Economic value creation

Economic performance indicators

Net sales increased by 2% compared with the same period a year ago, to SEK 117,314m (115,316, 104,054). Emerging markets accounted for 32% of net sales (16% in 2007). Adjusted operating profit rose 7% to SEK 13,989m (13,014, 11,849). In Personal Care, net sales decreased by 2% and emerging markets accounted for 41% of sales. Net sales in increased by 5% and emerging markets accounted for 32% of sales. Net sales in Forest Products decreased by 4%.

Economic value creation by stakeholder1)

Enlarge image
Economic value creation by stakeholder (graphic)Economic value creation by stakeholder (graphic)

1) Based on SCA net sales in 2016.
2) Current expenditures, restructuring costs, strategic investments and acquisitions.
3) Raw materials, transport and distribution, energy and other cost of goods sold.

Employees

SCA offers its employees devcelopment opportunities and remuneration based on market rates. Remuneration comprises salary, pensions and other benefits.

SCA’s Remuneration Policy stipulates that the company is to offer competitive compensation. SCA follows local remuneration structures, provided they do not conflict with internationally established rules for minimum wages and reasonable compensation. In all the reporting countries, SCA pays above the legislated minimum salaries. France, Germany and Sweden are the wholly owned subsidiaries with most employees. In France, female managers’ salaries ranged between 96% and 105% of men’s. For women on non-managerial levels, the corresponding figures were 102–113%. In Germany, female managers’ salaries ranged between 87% and 90% of men’s. For women on non-managerial levels, the corresponding figures were 99% and 130%. In Sweden, female managers’ salaries ranged between 87% and 94% of men’s. For women on non-managerial levels, the corresponding figures were 97–104%.

In 2016, salaries totaled SEK 15,763m (14,880, 13,592), and social security costs, including pension costs, amounted to SEK 4,749m (3,246, 2,929). The Group’s pension costs totaled SEK 1,392m (1,403, 1,179) and comprised costs for defined-benefit and defined-contribution pension plans. The defined-benefit plans are based on length of service and the employee’s salary on the date of retirement and, in 2016, the net cost was SEK 612m (669, 541). The cost of defined-contribution plans amounted to SEK 780m (734, 638). More information is available in Note C1 and Note C5 in SCA’s 2016 Annual Report.

Suppliers

SCA strives to promote long-term relationships characterized by transparency, high quality and financial stability. We support our suppliers and work together with them to improve their overall performance in areas such as quality, safety, the environment and social responsibility.

Global commodities, such as pulp, superabsorbents, electricity and chemicals, are purchased centrally while other input goods, such as wood, are procured locally and thus contribute to local suppliers and local industry. Almost all of the fresh fiber purchased for the Swedish mills is sourced locally.

In 2016, the cost of purchased raw materials and services totaled SEK 79,171m (74,832, 67,559), making sourcing SCA’s single largest cost item, corresponding to 67% (65, 65) of sales, and a key investment in the value chain.

Society

SCA creates job opportunities and tax revenues in the local economies where the Group operates. In 2016, the tax expense, excluding items affecting comparability, was SEK 4,775m (3,306, 2,644). The reported tax expense corresponds to a tax rate of 36.5%. The tax rate, excluding items affecting comparability and a tax provision of approximately SEK 1.3bn related to ongoing tax cases in Sweden and Austria, was 26%. In addition, SCA’s total tax contribution includes social security costs, property taxes and VAT. SCA assumes a long-term and responsible approach, voluntarily committing to promote and develop local communities through a number of community relations initiatives with a focus on health, hygiene and education, see chapter Community relations.

Emerging markets

SCA’s strategy is to maintain and grow its positions in core mature markets and to increase emerging markets’ share of the hygiene business’ net sales and profit. China, Southeast Asia, Latin America, Eastern Europe and Russia are prioritized markets.

Historically, SCA has entered new emerging markets through joint ventures. In recent years, SCA has also expanded through wholly owned companies and greenfields, of which the greenfield in Brazil is an example. The incontinence site in Brazil was inaugurated in 2016.

SCA has a “cure or kill” strategy for unprofitable markets or categories. The first choice is to establish a plan to achieve reasonable profitability. If this fails or is deemed impossible, SCA will exit the market. As a consequence of this strategy, SCA left the Mexican diaper market in 2016.

When SCA acquires companies, or enters into a joint venture in emerging markets, the company adopts an approach that involves great respect for the local management’s in-depth knowledge of the market and prevailing conditions. Accordingly, to the greatest possible extent, the management is retained while SCA adds knowledge about innovation, brands, technology and economies of scale. Local growth creates local jobs.

SCA actively strives to deliver product offerings in emerging markets that are adapted to the market conditions. This includes offering affordable value products as well as packages containing fewer products in order to give low-income consumers living on a day-to-day budget the opportunity to buy for example a single diaper. It also includes distribution to small, stores where many low-income consumers make their purchases. All of SCA’s solutions, products and services are adapted to consumer and customer needs, whether they are economic, social or environmental.

Due diligence

Prior to initiating/establishing operations or acquiring a company, SCA conducts a feasibility study, including market and consumer studies, a review of the legal requirements in the market, including environmental legislation, and an assessment of the business climate and business practices. The recruitment of personnel with the appropriate values is crucial. SCA has well-defined procedures to ensure social, environmental and governance matters are part of the due-diligence process.

Our global tax principles

Tax paid by region 2016

Tax paid by region 2016 (pie chart)Tax paid by region 2016 (pie chart)

SCA strives to be a good corporate citizen and comply with the laws in all countries where we operate. Where laws need interpretation, and where appropriate interpretation so requires, we comply with the spirit of the law and not only to the letter of the law. The overall goal of our tax management is to provide SCA with the most favorable possible tax position, albeit risk-adjusted.

We acknowledge the legitimate interest of tax collection and believe taxation is important to advance economic development. We look to establish good working relationships with tax authorities in countries where we operate and never intentionally or knowingly take financial advantage of weaknesses in institutional structures or shortcomings in the tax collection process.

We comply with all statutory requirements in terms of reporting and disclosure of tax information without considering the balance between the burden on our business of doing so and the relevance of the required information. We understand the value of financial reporting to investors and society, and work to provide transparent and balanced disclosure in communicating our tax affairs.

Our approach to risk requires that we consider the implications of our tax management on the Group’s brand and reputation. We refrain from transactions unrelated to the context of our business and only take tax positions that can be sustained after full and correct disclosure. We utilize local tax incentives where this is not in conflict with our commitment to comply with local laws, but we do not use tax havens to gain tax advantages and we refrain from engaging in practices that would constitute prohibited state aid or other unlawful competition by governments. In our cross-border transactions, we aim to apply pricing and other conditions that are in compliance with both local laws and the OECD Transfer Pricing Guidelines for Multinational Enterprises.

Tax paid Tax payments by SCA units in different countries

SEKm

 

 

 

Country

2016

2015

2014

Sweden

–1,313

–79

–65

Germany

–516

–358

–271

Spain

–405

–90

–90

Netherlands

–215

–59

–191

China

–146

–236

–51

Belgium

–144

–80

–91

UK

–136

–115

–92

Austria

–94

–100

–60

Italy

–94

–87

–77

Mexico

–88

–121

–107

Columbia

–83

–72

–179

Ecuador

–67

–41

–21

Russia

–64

–59

–81

Slovakia

–61

–30

–39

Japan

–57

–35

–45

Denmark

–40

–26

–36

Finland

–37

–48

–8

Norway

–30

–41

–34

Costa Rica

–26

–14

–12

Poland

–26

–2

–26

Other countries

–157

–515

–525

 

–3,799

–2,208

–2,101

Shareholders

Sustainability, with an emphasis on business value, is part of SCA’s investor dialog. In 2016, SCA met with SRIs (Socially Responsible Investors) on several occasions, and participated in conferences in Paris and Frankfurt.

Investors with sustainability criteria hold at least 13% (14, 14) of SCA’s shares, according to a study conducted by the ESG (environment, social, governance) rating company Vigeo. This figure includes both investors with a best-in-class approach and investors who conduct some form of sustainability screening. The decrease in the percentage of capital held by SRIs is partly explained by the increase in SCA’s total floating shares. At year-end 2015, floating shares accounted for 83.17%, while the figure was 88.34% at year-end 2016. The results for SCA’s peers show a similar trend.

Vigeo also conducted a benchmark study in which SCA was compared with two key peer consumer products companies and one Swedish large-cap company recognized as a sustanability leader. SCA had a significantly higher share of investors with sustainability criteria than its peers and was on par with the sustainability leader. SCA’s share was included in 147 (131, 128) sustainability funds in 2016. Most of these are domiciled in the Netherlands, followed by Germany and the US. Of these, 12 had invested more than 2% of their assets in SCA shares.

Share performance

SCA generates shareholder value through dividends and share price appreciation. SCA aims to provide long-term stable and rising dividends to its shareholders. When cash flow from current operations exceeds what the company can invest in profitable expansion over the long term – and under the condition that the capital structure target is met – the surplus shall be distributed to the shareholders.

The Board has proposed a dividend of SEK 6.00 (5.75, 5,25) for 2016, an increase of 4.3%. In the past five-year period, the dividend has increased an average of 7.4% annually.

During the year, the SCA share price rose 4% to a closing price of SEK 257.30. In comparison, the OMX Stockholm 30 Index rose 5%.

At year-end 2016, SCA had 81,849 registered shareholders.

Indexes and funds

  • The FTSE4Good Global index and FTSE4Good Europe Index, which measure earnings and performance among companies that meet globally recognized norms for corporate responsibility. SCA has been included in the index since 2001.
  • SCA is included in the CDP 2016 Climate A List for leadership and recognition as a world leader for corporate action on climate change. SCA also qualified for a position on the CDP 2016 Forest A List and received an A– rating (leadership level) in CDP’s 2016 Global Report.
  • SCA was recognized at the WWF Environmental Paper Awards 2016 (Category “Transparency”) for publishing the forest, climate and water footprint of more than 50% of its paper products. Ten SCA products were recognized at the WWF Environmental Paper Awards 2016 in the category “Best Environmental Performance Paper Brands”.
  • Vigeo assesses companies’ environmental, social and governance (ESG) performance. SCA is included in the following sustainability funds of Vigeo: Ethibel Sustainability Excellence Europe and Ethibel Sustainability Excellence Global.
  • EPCI Euro Ethical Equity and EPCI Global Ethical Equity.
  • The OMX GES Sustainability Nordic and OMX GES Sustainability Sweden.
Tissue
Creped soft paper which is the basis for hygiene products such as napkins, toilet paper and towels, and toweling products for institutions, hotels, etc.
SRI, Socially responsible investment
A method of selecting stocks for investment using criteria related to a company’s environmental, social and ethical performance.
Climate Change
Also defined as global warming. Human activity contributes to the warming of the global environment and its resulting effects, which range from higher temperatures to eccentric weather patterns and melting of the ice caps.
Water
Represents the sum of surface water, ground water and tap water for processes and cooling purposes.