Acquisitions, investments and divestments

Two girls sitting in the grass (photo)

Initiated work in order to propose to the Annual General Meeting 2017 to decide on a split of the SCA Group into two listed companies: hygiene and forest products

On August 24, 2016, SCA announced that the company would initiate work in order to be able to propose to the 2017 Annual General Meeting to decide on a split of the SCA Group into two listed companies; one for the hygiene business and one for the forest products business. A split of the Group and a distribution and listing of the shares in the subsidiary which today operates the hygiene business, is expected to increase focus, customer value, development opportunities and enables each company to successfully realize its strategies under the leadership of separate and dedicated management teams, two different boards of directors and independent access to capital. This is considered to increase value for SCA’s shareholders in the long term. In addition, the synergies between the operations have diminished over time and are currently limited. An evaluation of various methods and structural alternatives to carry out a complete split of the business into two separate companies has been carried out. Therefore, the Board of Directors intends to propose to the 2017 AGM a distribution of all shares in and listing of the company’s hygiene business. Distribution to shareholders is planned in proportion to their holdings of Class A and Class B shares. If shareholders approve the proposal, the new hygiene company is planned to be distributed and listed on Nasdaq Stockholm no later than in the second half of 2017.

Acquisition of BSN medical, a leading medical solutions company

In 2016, SCA announced that it had entered into an agreement to acquire BSN medical, a leading medical solutions company. BSN medical develops, manufactures, markets and sells products within wound care, compression therapy and orthopedics. The purchase price for the shares amounts to EUR 1,400m and takeover of net debt to approximately EUR 1,340m1). The completion of the transaction is subject to customary regulatory approvals. Closing of the transaction is expected to take place in the second quarter of 2017.

BSN medical is an innovative medical solutions company with well-known brands such as Leukoplast, Cutimed, JOBST, Delta Cast, Delta Lite and Actimove. The company has a sales organization with sales in more than 140 countries and production in eleven countries as well as approximately 6,000 employees.

The BSN medical acquisition is an excellent strategic fit for SCA and supports the company’s vision to improve well-being through leading hygiene and health solutions, two closely interlinked areas. BSN medical has leading market positions in several attractive medical product categories and provides a new growth platform with future industry consolidation opportunities. SCA’s incontinence business, with the globally leading TENA brand, shares similar positive market characteristics, customers and sales channels with BSN medical, which will provide opportunities for accelerated growth through cross-selling.

BSN medical reported net sales for 2015 of EUR 861m (SEK 8,050m), adjusted EBITDA2) of EUR 201m (SEK 1,879m), an adjusted operating profit3) of EUR 137m (SEK 1,281m), an adjusted operating margin3) of 15.9%, and an adjusted return on capital employed3) of 7.7%. BSN medical reported net sales of EUR 627m (SEK 5,872m) for the first nine months of 2016, adjusted EBITDA2) of EUR 151m (SEK 1,414m), an adjusted operating profit3) of EUR 103m (SEK 965m), and an adjusted operating margin3) of 16.4%.

The acquisition is expected to be accretive to SCA’s earnings per share from the first year. BSN medical has high cash conversion and an asset-light business model.

In relation to the acquisition, SCA expects realize annual synergies of at least EUR 30m with full effect three years after closing. Restructuring costs are expected to amount to approximately EUR 10m and are expected to be incurred in the first three years following completion. Transaction costs amount to approximately EUR 25m, of which approximately EUR 15m is recognized as an item affecting comparability in the fourth quarter of 2016. The remaining costs will be recognized as an item affecting comparability in the second quarter of 2017. Intangibles related to the acquisition are expected to amount to approximately EUR 2.7bn. The acquisition will be fully debt-funded and SCA has committed credit facilities in place. SCA remains fully committed to retaining a solid investment grade rating.

SCA completed the acquisition of Wausau Paper Corp., a North American AfH tissue company

In 2016, SCA announced that the acquisition of Wausau Paper Corp., a leading North American company, had been completed for a total purchase price of USD 513m in cash. The company manufactures and markets AfH towel and tissue products, along with soap and dispensing systems. The combined operations provide customers with access to a comprehensive portfolio of food service offerings, premium tissue and washroom products. The acquisition is expected to generate annual synergies of approximately USD 40m, with full effect three years after closing. Synergies are expected in sourcing, production, logistics, reduced imports, increased volumes of premium products and reduced SG&A costs. Restructuring costs are expected to amount to approximately USD 50m.

SCA completed the divestment of the hygiene business in Southeast Asia, Taiwan and South Korea to Vinda

In 2016, SCA announced the completion of the divestment of hygiene business in Southeast Asia, Taiwan and South Korea for integration into Vinda International Holdings Limited (“Vinda”). SCA is the majority shareholder in Vinda, one of China’s largest hygiene companies. As part of the transaction, SCA and Vinda have signed an agreement regarding the exclusive license to market and sell the SCA brands: TENA (incontinence products), Tork (AfH tissue), Tempo (consumer tissue), Libero (baby diapers), and Libresse (feminine care) in Southeast Asia, Taiwan and South Korea. Under the agreement, Vinda holds the rights to these product brands in these Asian markets. Vinda also acquired the brands Drypers, Dr.P, Sealer, Prokids, EQ Dry and Control Plus in these markets. The purchase consideration amounted to HKD 2.8bn on a debt-free basis. Vinda is listed on the Hong Kong Stock Exchange.

Divestment of holding in the recycling company IL Recycling

During 2016, SCA sold its 33.33% shareholding in the recycling company IL Recycling for a purchase consideration of SEK 236m.

Closure of tissue production plant in Spain

In 2016, SCA announced that a tissue production plant in Sant Joan de Mediona, Spain, will be closed. The decision is in line with the company’s strategy to optimize its geographic production footprint in order to drive its cost and capital efficiency and increase value creation in the Tissue business area. The production plant has an annual capacity of 45,000 tons.

Restructuring measures at tissue production plants in France

In 2016, a decision was announced by SCA that to further improve efficiency and strengthen the competitiveness of the tissue operations, restructuring measures will be implemented at the Hondouville and Saint-Etienne-du-Rouvray production plants in France. In Saint-Etienne-du-Rouvray, SCA has decided to divest production of tabletop products for consumers to focus on the plant’s core operation: household towel and toilet paper production.

Closure of baby diaper business in Mexico

During 2016, SCA announced that the baby diaper business in Mexico will be closed as part of the work to address weak market positions with inadequate profitability. The baby diaper business in Mexico had net sales of approximately SEK 340m in 2015.

Discontinuation of hygiene business in India

In 2016, SCA announced the decision to discontinue its hygiene business in India. Four years after entering the Indian market, SCA’s conclusion is that profitability cannot be achieved within a reasonable time frame. SCA prioritizes growth in selected emerging markets, such as China, Southeast Asia, Latin America, Eastern Europe and Russia, where the company already holds strong market positions. The hygiene business in India reported total net sales of approximately SEK 110m in 2015, the majority of which was related to baby diapers. Discontinuation of the hygiene business will take place in the first quarter of 2017.

EVENTS AFTER THE END OF THE YEAR

SCA strengthens tissue business in the UK

On January 26, 2017, SCA announced that it is investing in a through-air drying (TAD) machine at its tissue plant in Skelmersdale in order to meet the growing demand for high-quality tissue and strengthen the product offering in the UK. SCA also decided to close an older tissue machine in Stubbins and an agreement was signed to divest the tissue plant in Chesterfield to Sidcot Group Limited. These measures are part of SCA’s Tissue Roadmap and are aligned with the company’s strategy to streamline production and secure capacity for future growth in order to increase value creation in the Tissue business area. Both initiatives are subject to customary consultation with employee representatives.

Following the investment in the tissue plant in Skelmersdale of approximately SEK 160m, production capacity for TAD mother reels will amount to 28,000 tons. The cost for closing the older tissue machine in Stubbins, with an annual production capacity of 20,000 tons, is expected to amount to approximately SEK 120m and will be recognized as an item affecting comparability, most of which in the first quarter of 2017. Of these costs, approximately SEK 70m is expected to affect cash flow.

Sidcot Group Limited will pay a sales consideration of approximately GBP 3m (about SEK 35m) for the production facility in Chesterfield. The facility produces mother reels but has no converting capacity. SCA will have no internal need for the type of mother reels produced at the plant. The annual production capacity is 31,000 tons. An impairment loss of about SEK 10m is recognized as an item affecting comparability in the fourth quarter of 2016. Closing of the transaction is expected in the first quarter of 2017.

1) Estimated as of December 31, 2016.
2) Excluding items affecting comparability.
3) Excluding items affecting comparability and including BSN medical’s purchase price allocation amortization.

AfH (Away-from-Home) tissue
Tissue sold to bulk consumers such as hospitals, restaurants, hotels, offices and industrial premises.