Enhancing a successful strategy

There is a growing awareness of the relationship between hygiene and health, as indicated by the UN’s recently announced global development goals. Combined with a growing and aging population, this is creating greater demand for our products. At SCA, we are deeply committed to ensuring that our products make everyday life easier for millions of people around the world every day.

Organic sales growth in 2015 amounted to 5%. Operating profit, excluding items affecting comparability, rose 10% compared to the previous year and amounted to SEK 13,014m. Operating cash flow increased 16% compared to the previous year.

To further intensify the focus on the Group’s two main operations, we decided to initiate a dividing of the Group into two divisions: a Hygiene division and a Forest Products division. During the year, we also continued to further enhance SCA’s hygiene organization, which took effect on January 1, 2016.

We achieved favorable results in 2015 through continuous operational improvements and consistent strategy implementation focused on profitable growth, innovation and efficiency.”

Investments for profitable growth

During 2015, strategic investment decisions were made, for example, in Brazil, Sweden and North America.

Brazil is the third largest retail market worldwide for incontinence products. In an effort to expand our production capacity and improve our long-term profitability, we are investing in a new production facility in Brazil.

To satisfy the growing demand for pulp, we are investing SEK 7.8bn in increased capacity for pulp production at Östrand pulp mill in Sweden. The investment will enable us to double our pulp production while simultaneously creating a world-class mill in terms of cost-efficiency.

During the year, SCA made a public bid for Wausau Paper Corp., one of the largest producers of AfH tissue in North America. The acquisition of Wausau Paper is an excellent strategic fit for us and strengthens our presence in North America. The Wausau Paper product portfolio complements SCA’s offering in North America and gives us access to premium tissue in the region. The acquisition was closed in January 2016.

Successful efficiency work

Our efficiency work continued, with a focus on the entire value chain. Considerable savings were achieved, for example, in material sourcing, distribution and production efficiency. As part of the cost-savings program related to the acquisition of Georgia-Pacific’s European tissue operations, a production plant in France was closed during the year. The program was concluded at year-end, but we continue to see opportunities for efficiency improvement measures.

Innovations that benefit the consumer

Creative innovations and product launches are a top priority when it comes to delivering increased customer and consumer value, as well as reducing resource consumption in all stages of the value chain, which contributes to sustainable development and lower costs.

We introduced approximately 30 innovations and product launches during 2015. In the baby diapers segment, we launched Libero Touch, our most significant innovation in baby diapers since “Up & Go” 20 years ago. Libero Touch is a specially designed product that offers superior fit and softness never before seen on the market.

Customers and consumers are increasingly requesting digital solutions that simplify their day-to-day activities. In addition to offering products online, we are also working to digitize our solutions. The “Internet of Things” solutions from Tork are packaged under the name Tork Solutions. These products offer intelligent solutions for public spaces, which improve efficiency, quality and communication. Tork Solutions includes Tork EasyCube^™, which provides facility managers with real-time information regarding visitor numbers and levels in soap and paper dispensers in washroom facilities, and Tork SmartFresh^™, which is an automatic toilet system that keeps toilets clean and fresh. Tork Solutions provides information about cleaning requirements and what needs to be refilled, thus streamlining property operations for our customers and, most importantly, offering visitors a more pleasant experience.

Action to increase profitability

In emerging markets, our aim is to focus on fewer markets to ensure we are successful in capturing leading market positions wherever we decide to operate. Due to weak market positions and insufficient profitability, we exited the baby diaper markets in Brazil and South Africa and changed to an export business for baby diapers in Thailand.

In the forest products operation, we decided to close down a newsprint machine at Ortviken paper mill in Sweden as a result of declining global demand for publication papers and weak profitability. In addition, efficiency-enhancement actions were implemented at our kraftliner mills in Sweden.

Strengthened cooperation with Vinda in Asia

Since 2013, SCA has been the majority shareholder in Vinda, one of China’s largest hygiene companies. During the year, we decided to further strengthen our cooperation by divesting SCA’s operations in Southeast Asia, Taiwan and South Korea to Vinda. This strengthens the collaboration between SCA and Vinda and enables us to leverage our joint strengths to build a leading Asian hygiene business.

Raising hygiene awareness

To increase awareness of the importance of good hygiene and break the taboos relating to incontinence and menstruation, we continued our collaboration with the UN Water Supply and Sanitation Collaborative Council (WSSCC), which commenced in conjunction with the participation of our female Team SCA in the Volvo Ocean Race. In May 2015, SCA and WSSCC participated in a seminar at the UN headquarters in New York. The seminar included a discussion on how the lack of washroom facilities and hygiene products impacts women’s social role, and the importance of cooperation between the public and private sectors in this area.

Creating value for SCA and society

Corporate success is closely related to social challenges. The growing elderly population is one such challenge in which effective incontinence care can contribute to a solution. Using TENA Solutions, we conduct an extensive analysis of each nursing home’s specific requirements in order to develop the optimal solution. This results in less leakage and skin irritation for care recipients, while at the same time freeing up more time for personnel and reducing the total cost. We create value for SCA, while also creating value for people and society.

In 2015, SCA qualified for inclusion in the Dow Jones Sustainability Indexes, one of the world’s most prestigious series of sustainability indexes, and was named the industry leader in the Household Products sector. SCA also qualified for the Climate Disclosure Leadership Index, in which the Group gained the highest grade.

Ethics are another top priority and we carry out ongoing employee training in order to minimize the risk of unethical behavior in our operations. During the year, the competition authorities audited SCA’s operations in various areas, including Chile. SCA cooperates with the authorities and provides all information requested. During 2015, we conducted extensive training in competition legislation, and I would like to underscore that all types of illegal collaboration – as well as other deviations from our ethical rules – are totally unacceptable. Read more about our activities in this area in SCA’s Sustainability Report.

Female Team SCA crosses the finish line

In accordance with SCA’s work aimed at offering women equal opportunities as men, socially, professionally and educationally, SCA participated with the first female crew to compete in the Volvo Ocean Race in more than ten years – Team SCA – in 2014–2015. Several activities focusing on women were featured, at the same time as we had the opportunity to highlight SCA as a leading global hygiene and forest products company. The project was successful and thanks to Team SCA, we attained widespread exposure of the SCA brand and a distinct connection to our customer and consumer brands.

Conclusion

2015 was an eventful and dramatic year for SCA, starting with major changes in the Board of Directors and Executive Management Team. We achieved favorable results in 2015 through continuous operational improvements and consistent strategy implementation focused on profitable growth, innovation and efficiency. I would like to thank all of our employees and customers worldwide and I look forward to an exciting 2016.

Magnus Groth
President and CEO