SCA surpassing analysts' forecasts

July 21, 2010 by timbercommunity

Strong Q2 interim report from SCA
Forest and hygiene group SCA's pre-tax profit excluding non-recurring items was 2.196 billion SEK in the second quarter (2010). This was 25% better than what analysts predicted according to SME Direkt.
The corresponding period in 2009 profits were 1.575 billion SEK. The Shares in SCA were up 9% and +7.45% at the end of the day.

The tissue segment, which accounts for one third of the revenue was very successful. Operating margin of 7.9% (6.3 expected by analysts) which is a level that are expected to persist in the third quarter. The long term forecast 2011 is operating margin of 10% for the tissue business.  

· Net sales decreased by 3% (excluding exchange rate effects, net sales increased by 4%) to
SEK 54,374m (56,242)
· Profit before tax, excluding restructuring costs, rose 12% (16% excluding exchange rate
effects) to SEK 3,944m (3,525)
· Restructuring costs amounted to SEK 451m (439)
· Profit for the period, excluding restructuring costs, rose 10% to SEK 2,860m (2,608)
· Earnings per share were SEK 3.57 (3.24)
· Cash flow from current operations was SEK 2,816m (4,687)

CEO'S COMMENTS
Net sales during the second quarter of 2010, excluding the effect of exchange rate movements, rose 6% compared with the same
period a year ago. Operating profit excluding restructuring costs rose 3% (6% excluding exchange rate effects) to SEK 2,440m.

Profit before tax, excluding restructuring costs, rose 9% (12% excluding exchange rate effects).
Compared with the first quarter of 2010, profit before tax rose 26%. Cash flow from current operations for the first half of the year was SEK 2,816m (4,687). The decrease is mainly attributable to
higher inventory values resulting from higher raw material prices.

For Personal Care, operating profit was down 8% during the second quarter (4% excluding exchange rate effects) compared with the same period a year ago, mainly due to increased market activity and higher raw material costs, while volume increases for incontinence and feminine care products made a positive contribution. Operating profit for Tissue decreased by 22% (19% excluding exchange rate effects), mainly due to higher raw material costs. The second quarter ended on a strong note, with lower costs for production and distribution, and higher volumes for AFH tissue, which had a positive effect on the operating margin.

For Packaging, operating profit increased to SEK 306m (11) during the second quarter. Higher prices and volumes along with savings from the restructuring programme led to the earnings improvement. The operating margin improved during the second quarter over the first quarter. Operating profit for Forest Products rose 8% as a result of improved profitability for pulp, timber and solid-wood products.
SCA's hygiene products continue to perform well, with favourable growth for incontinence products and AFH tissue.

In Tissue, price increases are being carried out, which will have a gradual effect during the second half of 2010. In Packaging, demand is increasing and prices are rising gradually. Demand for publication papers in Europe has improved, but from a low level.
SALES AND EARNINGS
Net sales decreased by 3% (excluding exchange rate effects, net sales increased by 4%)
compared with a year ago to SEK 54,374m (56,242). Higher prices and volumes increased
sales by 1% and 4%, respectively. Sales decreased by 1% as a result of closed and divested
operations, of which the divested Asian packaging operation made the greatest contribution.
Operating profit, excluding restructuring costs of SEK 451m, decreased by 1% (excluding
exchange rate effects, operating profit increased by 3%) to SEK 4,467m (4,504). Higher
volumes had a favourable impact on profit. Lower energy costs and other production-related
costs also made a positive contribution. Higher costs for raw materials and market activities
had a lowering effect on profit.

Financial items decreased to SEK -523m (-979). Lower interest rates and lower average net
debt had a favourable impact. Profit before tax, excluding restructuring costs, increased by
12% (16% excluding exchange rate effects) to SEK 3,944m (3,525). The tax expense
excluding restructuring costs was SEK -1,085m (-917).
Profit for the period, excluding restructuring costs of SEK 327m after tax, improved by 10% to
SEK 2,860m (2,608). Earnings per share were SEK 3.57 (3.24).
Second quarter 2010 compared with second quarter 2009
Net sales decreased by 1% (excluding exchange rate effects, net sales increased by 6%) to
SEK 27,652m (27,915). Higher volumes and slightly higher prices increased sales by 5% and
1%, respectively.

Operating profit rose 3% (6% excluding exchange rate effects) excluding restructuring costs.
An efficiency improvement project in the European baby diaper operations was initiated
during the second quarter of 2010, with costs amounting to SEK 207m. During the second
quarter of 2009, restructuring costs in the packaging operations amounted to SEK 439m.
Higher prices in Packaging together with larger volumes had a favourable impact on profit.
Higher raw material costs reduced profit, while savings from the restructuring programme in
the packaging operations had a favourable effect on profit.
 
SCA announced in the interim report that the company buys Copamex activities for baby diapers in Mexico and Central America. The price is approximately $ 50,000,000 on a debt free basis. The deal is expected to be completed during the third quarter of this year.