My name is Joséphine Edwall, I'm Head of Communications for SCA. Today, our CEO and President, Jan Johansson, will go through the report. After that, Lennart Persson, our CFO, will join on stage for question and answers. With this, I hand over to you, Jan.
Thank you very much. Let's start with, as we normally do, some macro update. Nothing major had changed. We still see some growth in Europe and North America when it comes to tissue. We still have some good growth in emerging markets. Personal care, stable in the mature markets, but continuously good growth in emerging markets. If we look at the trend or tendency in the market, we can't see any major change, neither in Europe or U.S., that the market should substantially pick up. On the other hand, we have not really been impacted by the weakened economy that we had for the past four or five years. There is still a lot of course, as you know, high employment rate in some countries, some countries are doing better than others, but mainly due to higher export, not necessarily stronger internal consumption.
Still similar as we have seen for the whole of 2013. In Forest, we have continued to see a decrease in demand in publication paper in Europe. We do see a stronger market for solid woods and also a good market for Kraftliner. If you look at some of the key events during 2013, of course, the acquisition of the majority of the tissue company Vinda in China is a very important step for us to get good position in China. Also the organic growth that we have started in India by launching Libero and Tempo. All of these investments have an impact on the margin because we need to invest to get the sales. I will get back to that a little bit when we come into Personal Care. We also divested Laakirchen during last year.
We inaugurated our first wind park together with Statkraft, we continue to be included in some of the major sustainability indexes in the world. Our priorities hasn't changed for the last years. We still work very much with efficiency include both capital efficiency and cost efficiency and cash flow efficiency. Innovation is very important. It's becoming even more important while the competition is increasing. Of course, also growth. I will mention a few items on all three of these. If we start with efficiency program, shortly, it's running according to plan. We have some achieved cost saving of SEK 390 million in the hygiene business. Annualized, we are at, in average for Q4, we are at EUR 275 million in the EUR 300 million program. Georgia-Pacific is also going according to plan.
As you know, it has taken a little bit longer time in France, as we also expected, but it's running exactly as we expected. We'll see the start of the cost saving in France also coming into 2014. Forest is well in plan, maybe even a little ahead of plan. The savings are there. It's coming in as we expected and as we have communicated. Innovation drive profitable growth, we have launched some 30 new innovations during the year. We have been quite successful in innovation in incontinence, which, as you know, is our biggest and most important category within Personal Care. We have one very interesting, still very small, of course, here is the Inco product you see with some strange things on, which means that we can communicate and measure the behavior of a patient without actually having to look at it.
Those of you who have been following the debate in Sweden, how we sometimes treat our elder people with this is not necessary. We can measure it in distance, and we don't have to work in the way we work today. Also a lot of other interesting innovation. The good thing now is that we actually have more in our innovation funnel than we can actually market, and that's where we should be. The bottleneck should be in the market and not in the innovation side. That's very good. We also have new innovations in feminine and in baby. Sealer, which you see there, is our Chinese brand. I will come back to that a little bit later because that has quite a big impact on the baby performance during the year.
We will continue also to develop the important Tork business with new innovative dispensers, with patented solutions, which makes it more difficult for our competitors to actually copy what we are doing because we are ahead when it comes to incontinence, and we are ahead when it comes to the Tork innovations. Of course, we want to protect that position. Growth, we had a sales growth of 10% year-on-year. When we talk of growth, I think it's important to once again emphasize that the strategy we have in growth is both organic and acquisition. It's a combination of those. When we acquire, it's part of our growth strategy. We had a growth in Personal Care of 10% and Tissue, 13%.
Of course, Vinda, that we have not yet consolidated in full, but we have consolidated the balance sheet, and I will comment a little bit on that later. That will next year, of course, have an impact on the growth of tissue. India is coming on as expected. We already before had some sales of Tork and TENA into India, but we didn't have people on ground. Now we have people on ground, which means that we can accelerate the growth even in those categories. If we summarize the year, it is actually the highest yearly result in the history of SCA. It's actually also the highest quarter result in the history of SCA, even if we take away the profit from the forest swap that we had during Q4. We still have some negative impact of currency.
It impacted the sales with SEK 2.1 billion year-on-year. If we exclude that, we, as I said, have a sales increase of 10% overall. In hygiene, we have a sales increase of 12%. Sorry, forest product is on zero. We have higher volumes, but we still have seen lower prices coming in publication paper during last year. The EBIT increase 19%. Of course, we get the cost savings. We have higher volumes. We have the acquisitions. We have the forest land swap. I will comment a little bit on the forest, because that's also part of our strategy, of course, to increase the value of the forest. We also had higher energy prices and some cost and some lower prices.
When it comes to cash flow, the important thing here is that it's all directed to working capital. It has nothing to do with the inventories, because the inventories are actually down. It's all payables. When it's all payables, you can relax a little bit, because then you know it will correct itself. A couple of points on this slide. One is, of course, that if we look at profit before tax, we have an improvement of 26%. Profit earnings per share is up to SEK 790. Maybe even more important, independently that we have invested in Vinda, we have consolidated the debt of Vinda in our balance sheet. We still are in a very low gearing debt equity ratio.
If you compare to some of our major international competitors, I think we have a much stronger balance sheet, which also indicates that we still can grow by acquisition if you find the right category to acquire. If we look at Q4 to Q4, a weak sales increase. Here we see the first impact of our baby situation, because baby is down 5% Q4 to Q4. If you look at the other categories, we're actually up. You will see that a little bit later. Incontinence feminine is doing great. Baby, we have a special situation that I will comment. Forest is also up by 5%. We have an EBIT increase of 31% Q4 to Q4. Now we also see an improvement of operating cash flow by 11%.
What you can highlight here is maybe the earnings per share, because it looks a bit strange that we have a lower earnings per share. If you remember, we had a tax refund last year in Q4 of SEK 1.3 billion. That's actually what is making the difference between Q4 2013 and 2012, with a reduced tax rate in Sweden. If we look at Q4 to Q3, we always talk about invoicing days. We had two less invoicing days Q4 than we had Q3, and of course, that impact the business. We do have a sales increase of 2%. An EBIT increase of 21%. If we look at the Personal Care EBIT decrease here of 3%, if we take away baby, we have an 8% increase of EBIT.
Baby has a huge impact on this quarter, which means that incontinence feminine is doing great. Forest also is increasing quite a lot, of course, 118%. We have the gains on the forest swap. I will show a little bit later how it looks without that. Coming into Personal Care. We have invested heavily in Russia. We have invested heavily in China. We knew even before we entered China with Everbeauty that we need to do a major relaunch of the product because the quality was not good enough. It has taken some longer time than we planned for various reasons. That has impacted the whole year up till including Q3 last year, and we lost quite substantial volumes during this period.
When we relaunched Sealer with new products, we still had too much old products on the shelves, which meant that we need to buy back all of that, because otherwise you couldn't push the new product. That also had a very negative impact because you get a double. You have the cost of introducing a new product, and you have the cost of taking back the old product. That is impacting. That's the major impact on baby for 2013 and Q4. The positive thing, though, is if we look at Q3 to Q4, only in China, we have a volume growth of more than 60%. It shows that the new product is lifting. Of course, we have to invest behind that to get new product out on the market. So far, it's working according to the plan.
We had a similar situation in Russia, except that we didn't need to take back the old product, but we introduced completely new products on the market, and we have to invest heavily behind that to get the market attention. That's the two single reasons why Personal Care result is down, Russia and China. Except that we actually have quite an improvement in personal care in the important category of incontinence, and feminine is still, as it did Q3, doing great. In my view, we have dealt with the situation, at least what we can see from Q4. We have sold it. Volume is coming back to China with the growth we see in Q4. It has a huge impact on the result.
If we, as an example, remove baby China from Emerging Markets, and baby from Emerging Market increase, we actually have an increase of 9% and not 1%, which means that Emerging Market is doing well, but one category with expansion adjusted is impacting that extremely heavily. If you look at the EBIT results, if we deduct the cost we had to invest behind baby, we actually have an improvement of 5% in EBIT in Personal Care. You understand the magnitude of the investments we have made behind our new products in Emerging Markets. Of course, the theory is that we will be rewarded heavily by this during this year, and it will probably come not maybe the first quarter, but at least after the first quarter going on. All the signs we see today is actually working in our direction.
If we look at tissue, as you remember, we were forced by the European Commission to divest businesses in U.K. and in Belgium and Benelux countries. That, of course, have an impact when we compare Q4 to Q4. If we exclude that, we have a growth of 1%. Here you can see also that emerging market is doing quite well. We still have our absolute bulk of the business in Europe and U.S., and that is not growing. We are gaining market share, but on a market that in some segment actually is little bit down, but we are gaining market share, so we are growing. When the market is not growing in the major markets we are in, you can't expect that we are growing so much more than the market because taking market share also has a cost behind it.
Of course, with new products, we will get the attention of the consumers, and we will get some market share without actually having to chase for it, and that we've seen during 2013. We see that the concept is working, and we are having a different balance, a better balance in the consumer tissue portfolio, where we're now getting to 50/50, even more than 50% branded business in our portfolio. That's, of course, something we are striving for. We have an EBIT increase like-for-like of 18% if we take the remedies into consideration, and also getting to a decent margin in tissue. Not good enough. We still need to improve it, but at least it's getting decent. Those of you who have followed us remember that we are coming from 5%, 6% margin, and now we're up to 13% margin. We are not happy.
We still need to improve it. Forest. Publication paper. All of you that follow that business know that the consumption is not going up. The structure change is continuing. Demand is going down. Still an oversupply, even though we see a lot of production being closed, but it's not closed fast enough. We still have a tough situation. Kraftliner increased sales, solid woods increased sales, pulp increased sales. You can focus the challenge we have to publication paper. The rest is actually doing quite well, and going forward, it also looks quite well. An EBIT increase of 188%. Of course, we have the forest swap of SEK 455. For me, that's obviously a task for the forest operation to manage the forest in the best way. If we can trade land with less growth to land with more growth, that's exactly what we expect for that.
It's a natural part of their business, and that's exactly what we've been doing during this year and mainly during Q4. We also get forest that is closer to our industrial part of the business, which means less cost in the system when we operate the forest. If we deduct, which I don't think you should do, but if you deduct the swaps, then they will have gone from 7.1% to 12.6% in margin. Still quite a substantial improvement. We have also proposed an increase in dividend by 5.6%, up to SEK 4.75. Of course, it's up to AGM to decide on that, but that's the board's suggestion. If we summarize the year, we do have higher sales and profit for the group. We have higher profits in all our business areas, even though we have this higher cost on baby, as I explained.
We have higher sales in Personal Care and Tissue, flattish in Forest. Efficiency program is going according to plan. Vinda, important step into China, and of course, the ambition we have is to combine our Personal Care business with Vinda Tissue's business, with their enormous presence that they have in China. It will be a really good situation for us. India, it is a long run. We go organically. We are not buying anything, which means that we need to invest. We do it carefully. We do not over-invest. We have a good start. We get the product on the market. We are getting distribution in place. Of course, it will take some time before you see some positive impact on the margin on India, because we need to reinvest the profits we make in India just to continue to grow. Innovations, I talked about that, extremely important.
We have put a lot of effort into the innovation process during the past two, three years. Now it is working much more efficient, and we get much more interesting innovation that we can present to the market. Sustainability index is very important when we talk to customers, becoming more and more important also when we talk to consumers. Of course, then the dividend increase, as I just explained. With that, ladies and gentlemen, I would like to open the floor for questions. Lennart?
Thank you. It is Linus Larsson with SEB. Maybe if we could start with the Personal Care business, and you did provide a bit of detail on the emerging market situation. If you look at Europe in isolation in Personal Care, can you talk a bit about that? Have you also there seen margins coming under pressure sequentially or year-over-year? Also, if you could update us on the competitive situation with Kimberly-Clark gradually exiting, to what extent have you been able to draw any positives out of that, and what are your other competitors doing in Europe, please?
We do not have the same volume problem as we have seen in China, for example. We are not losing any volume. We are actually gaining market share in Nordic the fourth quarter, with fierce competition. In that aspect, we have not reduced the price, but we have had to put a lot of promotion in to keep the market share, if we talk about the branded business. In doing that, we actually grow the market share as well. The aim in the beginning was just to keep it. It has been enormous competition, and not maybe Procter is the toughest now, but also private label is trying to get a higher market share in the Nordic countries. As you know, we have a substantial market share in the Nordic countries, of course, it is tempting to try to get a piece of that.
We are defending it. If you look at the retail side, the private label side, it's going quite well, and we're continuously improving. Kimberly-Clark leaving, no new entrants in the market, of course, because they would end up in the same situation as Kimberly-Clark. That will be a private label business. Of course, we will be trying to get a piece of that private label business. We're not going in with our own brands where Kimberly is leaving. We're going in with a private label business.
It looks as if on a sequential basis in Personal Care, price mix was down.
Something like SEK 49 million. Is that entirely relating to emerging markets, or is there something in the price mix advertising promotion that is also relevant for the European business?
It's a negative impact of promotion and some positive impact on mix. It's heavily promotion, no price decreases, some positive on mix. It's both in Europe and in emerging markets.
Okay. Maybe finally, on seasonality, could you comment upon near-term seasonality? You provided some guidance on that, if I recall correctly, when
Every year
reported the fourth quarter historically. Do you want to say something about what to expect from the first quarter
Yeah
hygiene categories in particular?
We will obviously have the similar pattern as we have seen every year, that there will be a slight seasonality impact during Q1. In China, you have the Chinese New Year, you will see a similar pattern. As you remember, we have actually reduced it over the years. It used to be in the level of SEK 1 billion, then SEK 500 million, we are trying to mitigate it, you don't really know how you succeed with that until you have seen the full January sales.
Thank you.
Lars, Credit Suisse. Coming back to China and Vinda. Could you comment anything about their Q4 performance? There is obviously at least some debate about new capacity in China, that market has been quite competitive. When you're talking about moving in with your personal care products in the Vinda system, should we expect any meaningful sort of marketing and incremental cost as you broaden your footprint in China?
Well, the first question, I cannot comment on Vinda. It's a listed company, we have to wait until we see their results. When you talk to the Chinese producers and even the government, they don't seem to be particularly worried about the capacity question because there will be a lot of closure, the growth is still quite good in this particular segment. I've always said that probably you may see one or two years where you have an overcapacity, then the question is, how do you deal with that? So far, they are sort of exporting it out of China to other places, I guess that that's the way it will be dealt with. Vinda doesn't have any overcapacity. On the contrary, they are growing so fast we probably need some more capacity.
If we succeed in combining our businesses, my estimate is that there will be big synergies rather than big costs in doing that.
I understand they have some own diaper offering in their system. What do you do with that?
Very small. They have a small brand, and that's something we have to discuss with them.
Just two more questions. Have you noticed any negative impact of current turbulence in LATAM?
Sorry, in?
In Latin America, in that exposure. You're not necessarily most exposed into those geographies, but there seems to be quite a bit of turbulence. A final question unrelated to anything hygiene, as you talked about, you see good markets for forest products. Do you want to comment anything about price movements in publication papers, and particularly kraftliner, what you see in that market?
The impact we see is the currency impact because we normally have local production and local sales, and the consumers still need our products. We don't really see a change in consumer behavior or any less consumption. Of course, the currency movement is hitting us as a translation impact, but otherwise not. We are not, as you know, in Venezuela and some other country. Argentina, of course, we are in, and we have a small business in Brazil, so it's more the currency movement than actually what is happening from a political point of view. We had a discussion last year on the publication paper, and I think probably I was the one who was the most negative on the possibilities to increase prices. There will be price increases in news, there's no doubt about that.
The question is the level of price increases, it will be single digits. It will not be double-digit increases, and it will not be high single-digit price increases, but there will be price increases. In the magazine paper, it's too early to say. It is a little bit tougher pressure actually in that area now than even in news. The other week, or was it this week, we see also production is closing down in LWC. It is a tough environment. There is an overproduction. There is a change in behavior from consumers, this will not disappear until we close as much as there is a balance in the market. The market will not pick up again. We just have to live with it.
Kraftliner?
Kraftliner is still a very balanced market, and kraftliner, as you may know, is also quite dependent on the test liner development. We have seen test liner coming up in the past quarter, which also gives opportunities to increase kraftliner. The demand is there. It's not a big oversupply. Inventories has been slightly higher during Q4, but not in a level that you should be really worrying.
Thank you.
Thanks.
Sophie?
Yes. Hello, this is Oskar Lindström from Danske Bank. I have a couple of questions. I as well will start off with the personal care division. Several of your competitors who have reported already talk about increasing competition in general in hygiene markets, and in all emerging markets, while you seem more to focus on sort of specific issues in your own business in Q4 in China, Russia. Should we sort of start to pencil in increasing competition overall, or is these problems that you had in Q4 something that will pass after Q1 as you mentioned?
Maybe they're talking about us.
All right.
increasing competition. I don't know. There's always tough competition. We can't say it's increasing. It's always tough. You have the best in the world, and you have the good locals everywhere. It's not a new one coming in that is increasing. For me, it's always tough competition, and I haven't seen it increase. It's just tough all the time.
You're not expecting to, for example, increase market investments next year relative to sales-
No
that you had this year, this past year?
We're not expecting that.
All right. Second question is on the tissue. You had some price increasing effect sequentially in Q3, boosting margins then, but the bulk were to come in now in Q4. I didn't really see a mention of it in the comments to the Q4 results for the division.
Right.
Could you perhaps elaborate a little bit on that? Were there price increases on tissue sequentially?
Yeah. We had price increases in Europe. At the same time, we had some price erosion in the U.S. When we talked last time, we actually talked about Europe that we will increase prices. We saw some price erosions in the U.S., that was sort of taking away a little bit of the positive European situation.
All right.
Yeah.
Finally, on forest products, two questions. First of all, the forest land swaps. You mentioned something of this being part of your strategy. I sort of understood that the forest land swaps were more relating to optimizing harvesting situations and the age profile of your forest lands, rather than as a strategy to bring out value from the forest lands. Are you going forward continuously be a net seller of forest lands and capitalize on those?
No, not really. That's not what we're doing today either. If you look at the cubic meters coming out of the forest, which is important, it's not the land. We capitalize on forest in many ways, in my view. One is, of course, to produce what we do downstream. Another is the wind power. Third is the bioenergy. Fourth is if we can swap land, so we get land closer to our industrial areas, and also place where the forest is growing faster or older than where we're swapping. The reason we can do this is, of course, that the government has very ambitious plans of even creating bigger areas in Sweden for reserves. That's the driving force, nothing else. As long as they have this ambition, then of course, they need land for reserves.
We happen to have had lands now that have been very suitable for reserves. That's the main driving force, but the result for us is operational better, growing better, higher value.
We should expect you to have a net positive impact also in 2014 from land swaps.
It's too early to say, but we're looking into it all the time. It's nothing you can predict. It depends on where the government want to have it, you know how it is.
Yeah. If there is an opportunity, we will certainly grab it.
Right. Sorry, just a final question on forest products. In the Ortviken mill, you have started producing a type of kraft paper called sustainable packaging.
Could you perhaps elaborate a little bit on how that is going, and then is this something that you're planning to grow substantially going forward?
It is an opportunity we have with present technology to produce a paper. It's not a kraftliner, but a sort of packaging paper for cookies and things like that. There is an interesting potential in it. It will not replace the publication paper, right. There is an interesting niche for us to go into, and we'll see how big it is. It's going quite well as we speak.
Could you
I'm not going to give you any figures on that now, because we're still on the starting point.
All right.
The margins are better. Competition is less.
All right. Super. Thank you very much.
Then we have on the first row.
Thank you. Mikael Jåfs from Kepler Cheuvreux. Could you please say a couple of words on raw material cost development, what you see in the coming few quarters?
Lennart, do you want to comment on that?
Yeah. What we can see is, of course, that we have seen the soft wood pulp coming up, creeping up. On the other hand, it depends also on the US dollar movement. It is maybe foreseen that it should increase somewhat. We have also seen, if you look at 2013 compared to 2012, we had raw material cost increases, but not sequentially. Then it is also some movements in the plastic materials.
Okay. Nothing sort of dramatic.
Not dramatic, no.
Then a second question on publication papers. I see here in the footnote that if you exclude the divestments, the deliveries were up quite a lot in Q4. Am I reading this correctly? Could you just say a couple of words what was driving that? Were you taking market share, or was the market better, or what happened?
I think here it is more that between the two years that we had a better production, and also that we had better deliveries. We find customers, even if it is not profitable. Of course, it helps to cover the fixed cost.
Perfect. Thank you.
Now we have in the back, [Janek].
Yes. Hi. Stellan Hellström from Nordea. I wanted to come back to the tissue in the U.S., the away from home business there. The price erosion that you saw in the fourth quarter, is this something temporary, or something we should also consider for coming quarters?
We have. Normally, we have our strongest quarters in U.S. in the second and third quarter. We have normally a little bit weaker in the first and fourth. Also depends a little bit on where you pay out the bonuses for the year. We actually had some impact on pay beyond that also, that it was paid in Q3 instead of Q4 last year. No, we don't expect any price, any market price decreases. This was very specific one that I was mentioning.
All right. Also a question, again, on personal care. If you maybe also can comment there, how you see the difficulties that you had then in China in Q4, how that will evolve in Q1 and into 2014. Are you shipping your new product now, and are you up to speed?
We have now removed all the old products, and we're talking about China now, so it's quite a big country. I actually bought them back. Now we have all the new products out on the shelves. As I said, it's been doing quite well during Q4. Of course, doing that, we also have to invest in A&P and promotion to get the consumers back to the new products that we lost on the old products. It's going quite well now. It will, of course, impact also Q1, the investments to get the volumes back.
Thanks. Thank you. Just a question also on if you can comment something on the private label business for baby diapers in Europe, where I think you had weak volumes in Q3, if you saw those volumes coming back, and if there's anything else happening in terms of pricing in that area.
Today in the market in Europe, as KC has left, there is the competition only between two: private label and Procter & Gamble. If we exclude the countries where we are banned in Nordic and Russia, et cetera. Private label is gaining market shares. Private label is growing. Of course, being one of the biggest suppliers of private label in Europe, we will benefit from that. We have improved during the last two years, Magnus, who is responsible for this, the profitability quite substantially in private label.
Okay, thanks.
Thank you very much. It's Iain Simpson from Barclays. Sorry to come back to it yet again, just the China diaper situation. Could you please explain how that drove a volume shortfall? Because I understand that you had to pull existing products off shelves, but I would have thought that the inventory sell-in of your new products would have counterbalanced that unless were you completely off shelves for a period, or had it also been accompanied by a de-stock of what's in the distribution?
It's a combination of being too slow in replacing the product, which meant that we were losing volumes during last year, up including Q3. When we then started to introduce the new diaper, the inventories were substantially bigger than we expected, which meant that we need to buy back and sell at the same time. It was a double negative impact Q3 to Q4. Now when we have got it off the shelves, off the inventories of our distributors, we actually see the new product is taking off with this, as I said, extremely high growth that we had during Q4. It's an unfortunate combination of a little bit too late with the product, and not really having full control on the size of the inventories in stock with distributors.
just to confirm, that de-stock is now fully finished.
Finished.
We shouldn't see any de-stocking.
It's finished.
Perfect. just on European diapers, you said that sales there were a little bit weak in the third quarter, but you speculated that might just have been due to the warm weather. Was that the case? You did see European diapers go to a more normal level in the fourth quarter.
We had a slight pickup during Q4, if I look at our business.
Okay, thank you very much. Just one last question, if I may. On Russia, I didn't quite catch what you were saying there. Is it a matter of just increasing marketing in Russia, or are you planning new products there as well?
It was a launch of new products that we started, Magnus, I think in after summer sometime?
Third quarter.
Third quarter.
Yeah.
In the same way as in China, we didn't have a lot of stocks that we need to buy back. It was planned in a better way. Of course, in doing that completely new product segment, we invested in promotion and advertising to get attention of the consumers.
We have also built the distribution in Russia by increasing the sales force.
Thank you. Thank you very much. I know that it must be very difficult to measure sell-out in a country like China. Do you feel that you've permanently lost share in China as you switched, or do you feel that in a couple of quarters, it should be back to normal?
In the segment that I'm talking about now, which is the value segment, I'm not talking about the economy segment or the premium segment. In the value segment, we don't really have any of the international competitors. I believe it's anyway that we will get back the share that we had.
Thank you.
Here is [inaudible].
Yes. Thank you, Karri Rinta. Handelsbanken . If I look at the cost savings that you achieved in 2013 in hygiene, your guidance of what to expect going forward, can you confirm that the incremental cost savings in 2014 should be higher than 2013? Is that implied in your guidance of reaching the full run rate in 2015?
Lennart?
What we can see today, we should reach the EUR 300 million as a run rate after 2014. It depends a bit on the phasing over the year. Absolutely, what we still have to deliver, it will come.
In 2015, on a full year basis, you should be there?
Yes.
Okay. A follow-up on the 2013, your earnings in hygiene grew a bit less than what you saved in terms of cost savings, i.e. organic growth was below what you saved, or organic growth was negative in earnings. Can you summarize the outlook for 2014? We have discussed investments in India, we have discussed less headwinds from China and Russia in terms of these relaunches. What would be the magnitude? Are the investments in India in the same ballpark than these sort of headwinds have been in Russia or China, or are they considerably smaller in 2014? How should we see the organic earnings growth in hygiene?
India is smaller than the impact you have seen from China and Russia, definitely. Just like that will have a positive impact. Otherwise, we are not going to give you any forecast exactly how it looks and what we are doing.
The first assumption, yes.
Okay, thanks. Finally, in tissue, you have discussed more competition in personal care space, especially in diapers from private label. Have you seen anything on the tissue side in Europe from private label guys in 2013 becoming more aggressive or less so?
Just a comment to more competition private label. When you say that, you have to remember that we are the biggest private label.
Fair enough.
Yeah. It's actually helping us. No, not really, no.
All right. Thank you.
Yes. Oskar Lindström from Danske Bank again. Regarding the increased marketing costs that you had in China and Russia now in Q4, you're talking about them that they impacted actually all of 2013. I don't recall you having talked a lot about that in earlier earnings calls. Was the magnitude fairly small in the first nine months or even in Q3, and it was really in Q4 that this became significant? I'm trying to understand to what extent this also impacted the first nine months as opposed to only the first to fourth quarter.
Well, if I remember right, I think we have some higher impact of price mix and A&P even in the first nine months, which of course is included in this. The problem is, if you really communicate everything that you know in a situation like this, you will also tell your competitors what you're going to do. If you do that, the cost would be even higher to get into the market. That's why you have to be very careful to say that, of course, I know what we're going to do Q1, Q2, Q3, Q4, when it comes to launches, et cetera. That's nothing we want to give away because then we will get much more resistance from the competitors. We are also trying to understand every day what Procter & KC is going to do so we can mitigate that by action.
We have to be very careful to say that now we're going to invest heavily in China to get back to the shelves, because then it will be much more difficult. We have to have a balance there, what we actually communicate to you and the risk of that hurting us on the market side.
All right.
I don't know if you understand.
Yes. I understand. Thank you.
Okay. We have some questions from the telephone conference as well. Operator, let's open up that line and start with the first question.
Thank you. If you would like to ask a question over the telephone, please press star one. Your first question comes from Celine Pannuti from J.P. Morgan. Please go ahead.
Yes. Good morning. I have a few questions. First of all, if I look at pricing for tissue, where you said that you had a sequentially higher pricing in Q4 in Western Europe, but then you had an offset from U.S. price decline. Am I right, first of all, to believe that this U.S., did you said it was only temporary in Q4? If you could clarify that, and what should we look on pricing in 2014, given that if I understand well, you kind of hinting to a rather soft raw mat inflation? That's my first question. My second question is that you have been tracking at around, I think, 3%-4% growth in tissue for the nine months, and we didn't see much growth in the fourth quarter. Are you still comfortable with your 3%-5% annual growth as we go into 2014?
Those would be my two questions, please. Also, I have another question. You mentioned Vinda. That was it. You said that you would see substantial synergies. Can you elaborate effectively on the plans you have for Vinda, and maybe give some quantification? I think it's quite a meaningful acquisition. Thank you.
When it comes to pricing, I comment that on the margin development on tissue, that has been reasonably good, but it's not good enough, which means that we need to continue to increase prices and make sure that we deliver on the cost-saving program. You know we have a target on return on capital employed on tissue of 15%, and we're not there, and we need that return really to have an investable business over time. We need to increase prices, so we do have some slight raw material increases, but that should not per se be the only reason for having a price increase. That goes both for Europe and U.S. Talking specifically on U.S., it's not really an overall market price decrease. It's a very specific situation that I rather not comment on.
Obviously, we will have to have further price increases in the U.S. What was the second question?
Growth.
Yeah, growth. We do have the ambition, as you know, Celine, of 3% to 4% growth in tissue organically, and we will absolutely stick to that. In certain situation, we may focus a little bit more on the margin than the growth, if we see opportunity to do that. Overall, we still have the ambition of 3% to 4% growth in tissue. It's always a balance between margin and growth. Vinda, it's a listed company, and Lennart and I am now in the board of the company, and we know the rules of the Hong Kong Exchange, so I can't really comment upon that until we have an agreement with Vinda how we should do it, and we communicate it together.
When could that happen?
I want to happen it as fast as possible.
Do you think that you would be ready already this year to launch your own product into Vinda distribution should an agreement happen as fast as poss?
I would be disappointed if not.
Okay. Thank you.
Okay, operator, let's have the second question from the telephone.
Thank you. Your next question comes from Kartik Swami from Bank of America. Please go ahead.
Hi there. Thank you very much for taking my question. Kartik Swami, again, from Bank of America Merrill Lynch. Just had one question, if I may. If I understood correctly, the product situation on baby diaper in Russia and China was pertaining to a rollback of an old product which was subpar in terms of quality relative to the rest of the group. I was just wondering, are there any other gaps in your product range in China which may require a similar treatment, so a rollback of an old product and the introduction of a better product, that's kind of stretching across your legacy and Vinda operations?
The rollback was only in China, not in Russia. No, there is no other situation like this in China.
Thank you very much.
Thank you.
Okay, let's have the third question, operator, please.
Thank you. Your next question comes from Peter Testa from One Investments. Please go ahead.
Hi. Thank you very much. A couple questions, please. Maybe just to try to put a line under this Chinese question as to how it impacted Q4. Can you be, please, a bit more specific as to what you think the sales impact and EBIT impact in personal care was from this rollback situation in China?
Well, what we gave was the total baby impact, Lennart, didn't we? On personal care, if we would have excluded baby, the EBIT results increase would have been plus 5%. I'm not going to go in specifically to China.
Okay. Was that the vast majority in China, was also some of that the European points you made?
Well, I did discuss Russia also.
Yes. Okay. When looking into the start of this year or 2014, you described the Chinese situation as though on the technical part of it being largely solved. There's some investment with [currencies] , and I guess in Russia. You would expect to substantially but not fully recover that in Q1 and look to get the rest through the year?
No, what I said is that with the program we have, you will see the impact after Q1.
Of course, you will see some positive impact in Q1 also, but the sort of major recovery, if it has an impact that will make the profitability to increase to 5% from what we have now, it's quite a substantial thing we are doing, yeah.
Right. Okay. When looking through the innovation impact as you launch new products into the market, can you give a sense, would you expect a certain amount of turbulence as you're replacing products elsewhere in the group from this? Do you expect this to be much smoother, more strictly additive through 2014?
If we look at some of the major launches that we will have this year, it will be in an environment where we have much more experience and much better control, and we'll not risk to have the situation of huge inventories in distributors when we do it. That will not happen. Of course, when you introduce new products, you always have startup costs, et cetera. That's also the way to improve profitability. We need to introduce new products on the market, and we have some great ones coming out.
No, of course. Then specifically inside Inco, where the sales growth is still quite good but has slowed a bit. When you look around that, do you see this as related partly to how you're introducing products at this point in time into also into 2014, or what is your comment on that, please?
Well, when it comes to Inco, we always try to balance growth with margin, and obviously, we could grow much faster if we wanted, but then at the cost of the margin. There's always a balance between these two. We had a great growth in emerging markets. We even had a great growth in Europe in a market that is not growing, which means that we are actually gaining market shares. We try to balance that in a way.
Okay. Last question is just on M&A. You talked about M&A as being part of your strategy. I know it's not something one can forecast, but when you look at M&A and M&A opportunities, would you expect significant opportunities in 2014, 2015, or is it something that's not really visible based upon what you can understand? Just maybe if you could help us understand within your growth strategy, how you see the M&A component of it, please.
I think the only comment I can make there is that we're not going to do anything that destroys the balance sheet.
Okay, perfect. All right, thanks very much for your help.
Thank you.
We have a final question from the telephone. Operator, please go ahead.
Thank you. Your final question comes from Chas Manso from Société Générale. Please go ahead.
Yes, good morning. I have a few. Firstly, you talked about your A&P spend to sales in 2014 being broadly stable. You have talked about increased investments behind these new launches in China and in Russia. Does that mean elsewhere there are offsets? Is the A&P stable but the new investments are part of that or are they incremental on top, so overall it will go up? That's question number one. Question number two, you were a bit shy about the U.S. tissue pricing erosion. Without going into details, could you answer the question about whether this is a temporary erosion or whether it's a longer-lasting erosion? Could you talk about the sort of innovations for 2014, at least the ones you can talk about at this stage?
Finally, about these new launches in China and Russia, could you perhaps give us a bit more color about the scale and scope of them? You said you wanted to recover your previous value segment volumes. Could you give us an indication of how big those were? That's it. Thank you.
When it comes to A&P, we don't see any increase, including what we do in China in relation to sales. That's our plan. I don't see that it will impact negatively another category.
U.S. tissue is temporary. When it comes to China, I can't really comment on that.
You can't comment on your previous volumes?
Sorry, on the?
On your previous volumes? What your kind of number of baby diaper units you had before at the peak?
I don't want to comment on our ambitions on that one, because then I will comment that to the market also.
Okay.
When it comes to innovation, well, as I said, we do have more innovations in the pipeline now that we can actually market, which is very positive. It's in all categories within hygiene. From that perspective, it will be an exciting year this year. I don't really want to give out what we have. I guess you won't get that from Procter or KC if you ask.
I was just wondering whether some had already been announced to the trade or already been rolled out.
Some have been announced and some not.
Okay. Thank you.
Thank you very much.
Okay, with this, I think we conclude the Q&A session. Any final comments from you, Jan?
I don't think so. I think we've covered almost everything now. Thank you very much.