F6. Acquisitions and disposals

AP Accounting principles

Acquisition of subsidiaries

SCA applies IFRS 3 Business Combinations in connection with acquisitions. In business combinations, acquired assets and assumed liabilities are identified and classified at fair value on the date of acquisition (also known as an acquisition analysis). The acquisition analysis also includes an assessment of whether there are any assets that are intangible in nature, such as trademarks, patents, customer contracts or similar assets that were not recognized in the acquired unit. If the cost is higher than the net value of the acquired assets, assumed liabilities and identified intangible assets in the company, the difference is recognized as goodwill. Any surplus value on property, plant and equipment is depreciated over the estimated useful life of the asset. Goodwill and strong trademarks with indefinite useful lives are not amortized; instead, they are subjected to annual impairment testing. Some trademarks and customer contracts are amortized over their estimated useful lives.

If the transferred consideration is contingent on future events, it is measured at fair value and any changes in value are recognized in profit for the period.

Transaction costs in conjunction with acquisitions are not capitalized, but rather expensed directly.

Companies acquired during the period are included in the consolidated financial statements as of the acquisition date. Divested companies are included in the consolidated financial statements until the divestment date.

Non-controlling interests

Acquisitions of non-controlling interests are measured on an acquisition-by-acquisition basis, either as a proportional share of the fair value of identifiable net assets excluding goodwill (partial goodwill) or at fair value, which means that goodwill is also recognized on non-controlling interests (full goodwill).

In step acquisitions in which a controlling influence is achieved, any net assets acquired earlier in the acquired units are remeasured at fair value and the result of the remeasurement is recognized in profit or loss. If the controlling influence is lost upon the divestment of an operation, the result is recognized in profit or loss and the portion of the divested operation that remains in the Group is measured at fair value on the divestment date, with the remeasurement effect recognized in profit or loss.

Acquisitions in which a controlling influence is achieved that do not lead to loss of control are recognized as an equity transaction, meaning a transfer between equity attributable to owners of the Parent and non-controlling interests. The same applies for divestments that take place without the loss of a controlling influence.

Acquisitions

On October 13, 2015, SCA announced that it had made a public bid on Wausau Paper Corp., one of the largest AfH tissue companies in the North American market. The transaction was approved by US authorities on November 17, 2015, and Wausau Paper’s shareholders accepted the bid from SCA at the general meeting held on January 20, 2016. The transaction was completed on January 21, 2016 and SCA consolidated the company as of this date. The consideration transferred amounted to USD 513m (SEK 4,401m) in cash. Goodwill is motivated by synergies between SCA and Wausau Paper, including the capacity to offer customers a broad portfolio of 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 sales, general and administration costs. The restructuring costs are expected to amount to approximately USD 50m.

The cost for the acquisition amounted to SEK 90m.

Two minor acquisitions were completed during the year, Sensassure in Canada and Swedscot in the UK, for a total consideration of SEK 50m, of which SEK 19m relates to an earn-out payment that is contingent upon certain performance measures being met.

Effect on sales and earnings of acquisitions for the period

Since the acquisition date, the acquisition of Wausau Paper has had an impact of SEK 2,996m on consolidated net sales, of SEK 272m on adjusted operating profit and of SEK 32m on profit for the period, including items affecting comparability, before tax. If the acquisition had been consolidated from January 1, 2016, the expected net sales would have amounted to SEK 3,164m and profit before tax, including items affecting comparability, to SEK 48m. The acquisitions of Sensassure and Swedscot impacted consolidated net sales in the amount of SEK 9m and profit for the period before tax by SEK –1m. If the acquisitions had been consolidated from January 1, 2016, the expected net sales would have amounted to SEK 42m and profit before tax to SEK –2m.

Acquired operations

The table below shows the fair value of acquired net assets recognized on the acquisition date, recognized goodwill and the effect on the Group’s cash flow statements.

Acquisition balance sheets

SEKm

2016

2015

2014

Intangible assets

213

23

Property, plant and equipment

2,896

56

Other non-current assets

66

166

Operating assets

682

86

Cash and cash equivalents

14

2

27

Provisions and other non-current liabilities

–71

–5

Net debt excl. cash and cash equivalents

–2,128

–20

Operating liabilities

–534

–29

Fair value of net assets

1,072

68

304

 

 

 

 

Goodwill

3,379

269

Consolidated value of share in associates

–72

Revaluation of previously owned shares

–35

Consideration transferred

4,451

68

466

 

 

 

 

Consideration transferred

–4,451

–68

–466

Earn-out payment

19

Settled debt pertaining to acquisitions in earlier years

–2

–6

Cash and cash equivalents in acquired companies

14

27

Adjustment of cash and cash equivalents in final acquisition analysis for Vinda

–69

CF Effect on Group’s cash and cash equivalents, acquisition of operations

–4,420

–74

–508

Acquisition of non-controlling interests

–50

–19

–173

Acquired net debt excl. cash and cash equivalents

–2,138

–20

Adjustment of net debt in final acquisition analysis for Vinda

193

OCF Acquisition of operations during the period, including net debt assumed

–6,598

–93

–508

Specification of acquisition balance sheet 2016

SEKm

Wausau

Other

Total

Intangible assets

213

213

Property, plant and equipment

2,896

2,896

Operating assets

672

10

682

Cash and cash equivalents

14

14

Provisions and other non-current liabilities

–71

–71

Net debt excl. cash and cash equivalents

–2,127

–1

–2,128

Operating liabilities

–525

–9

–534

Fair value of net assets

1,072

1,072

Goodwill

3,329

50

3,379

Consideration transferred

4,401

50

4,451

Consideration transferred

–4,401

–50

–4,451

Earn-out payment

19

19

Settled debt pertaining to acquisitions in earlier years

–2

–2

Cash and cash equivalents in acquired companies

14

14

CF Effect on Group’s cash and cash equivalents, acquisition of operations

–4,387

–33

–4,420

Acquisition of non-controlling interests

–50

–50

Acquired net debt excl. cash and cash equivalents

–2,127

–1

–2,128

OCF Acquisition of operations during the period, including net debt assumed

–6,514

–84

–6,598

Adjustment of preliminary acquisition balance sheets for 2016

An acquisition analysis is considered preliminary until it is confirmed. A preliminary acquisition analysis is changed as soon as new information regarding assets/liabilities on the acquisition date is obtained, but not later than one year from the time of acquisition the acqusition balane sheet is confirmed. Adjustments to acquisition analyses result in changes to the income statements and balance sheets for the comparative period. The preliminary acquisition analysis for Wausau was adjusted compared with the first quarter as a result of further information being obtained regarding the market value and new calculations were made relating to intangible assets. The other acquisition analyses prepared in the preceding year were confirmed in accordance with the preliminary acquisition analyses.

Acquisitions after the end of the reporting period

On December 19, 2016, SCA announced that it had entered an agreement to acquire BSN medical, a leading medical technology company. BSN medical develops, manufactures, markets and sells products with the areas of wound care, compression therapy and orthopedics. The purchase consideration for shares amounted to EUR 1,400m and the takeover of net debt to approximately EUR 1,340m. The acquisition will be fully debt-funded, and the SCA Hygiene-group have committed credit facilities in place. The transaction is subject to the customary approvals from competition authorities. Closing of the transaction is expected in the second quarter of 2017.

Divestments

In June, SCA divested its holding of 33% in the recycling company IL Recycling. The purchase consideration amounted to SEK 239m and capital gain to SEK 218m.

In November, SCA divested its remaining non-current assets in China that were not included in the hygiene business transferred to Vinda in 2014. The purchase consideration amounted to SEK 169m and resulted in a capital gain of SEK 40m excluding divestment costs and the reversal of realized exchange rate differences in the divested operation. Including divestment costs and the reversal of realized exchange rate differences, the outcome was SEK –26m. In addition to these divestments, payment was received for a number of minor divestments in China and Sweden, with the total purchase consideration for these amounting to SEK 30m and the capital gain to SEK 27m.

All capital gains were recognized in items affecting comparability in profit or loss. In addition, final settlement totaling SEK 59m was received relating to the earn-out payment for the baby diaper operation in South Africa, which was divested in 2015.

Assets and liabilities included in divestments

SEKm

2016

2015

2014

1)

Excluding reversal of realized translation differences in divested companies to profit or loss. Gain/loss on sale is included in items affecting comparability in profit or loss.

Property, plant and equipment

–10

48

Other non-current assets

44

Operating assets

3

68

Non-current assets held for sale

124

Cash and cash equivalents

8

Net debt excl. cash and cash equivalents

Operating liabilities

–16

Gain/loss on sale 1)

285

0

Purchase price received after divestment costs

438

116

Less:

 

 

 

Unpaid purchase consideration

–67

Cash and cash equivalents in divested companies

–8

Add:

 

 

 

Payment of receivable for purchase consideration

59

280

206

CF Effect on Group’s cash and cash equivalents, divestments

489

329

206

Less:

 

 

 

Divested net debt excl. cash and cash equivalents

OCF Divestment of operations during the period, including net debt transferred

489

329

206