Josefin Edwall, and I'm head of communication for SCA, and today's speaker is, as usual, our CEO, Jan Johansson, and we have also the CFO, Lennart Persson, joining us today. Jan will go through the report, and in the end, we will, as usual, have a question and answer session. Jon, please go ahead.
Thank you very much. I will start with some macro trend that we had last year. To conclude, we were not very much helped by the global GDP development 2012. Overall, we had a growth of 2.5% globally. Western Europe went down by 0.3, and as you know, that's the bulk of our business. U.S., slight growth of 2.2. China, good growth, 7.7, but still below the year before. Looking at some of our business area, we still saw a quite good momentum in tissue, and particularly in the emerging markets with a good growth. Some growth in the Western Europe, and a little bit higher in Eastern Europe. Personal care, incontinence is continue to develop very positive for us. We are gaining market share. We have a good growth in emerging markets.
In all our categories in personal care, we still have a very good growth in emerging markets. The business areas that are suffering from the weak economy is, of course, forest products, and we continue to see decline in particularly in publication paper, where newsprint were down by 10%, LWC was down by 9%, SC was down by 4%. Stable demand in our sawmills operation, but overcapacity in production was pressing down the prices. We did, however, see an improved market for kraftliner with a healthy balance, and the price increases that we indicated have gone through. That's the part of forest that had a positive momentum last year. Looking at SCA, we of course, had a very exciting year with a lot of changes.
With divestment of the packaging business and of divestment of our newsprint business in U.K., Aylesford, also signing a contract to sell our operation in Austria, Laakirchen, which is SC paper. On the other hand, we did some acquisition, Georgia-Pacific tissue business in Europe. We went into China with Everbeauty. We increased our sharehold to 100% in Chile with PISA. We also have announced major restructuring programs, both in hygiene business and in our forest operations. We also had a major new organization within hygiene, which you didn't see so much of externally, but the purpose of that is to, of course, increase the process to the performance to our customers and consumer, but also to reduce costs. We removed one layer totally in the system, getting the business, the customer, consumer closest to the top management of the company. We expect Laakirchen to be closed during Q1.
The priorities we have had for the last couple of years is, as you know, efficiency, innovation and growth. Efficiency we measure in cost, in cash flow, and in capital efficiency. As you may have seen of the development in particular maybe Q4, but also the past years, this has been rather successful in terms of use of cash flow. Innovation, very important to keep the profitability, even more important to attract customers and consumers, but also to drive growth. That is a very important focus area for us. Growth is and will be a combination of organic and acquired growth. Looking at the efficiency that we have communicated, you know this, SEK 300 million saving in our hygiene operation, the SEK 125 from synergies from GP and the SEK 1.3 from the forest operation.
The difference between these cost programs that we initiate in hygiene and the acquisition of GP is that the bulk of it is in supply chain, which means it will take some long time to get it into P&L than if it would be administration or sales or marketing cost. That's also why we have communicated that you will see a slow start then it will come gradually with the full effect, as we stated, 2015 and 2016. Innovation. We have introduced a lot of new innovations on the market last year, that is in all our categories. That's, of course, the best way of driving profitability, also driving force. We continue to improve our performance when it comes to innovation and product development.
We have a lot of very interesting things in the pipeline that will enter into the market in the coming one to two years. Looking at growth, we had a sale growth of 11% in the group. High growth in emerging markets. Personal care grew with 22%. Of that, 12% was acquisition. Tissue was growing by 9%, of which 6% was acquisition. Of course, the acquisitions per se, if we include all of that, all in all, it's 11%. Of course, Forest was going down during the year, that's a negative impact of the growth figures. Looking at the summary. Sales growth, as I said, 11%. We have Hygiene growth at 15%, it's volume. It's product acquisition also the strong growth in the emerging markets. Of the 11%, all in all, acquisition is 8%.
If we take away all the adjustments, we had a negative impact of the Swedish crown of SEK 900 on sales. We still have been suffering from a stronger Swedish crown during 2012. Forest was down 8%. EBIT increase of 17%, of which acquisition is 4.5%. Also a very healthy development of cash flow, where we did do quite well on the working capital, in particular in the last quarter. Looking at these figures, one maybe should highlight the margin that we are on a yearly basis, now above 10% overall in the company. We have increased the profit before tax with 21%. We have a very strong balance sheet. We have a gearing of 55%. If we take away the pension obligation, the gearing is as low as 48%. You may remember that we have a gearing target of 70% in the company. Coming into Q4.
We have a healthy sales growth of 21%, of which 16% is acquisition. Of course, the volume is coming in there and strong growth in emerging markets. Forest went down by 9%. We had a reduction in sales in publication paper with 6% due to the stops we had last quarter. Including Aylesford, we are down by 18% in sales in publication paper. As you remember, we took some stops in the fourth quarter due to the situation where we couldn't actually get the volume out on the market. EBIT increased by 16%, of which 10% is acquisition. Higher volumes, but we also have had some help from the raw material prices during 2012. We also see cost savings actually coming into the P&L during the year. Here also, margin above 10%, and we have an improvement of profit before tax of 24%.
If you look at earnings per share, you also have to remember that the lower tax rates in Sweden is impacting that because that came in during Q4. You can't really compare that with last year. If we go Q3 to Q4, we continue to grow. Sales growth of 6%, of which 3% is from acquisition. We improved EBIT by 6%, of which 3.5% is from acquisition. Then, of course, the positive thing here is that all three business areas are improving profitability compared to Q3. Going into the different business area, with a sales growth of 15%, I'd like to concentrate on the like-for-like because of course, there is a lot of adjustments in this, but just to have the real comparison between the Q4 and Q4. 15%, of which 9% is from acquisition.
As you can see, we have a healthy growth in all our categories compared to last year, and also a very good growth in emerging markets. We also have an improvement of EBIT of 16%, of which 2.5% is coming from acquisition. Higher volume, lower material cost, and cost saving is impacting that. Now we are at a margin of 12.6%. Tissue, a growth of 32%, and of course, Georgia-Pacific is coming in here and giving 27% of the 32% in growth, but also a very good growth in consumer, Away From Home, and in particular, emerging markets. The bulk of the growth is, of course, from emerging market, excluding the acquisitions we did last year. An EBIT improvement of 41%, of which 20% is coming from acquisition. Better volumes, lower raw material cost, and cost savings.
It's the same development as you've seen in Personal Care. With a margin above 11%, 11.4%. I think we promised in the beginning of the year that we should be above 10% in margin in Tissue. Coming into Forest, with a sales decrease of 8%. As I said, publication paper is impacting that. We have Recent stable operation in our solid wood and kraftliner and pulp, but the hitting volume is mainly in publication and also substantial decrease in the result for last year. Lower prices, but also negative impact on currency of SEK 280 million. Then, of course, the cost of the stops in the publication operation during Q4 is impacting this negatively. What we also are proposing is that we should have a dividend increase of 7.1% from SEK 420 to SEK 450.
This will then, of course, be decided by the AGM later this spring. Summarizing, the transformation of the company is continuing. Everything so far is going according to plan, including the efficiency program that we have launched, initiated. The new organization is in place and is actually working very well, will help us to improve our competitiveness in the market. Good sales, good earnings in emerging markets. Of course, forest hit by the weak economy and the stronger Swedish crown. Cash flow very strong and we also increase our dividend. Looking forward, we do see some headwind coming up. We see raw materials going up. Pulp is coming up. Oil-based material is also coming up. We will, as we always do, offset that over time, even though contractually we will get the price increases sooner than we will have the price increases as we normally have.
From a market perspective, we see good demand for our hygiene products. We see still a good growth in emerging markets. When it comes to forest operation, there are unfortunately still pressure on the prices when it comes to publication paper. Our assumptions today is that we will continue to see some reduction on prices on that side, but not when it comes to our saw mill operation and our kraftliner operation. Publication still is in a very difficult situation. As always, we will have the seasonality impact during Q1. With that, ladies and gentlemen, I thank you, and we open up the floor for question and ask Lennart to join me.
Okay. Who wants to start? Let's take the first row here. Yes. You have a microphone.
Hey. Ulf Aronsson, I work for
Since we are addressing an international public, we probably need to answer any question in English. Since we are now just here to comment on the report, I will focus on the questions regarding the report.
Hello, this is Oskar Lindström from Danske Bank. A couple of questions. In your personal care division, margins declined sequentially while historically the seasonal pattern has been the opposite, i.e. higher margins in Q4 versus Q3. What is the reason for this pattern or this development that we saw this year?
Well, first of all, we had, as you know, Christmas, New Year that with a lot of the days without work. We had less invoicing days. I think it was 2.5% less invoicing days. We also have increased A&P during Q4 compared to Q3, those together are the explanation.
A follow-up on this. Should we expect a smaller sequential decline than usual in Q1 then?
I have given my comment on Q1, and you will see a seasonal impact in Q1.
Second question, in the tissue division, it appears your raw material costs came down sequentially. Would it be fair to say that your pulp costs bottomed out during this quarter?
Pulp costs really increase since the pulp price is going up, and we have a delay of 40-45 days before we get it into the P&L. It's quite marginal it's gone up so far.
You're not looking at trying to increase prices for tissue at this moment?
We will increase prices when raw material cost is increasing.
Right. Income from associates increased to, I think it was SEK 94 million, again, higher than what you had in Q3 and significantly higher than what you had during the first half of the year. Is this just a seasonal effect again, or should we expect a sort of positive development in earnings in these associated companies?
It's throughout.
It's mainly coming from Australia, Lennart, if I remember rightly.
Yes, it is.
He is in the board of that company, so maybe.
Therefore it will continue pinching. We had some restructuring costs during the first half of the year, so that is the reason that you have seen it during the second half. Hopefully, if the business is stable, et cetera, we will continue to see that. In that line, we have also the carrying earnings from Vinda.
Right. There was nothing exceptional in the Q4 result for associates that we should expect to differ going forward?
It might come up from restructuring costs again, but not so much as we saw in the first half.
All right. Thank you very much. Those were my questions.
Okay. Let's take a question on the second row.
Thank you. It's Linus Larsson with SEB Enskilda. You say, Jan, that you expect a slow start to the cost savings programs. Would you care to comment a bit on the near-term progression? If you're looking Q1 versus Q4, should we expect nothing, or are there some realized cost savings in the current quarter?
Well, as we explained when we launched the program, it is a program on supply chain, that means that it will take some time before we have rearranged the supply chain. It will be rather late. If I used slow, it was wrong, because it's not slow, it's according to plan. According to plan, it will actually come later than sooner in the plan. We do see some saving in Q4. Of the old program, we have some €125 million in saving on the €700 million program, and annualized, we have €500 million of that program, so that will continue to tick. On the €300 that we launched in November, it's annualized about €125 because we just started, so it's very little in Q4.
GP is still in the stage of negotiation with unions and planning for the restructuring, so we don't see anything of that in Q4.
Okay. Then if I may come back for a sec, again, to the margins in personal care, we had this accident in Japan, in Nippon Shokubai's mill in the autumn of 2012. I wonder how you look at the supply-demand situation in superabsorbents. Any price implications? Any margin implications for you in the year to come?
We have our contract secured. We have a formula for price changes, that related to oil prices, we have not been impacted by that at all.
Do you think you might be impacted?
Not as far as I can see.
Next time it expires?
Not as far as I can see today.
Okay. Just finally, you did highlight your strong balance sheet. I wonder on the M&A side, are you still actively looking for big acquisitions, or are you now in a phase where you will digest and integrate rather than look for new big acquisitions?
Well, we use some of it to increase dividends, but acquisition is part of our growth. We are looking for acquisition opportunities. Of course, you have to define what is big and small, but we are looking at that as a possibility.
Thank you.
Okay. Yes. Right over here in the middle, you will have a microphone.
Luke Elliott from Cheuvreux. One question on the raw materials. Then a couple of housekeeping questions. Since you were talking about, or we are all seeing that pulp prices are gradually moving upwards, could you give us some color on how you view the price of pulp developing during the year? We all know it's difficult, but what is your view?
If you look at the fundamentals, there is no driver for pulp increases. The consumption is not really going up to justify that. We have lots of new product coming in from South America. As in the past five, six years, everything depends on China, how they will act in terms of importing or not importing. It's very difficult to have a very clear view on it. It's obvious that there is a resistance on the market to price increases in pulp, and I think that resistance will continue.
Okay. Thank you. Then just a housekeeping question. What tax rate should we use in our models going forward now?
As you could see, we saw some lower now, but I think some 25, 26 is quite okay.
Thank you.
Lars Schei from Credit Suisse. Would you care to comment about what you're seeing in terms of demand growth in your key markets in 2013? Also, there's been some recent noise about Procter & Gamble sort of stepping up and trying to be somewhat more aggressive into the market. You mentioned increased A&P spend sequentially in Q4. Is that something you're seeing continuing, or is that happening somewhere else outside your geographies?
If you look at the last question, it's mainly directed to Russia and the Nordic country, Russia, because we want to grow market shares, and the Nordic countries is to keep profitability. From that perspective, you are right, and we've been quite successful for quite some years now. Demand on the market, if you look at the tissue demand in, particularly, in Away From Home, it's typically growing with the GDP, which means with the low GDP we have, it's very low growth. We also have an ambition to, even we have the size today, to grow the market shares. In our Personal Care segments, we don't see any negative impact of demand due to the financial situation we have on the market. It's actually up to us to get new innovations out to the market so we can actually improve the profitability.
Emerging markets still growing very good. Of course, the potential is enormous as long as the country or region is growing from an economic point of view. The only business we really see a real impact of the financial situation or the lack of growth is in publication paper.
If you weren't there to get some organic growth in the hygiene operations, what sort of numbers would you believe given your geographical mix? That obviously excludes an impact from acquisitions.
We have a clear target of 5%-7% in Personal Care and 3%-4% in tissue. We think we could continue with that.
Thank you.
Okay. I think we also have a question from the telephone. Operator, could we open up for that, please? Is the technique working or
maybe we have some over here.
Yeah. While waiting, we have another question from the floor.
Here?
Yes, again, here.
Hi, this is Oskar Lindström from DNB again. I just would like to come back to this topic of higher A&P spend in Q4. I recall correctly, you had also what you described as a higher than normal A&P spend in Q1, but said that the full 2012 A&P spend level would be in line with what you'd had sort of normally. We expect your A&P spend to rise in 2013? That something you're going to boost in able to promote top-line sales or?
It is in line with what's expected for the full year. Of course, we have also added Georgia-Pacific with some consumer tissue, and even in Away From Home, we do spend some A&P. From that perspective, it's been growing, but that's because we get new business into the market. Otherwise, it's been in line what we communicated in Q1.
A little bit on this topic, could you please comment a little bit on the competitive situation in the European hygiene market? You've consolidated the market. We heard back in, I guess it was November, that Kimberly-Clark would partially pull out of the European hygiene market where it was present. Has this had any effect on how you perceive the new level of competition?
It's of course, a little bit strange situation where the big American companies are leaving Europe. I mean, first Procter in consumer tissue, now Kimberly-Clark in baby and tissue. That is creating opportunity for us, so there's no doubt, and we will of course, grab those opportunities. What exactly we will do is not 100% clear yet, but they are in practice just leaving U.K., for example, with a substantial market share in baby. Of course, we will do something about that for France, Germany, et cetera. It's creating opportunities, and we are becoming stronger at the same time because one big competitor is out of the market.
All right. Thank you.
Let's have the mic in the middle again, and you will have a microphone coming from both ends it looks like.
On that note, if the one big competitor obviously exiting, someone else is picking them up. Is that an issue we should be concerned of, where private equity is coming in or other smaller private companies taking shares in the market?
They will probably sell some of the assets, but not all in all countries, which means that it need to be refilled by something, and that's either a private label or a supply with a brand. We would not go into a country if we wouldn't have the support of the retailers to do that with our brands. If we do get the support from the retailers, we probably would go in with our own brands. In different countries, this will be different solutions. Either way, it's strength for us because we are in both.
Thank you.
It seems like the telephone line should work, so let's try a second time.
Thank you. The question comes from Johan Sjöberg from Carnegie. Please go ahead.
Thank you very much. Starting off with the seasonal slowness that you see now in Q1 this year. I remember last year we were very surprised by this seasonality effect. I remember you also said that you boosted top line through quite significant A&P spending during the first quarter, which had a negative impact upon margins. Could you give us some more color what to put into our models here?
I know that we are not going to do a similar exercise this year in Q1. You will not see the sort of surprise on the cost side and maybe the positive surprise on the volume side. It will be more similar to the previous years because if you go five, six, seven, 10 years back in time, you will always see that you have a slightly lower sales in Q1. In the report, you can see it very clearly from the tissue and personal care that Q4 then slightly down Q1 and then up again. Hopefully, this stair will continue up all the time. Still you will have a slightly lower Q1. I can't comment on anything of the level, but the normal seasonality.
Right. If you look at personal care during the fourth quarter, normally you see margins coming up on the back of higher deliveries of incontinence products. Now you said that A&P spending increased quite significantly. Would you say that this was a normal quarter when it comes to incontinence, fourth quarter, that is?
Except that you had fewer invoice days, that clearly impacted all the business.
In terms of GP contribution for the fourth quarter, you stated in the third quarter release that it had an impact of SEK 182 million, I think. You mentioned now a figure after tax. What is the EBIT for Georgia-Pacific for the second half?
I can comment that we had a somewhat lower EBIT in the fourth quarter, it is also coming from that we have, what should we say, been working with acquisition balance. Now we have a more finalized, even if it is preliminary, we have a more finalized acquisition balance. The depreciation level has changed between the quarters here.
Okay. What is the running quarterly figure now going into 2013?
I will say that both these quarters have been a bit impacted by the startup of the Georgia-Pacific. As you know, for the first quarter and from the beginning, we had also these fair value market valuation of the inventory, which has also impacted it. I will not give you an exact figure for where we are running into the first quarter. It is according to plan.
Another way of answering that, Johan, is that even if you exclude the synergies from GP acquisition, we are not on the level that we will be in the current business since we haven't really been able to do what we want when it comes to working capital price increases, et cetera, due to the union negotiations we have.
Okay. Final question here. The one off during the quarter was quite high, and I know it's Laakirchen and it's the restructuring cost for the Forest product, even taking these into consideration, it's almost like SEK half a billion higher than what was communicated or guided for at least through these measures. What are those related to?
Now it is Laakirchen and then it is a restructure and cost related to the restructuring programs we have announced.
These are the part of the EUR 300 million Program, right?
Part is from that and part is from the Forest Program and also part from the Program we announced in October 2011.
How much of that Program now will be being realized?
Of the.
EUR 80 million.
700.
Yeah, of the EUR 80 million program.
Annualized EUR 500 million.
Annual.
Sorry?
Yeah, the same.
On the P&L Q4, SEK 125 million.
SEK 125. Okay. In 2012, how much have these been impacting the result as such? You mentioned annualized figure, what is the impact on the income statement this year or last year?
Of what?
The SEK 700 million program.
We haven't actually speeded it up to, and then communicated that. That's the figure we are giving.
Okay, cool. Thank you.
Thank you.
We had one more question from the telephone. Thank you.
Let's take next.
The next question's from Celine Pannuti from JPM.
Yes. Good afternoon. I wanted my first question to follow up on the different programs and trying to understand what you try to mean by your comments on how long it will take for them to be realized. If we are just on the SEK 700 million you just mentioned, am I correct in understanding that this will be completely finalized by the end of 2013?
Yeah.
Good. On GP, I understand that you are right now in the negotiation. At which point do you think you will be able to start doing what you want to do and start the plan for the synergies?
The full impact will still be as we communicated when we acquired it, and that is 2016. Exactly when it will start to run in depends on how fast we can finalize the negotiations with the union.
You should start this year, this first quarter, second quarter?
I can't say.
Okay. You made a comment on the EUR 300 million savings. You said you already started something in the fourth quarter. I didn't quite understand what you meant there and what we should expect for 2013.
What I said that we have started it, we have an annualized impact of SEK 195. On the Q4 isolated, it's very small. It's less than SEK 50.
Okay. The forest program that you just announced in December, have you already started working on it, will we have an impact already in 2013?
We have started the work on it, there will be a positive impact already 2013. We haven't communicated how much it is, it is a slightly different program from the others. We have some low-hanging fruit that will come in a little bit faster. It's not all in supply chain.
Okay, good. I have another set of questions on the growth rate. Could you give us the growth rate in emerging markets for the two divisions, Personal Care and Tissue? I saw that tissue growth accelerated nicely in volume terms in the fourth quarter. Was this all emerging market driven, or was there something else behind that?
It's some growth in the mature market, but not very much. The bulk of it is in emerging markets, the growth in Personal Care is 22% in emerging markets, and in Tissue, 19%. As I said, of which 12% is acquisition in Personal Care and 6% in Tissue.
12 and 6 you said?
Yeah. Acquisition.
Yes. Raw material. I know there have been some questions already on pulp prices. If we try to gather everything together, pulp prices, oil base, energy cost, how should we try to model your raw material inflation for this year in terms of the magnitude of it and as well the timing of it? H1 versus H2, for instance.
Well, what we have seen so far, the increase in pulp if I remember right, Lennart, is 2%, something like that, 2.3, 2.4. Which of course is not very much. We don't see any major drivers for price increases. Oil based has gone up a little bit more, following the increase in oil prices earlier last year, since we have a six-month delay of the prices. When you look at that, you have to look at oil price six months ago, and then you see what will hit us now. Energy, very difficult to say because it varies so much depending on the temperature, et cetera. We don't expect any major increases in energy. It's mainly oil based and pulp. Pulp so far, not very much.
All right. Pricing, you said there's no reason to increase pricing. We've seen a slight deceleration in pricing in tissue. Do you think we could get to negative number, or are you comfortable with flattish to slightly up?
I couldn't hear you clearly, what I said, it's absolutely necessary to increase prices.
Okay.
Yeah.
Perfect. Thank you so much.
Thank you.
Okay, we have one more from the telephone. When it's open, let's take the next one. Thank you. Your question comes from Kari Vinter from Handelsbanken. Please go ahead.
Yes. Thank you, Kari Vinter, Handelsbanken. A follow-up on the previous question. If you look at the deviation analysis that you provide every quarter, and if you look at the year-on-year trends in price mix category, you see that both in Tissue and Personal Care, there was a slight year-on-year decline in this. Is this still small enough to be typical variation down one quarter, maybe up next quarter, or are there any pricing pressures out there?
I think the price increases was made the year before, compensating for the price increases in raw material. This year, we haven't had any price increases, or rather price decrease in raw material. I think as we said in Q2 or Q3, I think it was Q2, that we had a few contracts that we needed to take down the prices in the market, nothing substantial. I wouldn't be worried about it.
All right. Also in the table deviation analysis in the other segment, both in Tissue and Personal Care, there is quite sizable negative number. Is this all A&P or is there something else there as well?
It's A&P, it's also distribution and some other items. It's also some referring back to what Lennart said when it comes to depreciation after the acquisition of Georgia-Pacific. That's also included in the other.
Okay, thanks. That's helpful. That was all.
Thank you.
Okay, apparently that was the last question. Let's take the last question from the phone.
Thank you. Last question from Peter Este from One Investment.
Hi, thank you very much. I just had three short questions, please. One is on the Georgia-Pacific negotiation with the unions. I was wondering if you could give us some color as to what the obstacle was so we understand the issue better.
It's absolutely no obstacle whatsoever. It's just the time it takes to follow the rules. There are no obstacles. We just need to play according to rules, and that takes some time.
Okay. You would regard this as within plan?
Absolutely.
Okay. On the capital markets day cost savings plan, you mentioned earlier sort of EUR 125 million in a year steps taken. Do you think by the end of 2013 that's the sort of run rate you'll be at?
Well, if I remember rightly, we communicated in that meeting that we would have a run rate around EUR 200 million by the end of next year on the EUR 300 million program.
End of 2013?
Yeah. The run rate.
Yeah. Run rate.
Yeah.
Okay. You're not changing that view?
No.
Okay. The last question was just on the European business in the personal care area, where we talked earlier about the people withdrawing. Can you give some sort of sense as to whether you think the shelf space which is going free, is it half one 2013 or half two 2013 opportunity?
Well, once you have declared that you're going to leave a market, you have left it. My guess is that it will be sooner than later.
Okay. Can you give a sense as to what sort of traction you're seeing in your discussions?
Not really.
Okay. All right. Thanks very much.
Thank you.
With that, do we have any more questions from the audience? No. Seems like we are done.
Okay. Thank you very much.
Ulf, thank you very much. We conclude this.