we will have that benefit in Q4 together with the price increase. I don't know. Was that clear? You understood?
Yeah. No, I understand what you mean.
Yeah.
It should head towards flatter because of the prices continuing to come through the raw material, and working with less of an increase and then swing in Q4.
Yes. Yeah.
The other question I had was, over the last two or three quarters, there's been a certain disruption in your business due to market changeover decisions taken, Italy and China and so on. I have two parts to the question there. One is, without looking to be specific, do you think these significant decisions are largely behind us now with the Vinda transaction? Or do you think are there other markets where you see some of these decisions made in significant size over the balance of the year?
No, I don't think you will see anything like that. It was two things in last year. One was China, which was a little bit surprise to us also. The second was Russia, which of course was planned but not communicated. I don't see anything of that coming when we go forward.
Okay. The other part was when you look at the bounce back that you've seen in Q2 from those Q4 and Q1 decisions, can you give some sort of understanding as to what benefit you think you've seen in terms of restocking and rebuilding of brand positions in China and Russia, for example?
Well, Russia is going extremely strong, both in baby, inco, and in tissue. China is going very strong on our global SCA brands, but we are still struggling a little bit with Sealer, even though we have repositioned it, and we have seen some positive impact during the first half year. We are far from where we were a year ago, so it still needs some work to get that position back. With Vinda, we believe that will be a much faster solution than if we would do it ourselves.
Right. Overall, do you think you've recovered at least the sales rates that you had before in both of those areas?
Not with Sealer, no.
Only Sealer.
In all other, more than that.
Yeah. More than that.
Yeah.
Okay. That's great. Thank you.
Sealer is once again a tiny portion of our business.
Question comes from the line of Stellan Hallstrom from Stockholm. Your line is open.
Thank you. First, two questions on tissue. You specify in your earnings breakdown that sort of the other items add some 4% to your EBIT. That includes, I assume, Vinda, which contributes 10%. Can you give us any idea why the cost savings are not coming through more than what one could expect here?
Yeah, we can do that. There are several other things there. Of course, things like inflation is negative, of course, in this line. We also have some other cost increases, particularly around packaging and some other materials. Those are the main reasons.
Mm-hmm. How do you see that in going forward? Will this continue to be a negative factor in the coming quarters?
I think inflation of course will be there. We also had another issue in Q2, which had to do with a slightly lower production volume in tissue. That of course will be roughly in the same area. You shouldn't expect any major differences. Of course, we try to keep as much as possible of the savings we do.
Very good. Also a question on the U.S. business. I think that you were planning to hike prices in the U.S., and if you can give us any idea on how that's progressing?
Yes, we are estimating that we will have some net price increases of 1%-2%.
Good. Thanks. Also finally a question on AMP spending in Personal Care. I think you said earlier that you expect that to be sort of flat year-on-year now for the year. Now you are up clearly in the first half. Is this still a valid expectation?
I think you comment that in relation to sales.
Got you.
That we're seeing at the same level as in relation to sales, that still stands.
Okay. With the transaction with Vinda, that could perhaps change a bit or?
The Vinda process will take a couple of months. I don't think it will have a major impact during this year.
Okay. Maybe next year? Do you think that's going to be a significant impact?
Since we are consolidating Vinda 100%, I don't think it will have any impact next year either.
I'm thinking that if you're planning sort of more of a major launch or into new shelf space, so to say, or more doors in China, that you would have to support that with increased AMP spending.
I think the major problem in China is probably not AMP. It's actually sales. To get sales running in a good way. To have people on the floor, people in the stores, bigger distribution, et cetera. We will get that with Vinda without actually investing any more. I don't think the AMP is the problem, it's the sales.
Okay. Very good. Thanks.
Thank you.
Your next question comes to the line of Celine Pannuti from Berenberg. The line is open.
Yes, good afternoon. I have a few questions. The first one, if we look at personal care, I am trying to understand the moving parts here in your performance, some of which you have already commented. Am I right in understanding that despite the savings, you had had some higher AMP FX hit on transaction in Q1 and Q2 was quite material, you had this higher fluff and packaging cost in personal care. If you can comment on that. My understanding is that this FX transaction should not be as dramatic in the second half of the year. Can you please comment on this and whether effectively You commented on fluff. If you could comment on the other raw mats and packaging in personal care.
Secondly, in personal care, I wanted to understand if you look now your margin is better in tissue than in personal care, where the gross margin clearly and the return on invested capital are much higher in personal care. What do you think midterm should be the trajectory for personal care? Obviously, you are putting a lot of investment up front, but I should be looking at on a maybe a midterm basis. If you would as well comment on personal care, why incontinence growth was what I would call rather low at 3% and what happened in feminine care. Thank you.
Yeah. Many questions. I'll see if I remember them.
I'll repeat if not.
Yeah. If I take the first one, you are absolutely right. It was quite substantial, SEK 196 million Q2 to Q2 in raw material and FX transaction. When it comes to FX, we don't see any further sort of impact on that as long as it stays as we are today. Fluff, which is the most important part of these raw material increases, is as we talk now coming down, but it was going up during Q2, and our price is set by average price of the second month of the quarter before we buy the fluff. Which means that we still will have some price increases during Q3. It will come down after that. What was the second one?
On the margin in personal care midterm.
The margin. Okay. The margin in personal care is not on a level that we want to have it today. It should increase, and as you know, we have a target on return on capital employed on 30%, and I think we're at 28 point something.
Something.
It's 28.7 this quarter, which means that we need to bring up the profitability. We need to improve the margin. We have, as you said, really invested quite a lot in personal care during this first half year by upgrading all the production facilities in Incontinence and Baby with start-up cost, et cetera. Of course, we really are going to see a payback of that fourth quarter and going forward.
The other question was Incontinence growth in the quarter, that shifted with very strong growth in Feminine Care.
Feminine care was growing quite well. If you look at Europe, we had quite a slow growth where we have our biggest incontinence market during Q2. Also we were impacted by very slow growth in the U.S., the two big markets seeing incontinence. That's why you see a slower growth in the quarter. I guess you ask the quarter or the half year. The market is not growing very much, and we have not really been too aggressive in gaining market share during the quarter. We have actually been preparing very much to welcome Procter & Gamble when they arrive to the market, which we're doing in U.K. now. U.K., we're actually growing quite well at the moment. It's more a tactical move than actual factual change on the market.
Okay. If you allow me, I want to clarify a point that you made in tissue. You did say in tissue that you had an increase in raw mats, which was, I think, packaging costs, and I would presume as well as pulp prices. You think that packaging costs will still be higher going forward, but what about pulp prices?
My estimate on pulp prices for the second half year is that it's coming down both in soft and hardwood. In particular in hardwood, we have 2.3 million new tons coming out to the market, and that will have an impact on the softwood also, since we can actually switch a little bit. We have also internally, normally we are 50/50. Now we are 45/55, hardwood, softwoods. That will impact even if the softwood market is quite tight today. It will come down. Packaging, I can't see the packaging cost will go up for the second half.
Okay, good. Just a point on Vinda, the Vinda joint venture, or sale rather, in China, does it mean that all the launches that will happen in personal care under the Vinda distribution are going to be booked in Vinda? Therefore any top-line acceleration will be seen in Vinda and will not be part of your like-for-like computation, at least in the second half of this year?
Well, since we consolidate 100% of Vinda, you will still see it in SCA. From that perspective, it will not be different from today.
Just to add, we already separate there, as you may see, in consumer tissue and Away From Home, and we will do that, of course, also for this business.
Good. Thank you so much.
Thank you.
Your next question comes from the line of William Houston from London. Your line is open.
Hello there. Three questions from me, please. Firstly, just on the Incontinence launch you've seen in the U.K. I think the speculated number of SKUs was up to about 24 different SKUs for the Always brand. It doesn't feel like they've launched anywhere near that in the U.K. at present. Could you just comment on that, on the scale of the launch and how you think that compares to the eventual rollout that you will have from Procter? Point two would be on improving the margin mix. It looked easy in Q1 by exiting some low margin contracts. It's something that Essity, okay, did as well too with good success. Do you think that's something you can do a lot more of over the coming quarters?
Point three, just in terms of the cost-cutting programs that you've got ongoing, could you talk about the specific tangible things that you've done in this quarter to take cost out of the business, such as headcount reduction? Is there any production capacity that you've exited on the converting tissue side or anything like that you can give us on a kind of tangible cost cutting you've done, please?
Well, if I start with Procter, we did assume that they would have a full range of Incontinence products, I guess that in the end they will have that. Otherwise it's very difficult for them to enter the market. They were delayed, as you know, in U.K. also, the shelves were empty for a while. Our assumption is that there will be full-scale SKUs on the market, that's what we are preparing ourselves to deal with. Of course, it may take some time in different countries, depending on the supply situation. We are prepared for a full scale. What was the second?
Sorry, it was on the margin.
Exit of contracts.
Yeah. Sorry. No, I don't really see that. We have actually quite silent exchange, quite a lot of tonnage during the past two or three years from lower margin to higher margin. Gradually over the year, now it was sort of a one-shot one quarter. On the other hand, we grow the branded business by 2%. I can't see that we have the situation like that going forward, no.
Lastly, on just kind of tangible cost-cutting measures that you've taken, please.
We are continuing to drive the productivity in the supply chain, that's mainly where you see the cost cuts coming from now. It's not heads anymore. It's more pure productivity improvements, excluding France, because we are still dealing with France and the negotiations in France. I exclude that from that comment. Otherwise, it's more in supply chain. We have already done the sales, we have done the marketing, we have done the IT, now it's pure production.
Yeah. Just in terms of the French negotiations, could you update us on how they're going and when you would expect to hear a bit more from them? I can understand it takes a while, if you had any more color on that would be helpful.
There is nothing in the process that is going to change the plan that we will have all the synergies by the end of 2016. From that perspective, it's going according to plan.
Okay. Just lastly on your sourcing. That was expected to be about SEK 1 billion of saving, you had 700 initiatives that you were going to put into your sourcing organization. Is there any update you can give on how far you think you are through the sourcing savings specifically, please?
I'm not sure I can comment that in particular, but of course, there is a good opportunity now being the biggest pulp buyer in the world as we are together with Vinda. As you know, in pulp, you have the same system as everyone else now that you have one market price, and you have a different price for big customers. The only thing I can say is that we still have some good potential in sourcing. We haven't really consolidated global sourcing in all our products and transportation. My expectation is that it will continue to deliver.
Okay. That's helpful. Thank you very much.
Thank you.
Next question comes from the line of Oskar Lindström from Stockholm. Your line is open.
Yes. Hi. I have three questions. The first one.
Take them one by one.
Yes. All right. The first one concerns the competitive environment in the European tissue market. Is that something you'd say a little bit more about given the size of that business for you? Is there any change in the competitive environment there with new capacity coming in or imports affecting it?
No, not really. It's not changed from what we have communicated previously. It's always competition, of course, but if you look at the result that we're delivering, we have been delivering the past four or five years, it's of course, a lot of internal saving that is improving margin, but also the way we are taking the lead in the market as the market leader in Europe. It is no different from a quarter ago or a year ago.
All right. The second is more specific. It's regarding the split of your hygiene cost savings between tissue and personal care. I think you gave that early on in the program, but is that maybe something you could give more detail on now?
I think we are only reporting the accumulated now, but I've also been very specific that the absolutely bulk is in tissue.
Is that two-thirds or?
The absolutely bulk.
Absolutely bulk. I'll look that up, yeah. That's going to be also the case going forward?
Yes.
There's no shift there. The final question is, given that we've talked today about a situation where one of your competitors enters a new segment in the personal care field, is that something you yourselves are looking at, or are there any new product segments out there which you're keen to enter? I'm not talking about just brand extensions into very adjacent segments, but really new product segments. Is that something that interests you or you see a need for?
First of all, it's not the first time Procter is entering the Incontinence market. They actually have a product in the European market today on the Very Light Incontinence side. It's not the first time. Of course, we have the highest respect for them, we are going to defend our position. We don't have any. I show some examples today, which you can call a new category when you're going to the really washroom facilities with the new products in Away From Home. That's, of course, a new category in a way, even though if it's within the Away From Home market. Otherwise, we don't have any spectacular new category that we're going to enter into.
All right. It's not something that you think could be interesting for you going forward to add on a new product segment, I guess, especially on the personal care side?
Well, we are, of course, looking at if we can add something to the structure we have today that would fit the structure and that would be accepted by our customers as natural for SCA to add to the category, but we don't have anything today.
All right. Well, thank you very much.
Thank you.
Question comes from the line of Charles Mansell from London. Your line is open.
Yes. Thank you. I have a few questions. Could I start off with the Away From Home? You were saying at the beginning that I think it was from Q1 to Q2, your U.S. Away From Home grew, I think you said 21%. Could you just confirm that? Obviously, we're more interested in the year-on-year growth from Q2 to Q2 and how strong that has been. If that's been quite strong
The implication therefore is that the consumer tissue side has been under more pressure. Could you just say whether that is the case or not?
Yeah. The reason I mentioned the sequential was, of course, that we did have some challenges during Q1 with the winter, and some part of the market were afraid that it was sort of the market that went down. That's why I said 21% is right. If I remember right, the top of my head, it's 4% Q2 to Q2 in growth.
Okay. Does that mean consumer tissue in mature markets is down?
We are not in consumer tissue in U.S. We are only Away From Home. Of course, we can see that the consumer tissue market in the U.S. is start to sort of get into the market in a completely new way than we have seen before.
Okay. On the P&G issue, could you just inform us when they actually did enter the U.K.? You're saying you're growing nicely on the back of that. Do you have a feel for the impact on market growth and what the price gap is between equivalent SKUs between you and P&G?
That's, of course, a positive thing with Procter & Gamble compared to maybe a private label supplier, is that they are not driving prices down. They are on an equal price level as we are in the market. It's too early to say if it's really penetration that has increased or if someone else is losing market shares, we are not doing that. We're actually gaining market shares. They entered a month ago, if I remember right now. Yeah.
Okay. On the saving programs, if my numbers are right, the incremental saving in Q2 was less than the incremental saving in Q1. I was just wondering whether, trend-wise, we've kind of gone over the hump and now incremental savings from here on in will continue to slow down.
Well, if you take us quarter by quarter, of course, the closer we get to the end of the program, the individual month will be less, I don't think you can draw that conclusion relative to
No, it will depend on, of course, what we do in individual quarters. You cannot necessarily draw the conclusion. We are on plan, of course, the Perform to Grow program will be completed this year, we still will continue with the GP savings. It will marginally decline, of course, we have still some room to go.
Great. On a sort of housekeeping issue, if you could comment on associates and minorities, which are quite volatile so far this year. Are the Q2 minorities and associates a cleaner base than the Q1 for us to try and extrapolate going forward?
I think the only thing we have that there now is Australia, isn't it, in associated? Because we consolidate everything else. Of course, in Australia, we have had the listing of the company, very successful, by the way. That has drawn a lot of cost during the process, that's why you see some impact on that. Otherwise, it should not be as volatile as you have seen it this quarter going forward. We are after the listing, we are holding 32% of the shares, previously we had 50% of the company. That will still be sort of reported as associates.
Right. The minority line this quarter is twice that of last quarter. There were some exceptionals in last quarter, I believe. Is this quarter minorities sort of a clean number?
No, it's not a clean number. As Jan just alluded to, we have had some share of cost, of course, for that listing in Australia. I think as we go forward, of course, Australia will pick up a little bit.
Right. Okay. Thank you. Finally, last quarter you mentioned sort of which categories and geographies you were sort of gaining share or where shares were flat. Could you perhaps go through that again for Q2?
Yeah, I think the only place where we have been losing market share in Q2 is on Sealer in China. Otherwise, we have been gaining or on the same level.
Okay. In Q1, market shares were pretty flat in European consumer tissue, baby diapers, and retail Incontinence. You mentioned that you're now gaining share in European retail Incontinence, are they still flat in consumer tissue and baby diapers?
Well, we have been gaining shares in baby diapers due to this new contract, as I informed of in Q1. If you look at the market in totality, of course, that's a private label, not a branded. It can shift depending on your promotions strategy and whether or not you have a promotion. If you look at the trend, I think the only trend where we have lost is in Sealer China.
Great. Lovely. Thanking you.
Otherwise, as I mentioned during the presentation on the growth figures in the emerging market, of course, in all these markets where you see the double digits or even 30% growth, of course, we are gaining a lot of market share in those markets because they're not growing in the same speed.
We've also grown, I guess, Inco overall in Europe.
Absolutely.
Overall, not only in retail, overall.
Thank you.
Away From Home.
One more question from the line of Peter Testa. Please ask your question.
Yeah, sorry. Just on the comment you made a minute ago about the U.S. market changing as private label arrives in a way it's not done before. Can you give a sense as to whether that creates any opportunity for you in the U.S. market or changes any views you might have about M&A in the U.S. market?
Well, I guess with the valuation you would see on any consumer tissue in U.S. with what we see on the market development, it will be very difficult to justify an acquisition.
Mm-hmm. Any opportunity to enter private label by purchase in the U.S. market?
Well, we looked into that. One of our major customers have asked us. We believe it's the wrong timing to actually enter that market now. If it goes the same way as Europe did for 10, 15, 20 years, probably you should wait a little bit before you enter it. It could be different, of course. We need to see where it's ending before we do something.
Okay. It's not clearly stabilized or established enough to understand what the, say, production capacity would need, for example.
The only thing we see is that it is actually coming in too much capacity in U.S. today. Main part of that is directed to the consumer tissue. Of course, when they can't sell it on consumer tissue, some may spill over even on the Away From Home. We are using that now. We're actually buying materials in U.S. instead of tying up capital ourselves on the market.
Okay. Great. Thank you.
Thank you.
I understand that was the final question. Any closing remarks?
I think we have covered everything, for those of you who are in this part of the world that soon will have some holiday, I hope you get a good holiday, and then we have an interesting autumn to tackle together. Thank you very much.