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Research Tree provides access to ongoing research coverage, media content and regulatory news on SVENSKA CELLULOSA AB SCA-B. We currently have 8 research reports from 1 professional analysts.
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SVENSKA CELLULOSA AB SCA-B
SVENSKA CELLULOSA AB SCA-B
Amidst intensifying business pressure, is the hygiene strategy being reinvented?
29 Dec 16
SCA has decided to acquire BSN Medical (BSN) – a medical solutions company focused on wound care, compression therapy and orthopaedics – from EQT (a private equity group) for an EV consideration of €2.74bn – o/w €2.43bn is attributable to intangibles (€1.5bn of goodwill; the remainder is trademarks). Interestingly, management targets this transaction to be 100% debt-funded. During 9M 16, BSN reported net sales of €627m (SEK5.9bn) and adjusted operating profit of €103m (SEK965m), translating into an operating margin of 16% vs. 12% for SCA’s hygiene business. Subject to regulatory approvals, the transaction closure is targeted for Q2 17. In another surprise move, SCA has decided to exit its hygiene business in India (even though only 0.1% of sales in 2015) – citing near-term profitability headwinds as the key reason for exiting.
Weakening (emerging market) growth is unnerving
10 Nov 16
SCA’s operating performance continued to weaken, with the Q3 16 results coming behind both consensus and AV’s estimates. Sales were flat (both yoy and qoq) at SEK29bn. Organic growth erosion – ‘NIL’ vs. 2% in Q2 16 and 3% in Q1 16 – intensified through 2016. Moreover, the sluggish emerging market’s (31% of sales) organic growth of 4% (vs. 6% in Q2 16 and 9% in Q1 16) was a major disappointment. Hygiene (personal care + tissues), which has been a backbone of SCA’s business growth, witnessed serious difficulties in Q3. Personal care’s organic growth was flat (vs. 5% in Q2 16 and 6% in Q1 16), while tissues’ growth was reduced to only 1% (vs. 3% in Q2 16 and 4% in Q1 16). Surprisingly, prices and volumes were flat in both divisions, except for a minute 1% price/mix improvement in tissues. On the other hand, the weakness in forest products (sales down 4.4% yoy and 4.1% qoq) was broadly anticipated. Despite the top-line disappointment, there was some profitability consolation. Adjusted EBIT came in at SEK3.6bn (+5.8% yoy; +7.1% qoq), primarily benefiting from cost savings and lower input costs – more than offsetting higher selling/marketing expenses in hygiene and the effect of a weaker pound. Unlike the comparable quarters, which were marred by hefty impairments, and one-time tax and anti-trust cases related provisions, a relatively blemish-free Q3 resulted in an attributable net income of SEK2.2bn (vs. SEK502m in Q3 15 and SEK76m in Q2 16). Reported OCFs remained healthy at SEK4.3bn (-4.4% yoy; +13% qoq), while capital spend (SEK2.2bn; +23% yoy; +7.9% qoq) was aggressive – due to the Östrand pulp mill expansion and construction of a new incontinence products facility in Brazil. Net debt was down (3.6% vs. end Q2) to SEK34bn. The highlight of the quarter was the decision to split SCA into separately-listed entities – hygiene and forest products. While this proposal is to be presented at the 2017 AGM, the listing of the new entity – which would be hygiene – is targeted by H2 17.
Waning organic growth and extraordinary charges add to the bottom-line's woes
20 Jul 16
SCA’s Q2 16 results were below consensus estimates, with fading organic growth and extraordinary charges being the major setbacks. Organic sales growth, a key performance measure, was reduced to only 2% (vs. 3% and 5% in Q1 16 and Q4 15, respectively). Below is an illustration of SCA’s organic growth by segments for the past six quarters: Besides slowing growth in hygiene (SCA’s strategic focus), an extremely difficult operating environment in forest products (both weak prices (-3%) and volumes (-4%)) has been a key problem area. Moreover, all the organic growth came from emerging markets (+6%; 31% of sales), while the mature markets (69% of sales) were flat. Sales and adjusted EBIT came in at SEK29bn (-0.5% yoy; +3.2% qoq) and SEK3.4bn (+6.3%; +4.9% qoq), respectively. Despite growth pressures, the hygiene business margin was up 100bp yoy due to the continuation of cost savings and lower input (energy and raw material) prices in tissues. However, in the case of forest products, even the benefit of lower input prices were insufficient to avert a faster than expected profitability erosion. A provision of >SEK1bn has been made for ongoing anti-trust cases in Chile, Colombia, Poland, Spain and Hungary. Also, SEK340m of restructuring costs have been recognised pertaining to tissue plant closures in France and Spain. Although, some cushion comes from the SEK200m capital gain on the divestment of IL Recycling. Further down, SCA’s adversities amplified with the recognition of a SEK1.3bn provision for ongoing tax cases in Sweden and Austria. As a result, the net profit for the quarter was almost wiped-out – SEK79m vs. SEK2.1bn in Q2 15. Given the (so far) non-cash impact of the one-off charges, SCA’s reported OCFs remained healthy (SEK3.8bn; +25% yoy; +49% qoq). The group ended Q2 with a net debt of SEK35.5bn vs. SEK33.4bn at end Q1.
Early signs of waning organic growth
03 May 16
Unlike previous years, SCA’s start to 2016 was a bit disappointing. Even though profitability was marginally ahead of consensus estimates, thetop-line was weak as currency benefits retreated (resulting in a 4% negative impact), organic growth reduced to 3% – the lowest since Q4 14 and forest products’ price/mix weakened (-5%). Q1 sales were SEK28.2bn (+0.8% yoy; -3% qoq) and adjusted EBIT came in at SEK3.2bn (+13% yoy but down 5.4% qoq). While Forest Products’ EBIT weakness (-19% yoy; -10% qoq) was anticipated (as the gains of 2014-15 seemed unsustainable), the hygiene (tissues + personal care) business too came under some sequential pressure (down 5-10%). Net profit came in at SEK1.9bn (+13% yoy; -32% qoq), although the sizeable sequential impact was primarily due to SEK970m of gains on the sale of the Industrivärden (direct) stake in Q4 15. Reported OCFs were up 22% to SEK2.5bn as the yoy profitability benefit was supported by relative working capital efficiencies – use of SEK721m vs. >SEK1bn in Q1 15. Although with the closure of the Wausau acquisition, SCA’s net debt increased to SEK33.4bn vs. SEK28.8bn at end-2015. The Forest Products division is expected to come under more pressure in Q2 16, as management has guided SEK60m of negative earnings impact due to maintenance shutdowns. In April 2016, SCA sold its 33% stake in IL Recycling for SEK236m with management guiding for a capital gain of SEK200m to be recognised in Q2 16.
Organic growth on track, though Yuan devaluation bothered a bit
29 Jan 16
SCA’s business growth story remains intact, despite growing economic upheaval in most of its focus markets. While the full-year results were ahead of expectations, Q4 witnessed some sequential slowdown in Forest Products and flattening growth in Hygiene (Personal Care + Tissues). *Achieved highest annual organic sales growth since 2012* Sales: Q4 – SEK29bn (+6% yoy; +4% organic growth); 2015 – SEK115bn (+11%; +5% organic growth; in-line with AV estimates) Q4 organic growth was supported by strong volume growth (+7%) in Personal Care and an improving price/ mix (+2%) in Tissues. Even Forest Products managed a modest 1% organic growth. Hygiene growth was once again driven by a robust contribution from emerging markets (+11%) and resilient mature markets (+2%). Another key factor was a weaker SEK (down 14% vs. the US dollar). Although weakening global economic sentiment and a stabilising SEK translated into flat sequential growth. For the full-year, organic growth trends in emerging and mature markets were similar to Q4, while SEK tailwinds rendered a 23% benefit. *Profitability ahead of expectations* Adjusted EBIT: Q4 – SEK3.4bn (+7.2%; flat qoq); 2015 – SEK12.8bn (+9.2%; 2.1% ahead of AV estimates) While costs savings (especially SEK260m in Q4 and SEK930m in 2015 from the Georgia-Pacific operations) continued to deliver, the benefit from lower energy prices amplified (SEK128m in Q4 and SEK275m in 2015) as the year unfolded. However, USD-denominated raw material prices (mainly pulp – impacting the tissue business), higher marketing spend (especially on incontinence products) and the discontinuation of recognition of gains on forest swaps with effect from 2015 (vs. SEK336m of gains in 2014) culminated in a full-year margin contraction of 20bp – though better than our earlier expectation of a 40bp contraction. Net attributable profit: Q4 – SEK2.8bn (+96%, +4.6x qoq); 2015 – SEK7bn (+6.1%; 6.3% ahead of AV estimates) An exceptional gain of SEK697m (including SEK970m profit from the sale of 2.8% direct stake in Industrivärden) and absence of hefty asset impairments (unlike Q3) culminated in an abnormally-high Q4 bottom-line. SCA now holds an indirect 7.9% stake in Industrivärden (primarily through its pension funds). *Healthy cashflows supported strong dividends* The 2015 operating performance was reflected in the group’s cashflows, with full-year reported OCFs galloping by 18% to SEK14bn. Although capex was up by 32% to SEK7.6bn due to growth investments in Brazil (incontinence products) and at the Östrand pulp mill in Sweden, net debt was reduced to SEK29bn (-18%; lowest level since 2006), partly facilitated by c.SEK2bn of proceeds from the Industrivärden divestment. However, completion of the SEK4.2bn Wausau Paper acquisition in January 2016 is again likely to result in a build-up of borrowings. Nevertheless, the management proposed a full-year dividend of SEK5.75 per share (+9.5%) – 2.2% ahead of AV's estimate.
Barring some one-off losses, strong business performance continues
30 Oct 15
SCA continued to enjoy strong business momentum in Q3 15 as well, thereby allaying growing concerns about its strong emerging market focus. Q3 sales came in at SEK29.1bn (+9.4% yoy; flat qoq) with a 5% organic sales growth. Organic growth was primarily driven by the strong performance in emerging markets (+14%) in the hygiene business. While China and Russia favourably contributed to tissues, LatAm and Russia were the key drivers for the personal care segment. Forest products continued to post lacklustre results with a strong performance in packaging and pulp moderating the falling demand for paper. The weak SEK (down 22% vs. USD) was another contributing factor to the top-line, but sequentially fading forex gains and weakening emerging market sentiment did result in flat qoq sales growth. Adjusted EBIT came in at SEK3.4bn (+14%; +7.6% qoq). In addition to the top-line benefits, profitability was further augmented by cost savings across segments (especially SEK230m in tissues from the Georgia-Pacific acquisition) and lower energy costs (SEK73m, mainly benefiting forest products). Higher raw material costs (SEK758m, primarily impacting tissue business) due to a strong dollar and continuously higher marketing spend (particularly in personal care) dampened some of the gains. The group recognised SEK2.5bn of one-off costs, o/w SEK1.8bn was asset impairments, primarily pertaining to the write-off of a newsprint paper mill. Consequently, Q3 net profit plummeted 73% to SEK502m (-74% qoq). Nevertheless, strong cash flow generation (reported OCFs were up 9.4%) resulted in net debt reducing to SEK33bn at the end of Q3 vs. SEK35bn at the end of FY2014. Management guides SEK70m of costs associated with maintenance shutdowns in the forest products division in Q4 15.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
23% profit growth in FY16 and a positive outlook in FY17 and FY18
18 Jan 17
FY16 results show a strong performance with 9.3% increase in revenue to £267.0m leading to a 23% increase in profitability as adj PBT increased to £40.2m (FY15 £32.8m). The 220bp improvement in gross margin underpinned the increase in profitability as legacy low margin projects continued to fall out of the mix. The 20.2% gross margin was ahead of the 19.5% forecast and in line with Group’s target of generating a through the cycle 20% margin. The forward sale announcements of five developments since the year end provide an increasing level of visibility on both FY17 and FY18, we estimate c. 70% of FY17 gross profit is currently derived from forward sold projects. The announcement on Duncan Road Stratford means the forward sold pipeline is already building into FY19. Current valuation does not reflect the forecast certainty with the shares trading on 9.0x FY17 earnings and yielding a prospective 5.1%.
N+1 Singer - Northern lights - Shining prospects for 2017
16 Jan 17
As the birthplace of Stephenson, Armstrong and Swan, the North East of England has a proud history of industrial and technological innovation. Despite local economic challenges, the region’s industrial heritage lives on through continuing success in high end engineering and technology. The recent takeovers of private equity backed SMD (subsea robotics) and Nomad Digital (wi-fi on the railways) are testament to this. The North East has also emerged as a leader in genetics and genomics with an enviable life sciences and healthcare infrastructure. Against this backdrop, we expect the region to continue to throw up attractive IPO candidates to build on the six new listings in the past three years. We expect 2017 to be far kinder to the existing portfolio of North East plcs than 2016 (a year to forget) with recent management changes one important theme for the new year. Our top picks are Hargreaves Services, Quantum Pharma and Zytronic (all N+1 Singer Corporate clients) and we are Buyers of Northgate and Grainger.
N+1 Singer - Morning Song 19-01-2017
19 Jan 17
Actual Experience (ACT LN) 2017 – a milestone year for revenue | Bagir Group (BAGR LN) Independent NED appointment to strengthen Board composition | Bioquell (BQE LN) Reassuring pre-close statement | Carador Income Fund (CIFU LN) Q4 dividend increased to 2.75c, 0.5c higher than forecast | FreeAgent (FREE LN) Contract with Royal Bank of Scotland | Halfords Group (HFD LN) Excellent Q3 update, special divi and confidence in FX mitigations | N Brown Group (BWNG LN) Robust peak trading with reversal of drag from older titles | NCC Group (NCC LN) Interims confirm underlying business sound | St Ives (SIV LN) Downgrade | Summit Therapeutics (SUMM LN) Dr David Roblin appointed Chief Operating Officer and R&D President | Wilmington Group (WIL LN) Acquisition – Further scaling of Healthcare
N+1 Singer - Morning Song 16-01-2017
16 Jan 17
Another encouraging update reassures FY17 forecasts are intact
20 Jan 17
CCT has released another encouraging trading update, giving reassurance that FY17 consensus expectations remain firmly intact. We particularly note management commentary that the “cash position continues to strengthen considerably”, further adding to the £6.9m of net cash at FY16. This reminds us of one of CCT’s key investment attractions; the highly attractive financial model with low capital intensity provides the capacity for significant cash generation as profits continue to grow, in turn supporting a progressive dividend policy and the continuation of the multi-year share buyback programme. We maintain our BUY.