Agenda Creating value in growth markets
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Agenda 1 Introduction 2 Megatrends 3 Value creation and capital allocation 4 Opportunities in growth markets 5 Summary 1 Creating value in growth markets(1) SCA sales split 2000 Strong brands 8% Unique concepts Global best practice SCA sales split 2005 14% Long experience of growth markets Growth markets 1Latin 2 America, Asia and Eastern Europe Mature markets Eastern Europe / Russia 3 Eastern Europe / Russia 330 million people of which ~40% in Russia GDP per capita ranging from two thirds (Czech Republic) of Western Europe’s to one fifth (Ukraine) Low market penetration – huge growth potential 4 Macro trends - Russia GDP growth > 6% in Russia Oil prices at record levels - important growth factor for the economy All consumer-related industries are growing Growth in retail trade, with high growth of modern retail formats 5 Russian tissue market Tissue market Mainly a branded market – limited presence of private label High growth, but still low penetration Yearly growth rate of approximately 7-9% SCA Position SCA is the clear market leader with the Zewa brand ~40% in the Moscow region Even higher in the St:Petersburg region 6 New greenfield plant in the Moscow region New tissue machine with annual capacity of ~30 kton Combined building for production of motherreels, converting and finished goods storage Start-up beginning of 2008 Total investment SEK ~500m 7 Personal Care – Russia Usage of personal care products Units/capita/year Units/child/year Units/woman/year 20 SCA has no. 2-3 positions in all three personal care segments 300 1500 15 200 1000 10 0 0 Incontinence products 0 Baby diapers Western Europe 8 SCA is currently improving the market shares 100 500 5 SCA Positions Feminine hygiene products Eastern Europe Actions – Personal Care Increased sales and marketing activities Further develop offerings and product quality Further develop distribution to and within retail trade 9 High market growth for packaging Russia, Poland and Turkey account for ~25% each of total Eastern Europe market Corrugated market in Eastern Europe Other Demand for packaging has grown by +10%/year Growth forecast to slow to ~7%/year, still three times Western Europe’s figure 10 Russia Czech Republic Poland Turkey Eastern Europe accounts for large part of growth in Europe ~ 25% of market, ~75% of actual growth Market growth: ~1.2 BSQM Market size: ~40 BSQM Eastern Europe share 25% of total European market Eastern Europe share of European market growth 2005 Eastern Europe Western Europe 11 Manufacturing relocation to low-cost countries Relocation potentially attractive for ~20% of WE Industry Volatile activities Products with high labour content Textile, footwear, toys, sports, DIY Compact/high-value products Consumer electronics Global commodities with significant labour cost Chemicals Anchored industries Short life-cycle Dairy, bread, chilled food, canned food Voluminous products Diapers, tissue, paper, furniture Geographically anchored Fruit, vegetables, flowers, meat, fish High volume, low labour content Detergents, cosmetics, pet foods, pharma 12 SCA Packaging in Eastern Europe Smaller market share but higher value added Market shares SCA is no. 2 in Europe in corrugated board but no. 6 in Eastern Europe Smurfit Kappa Prinzhorn Why? SCA’s strategy in Eastern Europe is to focus on selected value-added segments: Consumer electronics Automotive High-quality consumer packaging Stora Enso Model Mondi Result: Well-equipped plants with well-educated sales force drive profitable growth beyond the “brown box” 13 SCA Packaging in Eastern Europe SCA is the no.1 high-service packaging supplier in Eastern Europe SCA has the most creative design skills in the packaging industry SCA has a broad product range to serve complete packaging needs SCA will grow in the region through acquisitions and greenfield facilities SCA will invest behind “strategic” customers in growth markets 14 SCA 0% 10% 20% SCA start up in CEU Fast expansion into new markets Country Start Turkey (JV) 1992 Hungary 1996 Czech Republic 1997 Poland 1997 Slovakia 1997 Estonia 2000 Lithuania 2000 Russia 2000 Romania 2002 15 Full packaging service provider Conventional Corrugated Foam Up to 6-color print Documentation & Manuals Full-colour printed materials Soft- and hard-cover brochures Marketing material CD Assemblies EPS Molding EPE Conversion Consumer packaging Up to 6 color print Litho Laminated Cartonboard Industrial Corrugated Large Boxes Heavy Grades Speciality Corrugated Insert Packaging Anti Corrosion Anti Static Paperfoam Molded pulp Corrugated Plastic molded packaging Returnable Trays Blister packaging Accessory packaging materials Foils, pallets, adhesive tapes Display Packaging Free-standing marketing displays Shelf display units 16 Regional top customers 17 Business opportunities Companies currently investing in Eastern Europe 18 SCA’s current expansion plans Pila –Blister packaging 2006 Poland Pardubice – 2006 documentation and thermosafe production Germany Györ – Litho plant 2005 Czech Republic Slovakia Austria Slovakia – Sales office 2006 19 Latin America 20 Olawa – Molded Pulp 2006 Hungary Latin America High market growth driven by rapidly increasing penetration Per capita consumption Estimated growth Kg / capita 20 Tissue 10 4-5% 0 Population GDP GDP/capita GDP growth 520 million USD 2.4 billion USD 4,500 4-5% NA Pcs / woman Feminine care WE Latin Am. 300 200 7-8% 100 0 NA Unit / woman Incontinence products WE Latin Am. 20 12-14% 10 0 NA WE Latin Am. 21 SCA in Mexico and Central America Manufacturing locations: Personal Care Tissue Net Sales: USD 400 million Employees: 2,800 Fast-growing markets Market positions: No. 2 in Tissue behind very strong Kimberly-Clark 22 Market shares (Mexico): Feminine care Consumer tissue SCA, K-C and P&G fighting for leadership in Feminine care SCA No. 1 in Incontinence care Others K-C P&G Turnaround – Mexico and Central America Before acquisition Main issues Tissue, sales volume kton 22 Lack of price and A&P control 20 Low-end focus Investments and product quality lagging behind Poor customer service -13% 18 16 14 2002 2003 2004 D'04 Copamex 100% 50% 100% 23 Turnaround – Mexico and Central America Key actions after acquisition New experienced management Consumer and customer focus Performance management and controls Reengineering of Tissue product portfolio Price and customer management Enhanced and simplified private label offer Restructuring Central American business Saba Secure Fit launch (feminine care) Product upgrades and new product launches Consistent branding and marketing 24 Turnaround – Mexico and Central America Main achievements Profitability turnaround of Tissue Retail Brands Volume, market share and profit gains in feminine care Record sales volumes K Tons 22 Tissue volumes 20 18 16 Jan 05 Jan 06 Price/unit 22 Increased prices 14% in the last 18 months Tissue price 20 18 Wal*Mart and Gigante "Best Supplier” awards 16 Jan 05 Jan 06 25 Mexico and Central America Strategic priorities 1 (2) Leading innovation and brand building Consistent brand building based on in-depth consumer insight Leverage SCA’s global capabilities Tissue Upgrade product offering and strengthen existing brands Develop leading Private label position Develop new brand platform and assortment in Central America Leverage Tork launch to develop offering and sales approach in AFH Restructure supply chain and build a competitive cost position 26 Mexico and Central America Strategic priorities 2 (2) Re-establish Saba market leadership in Feminine care Develop ownership of “fit” category Defend and expand leadership in liners Upgrade chamomile offer Introduce assortment for value segment Develop new categories (tampons, wipes) Secure category leadership in Incontinence products Develop competitive value offering Increase product availability 27 SCA’s joint ventures in South America Net Sales: MUSD 200 (SCA share) Employees: 3,000 (total) Leading positions in Colombia, Ecuador, Peru and Dominican Republic No. 2 behind very strong CMPC in Chile Developing position in Venezuela from JV in Colombia Manufacturing locations: Personal Care Tissue 28 South America Strategic priorities Continue to grow and strengthen leading market positions in Tissue and Feminine care Continue to lead innovation based on superior consumer insight Upgrade product offering, re-position and strengthen Favorita tissue brand in Chile Implement value strategy for Baby diapers Leverage local production to drive growth and profitability in Incontinence products Evaluate acquisition opportunities in new markets 29 Latin America Significant growth opportunities Target to grow existing business >50% in 5 years + Potential geographical expansion Sales, Latin America(1) USD million 870 570 No presence in Brazil and Argentina Emerging economies and developing markets 2005 Scenario 2010 SCA markets No SCA presence 1 30 SCA share of JV sales Asia 31 SCA Asia-Pacific Operations Asia-Pacific headquarters Operations in 13 countries/ regions 32 Strong growth in Hygiene Segments Tissue Feminine hygiene products Other 15% Other 12% Australasia 4% China 37% South Korea 8% Australasia 8% 5% Japan 32% South Korea 6% h wt o r g 8% g th r ow China 34% Baby diapers 33 3% h wt o r g h wt o r g 6% Incontinence products China Other 8% 2% Japan 38% Other 29% Australasia 8% South Korea 9% Japan 44% 4% China 16% Australasia 9% h wt o r g % 15 w gro Japan 81% th Asia Pacific growth rate % 10 w gro th % 15 w gro th China growth rate Attractive markets for hygiene products Growth potential driven by low product penetration and strong economic development Expansion of modern retail formats Rapid growth of a middle class increases the demand of high-quality products Increasing brand awareness 34 Huge Chinese packaging market – and growing fast EPS market(2) – 1,240 kton Corrugated market(1) – 40 mton Others 20% China 36% Others 24% China 43% South Korea 6% Japan 31% 0 >1 % h wt gro South Korea 20% 0 >1 % h wt o r g Japan 20% China growth rate 1 Selected Asian countries, 2004E 2 Selected Asian countries, 2003E Source: SCA internal estimation, China Packaging Association 2004, Japan EPS Seminar 2004, CDI Report 2005 35 SCA’s packaging network Huhhot, Inner Mongolia Xianghe, Hebei Beijing, Beijing Current facilities: Tianjing, Tianjing (MI) Corrugated: 15 (350 kton) Baoding, Hebei Protective: 6 (15 kton) Litho-print: 2 (MUSD24) Design centre: 1 Nanjing, Jiangsu Suzhou, Jiangsu x6 Others: - Paper-bags : 2 Shanghai, Shanghai x3 Wuhan, Hubei Dongguan, Guangdong (M&A) Guangzhou, Guangdong Penang, Malaysia Kuala Lumpur, Malaysia Johor, Malaysia 36 Singapore / Batam SCA Packaging Asia revenue split Sales by region 2006B Sales by product categories 2006B (2005) Malaysia 12% Services / Fulfillment/ IP 15% (13%) Corrugated 56% (61%) Protective Packaging 20% (18%) Singapore & Indonesia 13% China 75% Litho /Retail 9% (8%) 37 SCA’s strengths Complete packaging offering SCA’s strong international reputation Good geographical coverage 38 Global customers Forefront of innovation and productivity Complete packaging offering A complete range of products and supply solutions: •Corrugated Packs •EPS, EPP, EPO Foam •Heavy Duty Corrugated •Retail Display •Litho Packs •Paper Sacks •Litho Laminate Packaging •Electro Static Discharge Packaging •Moulded Pulp •Pallets & Slip Sheets PaperFoam® Tray •Fulfilment service 39 Partnerships with international customers 40 Significant growth opportunities in Asia-Pacific Both organic growth and potential acquisitions Target to grow organically by >50% in 5 years M&A Opportunities + ~ 1,300 MUSD ~ 850 MUSD Opportunity to enter the Chinese hygiene market and expand our South East Asia presence Tremendous growth opportunities with selective M&A in packaging China 2005 Scenario 2010 41 Agenda 42 1 Introduction 2 Megatrends 3 Value creation and capital allocation 4 Opportunities in growth markets 5 Summary Growth and margin expansion Strong product offerings Ambition to sharpen our positions within each business area Strong opportunities for further growth Expansion in emerging markets Margin improvement in all segments 43 44
