25,716 3,235 13 % 29 % Institutions in More Than 100 Countries

Net sales and operating margin

SEKm %

25,000 15

20,000 12

15,000 9

10,000 6

5,000 3

0 0 05 06 07 08 09 Net sales Margin

Operating cash flow

SEKm

5,000

4,000

3,000

2,000

1,000

0 05 06 07 08 09

Operating profit and ROCE

SEKm %

3,000 30

2,400 24

1,800 18

1,200 12

600 6

0 0 05 06 07 08 09 Operating profit ROCE

SCA offers incontinence care prod- Share of Group ucts, baby diapers and feminine care products for the markets’ quality segments. All three segments have a high development rate and new products are launched continuously. The com- Net sales, 23% Operating profit, 32% Capital employed, 11% Av. no. of employees, 15% pany’s products are sold under SCA’s own brands and retailers’ brands and are distributed via retailers and care 25,716 3,235 13 % 29 % institutions in more than 100 countries. Sales, SEKm EBIT, SEKm EBIT margin ROCE1)

1) Return on capital employed. Board of Directors’ Report Personal Care

Personal Care

Market position and brands Innovation and product development Strategic priorities: SCA is one of the world’s largest players in per- SCA invests considerable resources in its • Develop SCA’s world-leading position in sonal care products and the global market efforts to gain deep insight into consumer and incontinence care using the Tena brand. leader in incontinence care products. SCA has customer needs. This insight forms the basis • Continue the programmes involved in the a portfolio of global, regional and local brands. for the Group’s innovations and product devel- global brand platforms and utilise synergies. Tena – SCA’s brand for incontinence care – opment. The number of launches of new and • Increase the growth rate in fast-growing generates sales of more than EUR 1bn annu- upgraded products is on the rise. The empha- markets in Eastern Europe, Southeast Asia, ally, and is a world leader in incontinence care. sis is on function, fit, design, and costs. Latin America and the Middle East. In baby diapers, SCA is the market leader in • Continue to gain in-depth insight into con- the Nordic region, with its Libero brand Targets sumer and customer needs and apply this accounting for a market share of more than 5–7% organic growth, with a minimum of 30% knowledge to product development and in- 60%, and is also displaying rapid growth in return on capital employed. crease the launch rate of innovative product Russia and parts of Eastern Europe. In South- offerings. east Asia, SCA holds a leading position with its Production and sales channels • Continuously enhance production and dist- Drypers brand and in South America with 23 plants in 20 countries. Products are distrib- ribution efficiency. Pequeñín. In feminine care, SCA is market uted via the retail trade and care institutions in • Grow through category expansion under leader in the Nordic region, as well as in large more than 100 countries. global brands and a greater share of high- and rapidly expanding markets in Latin Amer- value products. ica. The Libresse, Saba, Nosotras and Nana Average number of employees brands are supported by SCA’s global brand 7,269 (7,648) –5%. platform.

Strategy

Incontinence care fast-growing markets in Eastern Europe, Russia, Production and business processes SCA’s top priority in incontinence care is main- the Middle East and Southeast Asia. Production efficiency is consistently improved by taining a high growth rate in all segments, with In the case of retailers’ brands, the aim is to means of modernisation and investments in new strengthened global market leadership in devel- enhance the efficiency of the business model to and existing facilities. As a result, these efforts oped markets and establishing leading positions ensure competitiveness and profitability. enhance the cost structure and strengthen prod- in Eastern Europe, Southeast Asia and Latin uct quality and operational reliability. America. Increasing understanding and accept- Feminine care ance among consumers is crucial as regards SCA holds strong, selective market positions in Outlook incontinence, a topic that is often surrounded by Europe, Latin America, Australia and New Zea- Incontinence care offers considerable long-term social taboos. Demand is strengthened through land, and is focusing on growth in the fast-grow- potential as a result of an aging population in information and marketing supported by effec- ing markets in Eastern Europe and the Middle mature markets, a low market penetration rate tive, comfortable and easily accessible products. East. Feminine care products are developed for and access to highly populated growth countries. SCA aims to enhance its leading position through the company’s own regional and local brands, SCA develops and upgrades its product range for superior consumer insight, innovative product which are supported by a global brand platform. all sales channels that are expected to show con- development and efficient production. Based on in-depth consumer and customer tinuing high demand. In the feminine care and insight, SCA prioritises investments in new prod- baby diapers segments, the global brand plat- Baby diapers uct concepts and marketing and endeavours to forms offer favourable potential for continuing SCA plans to continue strengthening the favoura- strengthen its competitiveness through continu- growth in markets with a low penetration rate and ble positions of its own brands in such mature ous efficiency enhancement and cost-effective high demand, such as Eastern Europe, Latin markets as the Nordic region, New Zealand and production in such areas as Eastern Europe. America, the Middle East and Southeast Asia. selected markets in South America, as well as in

SCA Annual Report 2009 23 Board of Directors’ Report Personal Care

Market

The global market for personal care products is driven by innovation, has annual sales of just SCA’s market positions over SEK 300bn and is growing at a rate of some 5% annually. Europe accounts for 30% and North North America for 20% of the overall market. The market is dominated by a small number of Europe America Global major global players offering well-known brands. In mature markets, baby diapers and feminine Incontinence care 1 3 1 care products have attained high market penetration, while the aging population and low market Baby diapers 3 – 4 penetration drive demand for incontinence products. In developing countries, the use of all prod- Feminine care 3 – 5 uct categories is expanding as the level of disposable income increases and insight into the health benefits of hygiene grows. In 2009, mature markets were distinguished by stable demand, while fast-growing markets displayed a continuing robust increase in demand.

Incontinence care global market leader in incontinence care, with Russia and parts of Eastern Europe. SCA also Incontinence affects between 5 and 7% of the sales in more than 100 countries. holds leading positions in parts of Southeast Asia world’s population. The global market totals SCA commands a very strong position in and Latin America. SCA markets baby diapers in some SEK 60bn, and is growing at about 5% Europe, with a market share of some 40%. some 70 countries. annually. Europe accounts for slightly more than 40% of the total market and North America for Baby diapers Feminine care just under 30%. Market growth is driven by a The global market totals approximately SEK The global market amounts to about SEK 100bn higher pace of innovation, increasing market 150bn, and is estimated to grow at about 6% and is growing by approximately 3% annually. The penetration, an aging population, rising house- annually. The European market accounts for European market accounts for about 25% and is hold incomes and growing welfare requirements. almost 30%, with annual growth of about 5%. dominated by pads, representing 50%, while Market penetration in emerging markets is low. The most significant growth is in Asia, Latin Amer- panty liners and tampons each account for 25%. Institutional care and homecare account for ica and Africa, where birth rates are high and In Europe, SCA is the third largest player, with a 62% of the global market. Here, the main focus is household incomes are rising. The majority of market share of 8%. The driving forces behind this on supplying high-quality products combined with children worldwide under the age of two still do market are a growing number of women of child- qualified advisory services that simplify handling not enjoy the practical and effective hygiene pro- bearing age and relatively low market penetration procedures and reduce costs for care providers. vided by disposable diapers, which means that in fast-growing countries, while growth is weaker The retail market is the fastest growing segment, there is significant future potential. in mature markets. The proportion of sales is accounting for 38% of the global market. SCA pro- SCA is the third largest player in the European increasing in Latin America, Russia, Eastern vides support through information, advertisements market, with a share of 12%. In the Nordic region, Europe, and the Middle East, where SCA is the and the development of products that are increas- SCA has more than 60% of the market with its market leader in several major markets. SCA sells ingly discreet, easy to use and effective. SCA is the Libero brand, which is also growing rapidly in feminine care products in more than 80 countries.

Incontinence care – global market shares

SCA, 24% Kimberly-Clark, 9% First quality products, 7% Unicharm, 7% Others, 53%

Incontinence care – sales channels, Baby diapers – brand categories, Feminine care – brand categories, global market Europe Europe

Institutional and home care, 62% Brands, 78% Brands, 86% Retail outlets, 38% Retailers’ brands, 22% Retailers’ brands, 14%

24 SCA Annual Report 2009 Board of Directors’ Report Personal Care

Operations in 2009

Incontinence care continued to see favourable Operating profit rose by 11% to SEK 3,235m Key events demand, and SCA’s Tena brand increased its (2,912), due to an improved product mix and • Higher production capacity in incontinence sales by 11%. Sales to the healthcare sector – the higher prices, notably in baby diapers. The major care. largest customer segment – rose some 10% amid generation shift to new baby diaper products in- • New technology and product generation for continuing intense competition. The retail sector creased manufacturing costs. Marketing costs baby diapers. continued to show sizeable growth. Growth in rose, especially in Eastern Europe and Russia. • Market testing of incontinence care in Latin American countries was favourable. Other China. robust markets during the year included Ger- Operating margin was 12.6% (12.5). • Launch of baby care products in the Nordic many, France, Italy, Russia and Eastern Europe. region. During 2009, a decision was made to expand pro- Return on capital employed totalled 29% (28). • Acquisition of Algodonera Aconcagua in duction capacity for incontinence care in Russia. Argentina. In the baby diaper segment, sales rose 8%. Operating cash surplus amounted to SEK The sales trend in emerging markets, such as 4,467m (3,940). Operating cash flow increased to Latin America, Malaysia and Russia, showed SEK 4,436m (2,591). Higher operating cash sur- Net sales rose by 10% to SEK 25,716m (23,331). double-digit growth. The upgrade of technology plus – combined with lower working capital and The rise in sales resulted from higher prices and and product quality for baby diapers was com- slightly lower current capital expenditures – con- an improved product mix. Volumes remained pleted during the year. Under the Libero brand, a tributed to the improvement. stable. Exchange-rate movements increased net category expansion was conducted in the Nordic sales by 7%. Sales in growth countries rose by region through which baby-care products carry- Capital expenditures amounted to SEK 2,027m 13%, with a notable rise in Russia and Malaysia. ing the Nordic Swan environmental label – such (1,685). Major investments in a new product ge- Competition remains intense in the retail sector, as wet wipes, baby lotion and nursing pads – neration of baby diapers in 2009 enhanced com- with higher campaign intensity. SCA retained its were successfully launched. The business area petitiveness and growth potential. A decision was market shares. also launched a new range of Swan-labelled dia- made to invest SEK 138m in a new production Via its 50% owned company in Columbia, pers in the smallest sizes under the Libero brand. line for incontinence care at SCA’s mill in the Tula Productos Familia, SCA acquired the Argentinean Feminine care sales rose by 11%. Growth was district in Russia.The production line is scheduled company, Algodonera Aconcagua. The purchase favourable in the major markets in Western to be put into operation in 2011. price was SEK 165m on a debt-free basis. Opera- Europe, Russia and Mexico. The launch of tam- tions focus on feminine care and Algodonera pons in Norway under the Libresse brand proved Aconcagua has a market share of 20% in Argen- successful. 2010 will see the launch of tampons tina, ranking the company number three in the in new markets. country. Algodonera Aconcagua also has a small market share in baby diapers and incontinence care, offering the potential for future growth in these segments.

Key figures

Group SEKm 2009 share, %1) 2008 Net sales 25,716 23 23,331 Operating cash surplus 4,467 28 3,940 Change in working capital 835 –353 Current capital expenditures –795 20 –910 Other changes in operating cash flow –71 –86 Operating cash flow 4,436 30 2,591 SCA’s sales by product segment SCA’s sales by region Operating profit 3,235 32 2,912 Operating margin, % 13 12 Incontinence care, 55% Europe, 67% Capital employed 11,430 11 10,383 Baby diapers, 29% North America, 11% ROCE, % 29 28 Feminine care, 16% Latin America, 8% Strategic investments Asia, 7% plant and equipment –1,232 41 –775 SCA’s sales to retailers’ brands Australasia, 4% restructuring costs 0 0 as a proportion of total sales: Other, 3% Incontinence care, 0% company acquisitions/

Baby diapers, 27% divestments –44 0 Feminine care, 9% Average number of employees 7,269 15 7,648 1) Group share excludes items affecting comparability and other operations.

SCA Annual Report 2009 25 Essentials for keeping dry

Personal Care

SCA offers incontinence care products, baby diapers and feminine care products for the markets’ quality segments. All three segments have a high development rate and new products are launched continuously. The Net sales, 21% 1) Operating profit, 32%1) Capital employed, 10% 1) Av. no. of employees, 15% 1) company’s products are sold under SCA’s own brands and retailers’ brands and are distributed via retailers and 23,331 2,912 12 % 28 % 90 % 9 % care institutions in more than 90 countries.

Sales, SEKm EBIT, SEKm EBIT margin ROCE 2) Capital expenditure 3) Working capital 4)

1) Share of the Group. 2) Return on 3) Capital expenditures in 4) Working capital in capital employed. relation to depreciation. relation to net sales. Board of Directors’ Report Personal Care Personal Care

Sales 2008: SEK 23,331m (22,101) +6% Market position: SCA is one of the world’s larg- needs and is continuously increasing its in- Operating profit 2008: SEK 2,912m (2,960) est players in personal care products and the glo- vestments in research and product develop- –2% bal market leader in incontinence care products. ment. The number of launches of new and up- Average no. of employees: 7,648 (7,176) Brands: SCA has a valuable portfolio of global, graded products using more intensive market +7% regional and local brands. The global Tena brand communications is on the rise. The emphasis Production: 22 facilities in 19 countries is a world leader in incontinence care products is placed on function, costs, fit and design. Strategic priorities: and is available in more than 90 countries. In Production and business processes: • Develop SCA’s world-leading position within baby diapers, Libero is the market leader in the Production is continuously streamlined through incontinence care Nordic region and is displaying rapid growth in investments in new facilities and the moderni- • Increase SCA’s growth rate in fast-growing Russia and parts of Eastern Europe. In South- sation of existing facilities, which thereby markets in Eastern Europe, Southeast Asia east Asia, SCA holds leading positions with the improve the cost structure and consequently and Latin America Drypers brand and in South America with strengthen quality and operating reliability. • Continue to gain in-depth insight into con- Pequeñín. Within feminine care, SCA is the mar- Since 2000, production in Europe has been sumer and customer needs and apply this ket leader in the Nordic region and in large and concentrated to seven modern plants, includ- knowledge to product development and in- rapidly expanding markets in Latin America. The ing two new facilities in Eastern Europe, which crease the launch rate of innovative product Libresse, Saba, Nosotras and Nana brands are has resulted in significant cost reductions. offerings supported by SCA’s global brand platform. Sales channels: Products are distributed • Continuously enhance production and dis- Innovation and product development: SCA through the retail trade and care institutions. tribution efficiency invests considerable resources in its efforts to Targets: 5-7% organic growth, with 30% return gain deep insight into consumer and customer on capital employed over an economic cycle.

Strategy

Incontinence care and Southeast Asia. Through the continued The top priority within incontinence care is main- development of high-quality product offerings SCA’s sales by product segment taining a high growth rate while strengthening that offer excellent service and attractive prices, global market leadership in developed markets SCA aims to strengthen its deliveries of retailers’ Incontinence care, 55% Baby diapers, 29% and establishing leading positions in Eastern brands. Feminine care, 16% Europe, Southeast Asia and Latin America. In- creasing understanding and acceptance among Feminine care SCA’s sales to retailers’ brands as a pro- consumers is crucial with regard to incontinence, SCA holds strong, selective market positions in portion of total sales: a topic that is often surrounded by social taboos. Europe, Latin America, Australia and New Zea- Incontinence care, 0% Demand is strengthened through information and land and is focusing on growth in the fast-growing Baby diapers, 34% Feminine care, 6% marketing supported by effective, comfortable markets in Eastern Europe and the Middle East. and easily accessible products. SCA aims to en- Pads and panty liners are developed for the com- hance its leading position through superior con- pany’s own regional and local brands, which are sumer insight, innovative product development supported by a global brand platform. Based on SCA’s sales by region and efficient production. in-depth consumer and customer insight, SCA

prioritises investments in new product concepts Europe, 69% Baby diapers and marketing and endeavors to strengthen its North America, 11% SCA plans to continue strengthening the favour competitiveness through continuous efficiency Latin America, 8% able positions of its own brands in such mature enhancement and cost-efficient production in Asia, 6% Australia, 4% markets as the Nordic region, New Zealand and such areas as Eastern Europe. Other, 2% selected markets in South America, as well as in fast-growing markets in Eastern Europe, Russia

SCA Annual Report 2008 17 Board of Directors’ Report Personal Care

Market

The global market for personal care products is driven by innovation, has annual sales of SEK 260bn and is growing at a faster rate than GDP. In developing countries, the use of all product SCA’s market positions categories is expanding as the level of disposable income increases and insight into the health North benefits of hygiene grows. In mature markets, baby diapers and feminine care products have Europe America Global Incontinence care 1 3 1 achieved a high level of market penetration and a rapidly aging population drives demand for Baby diapers 2 – 3 incontinence care products. The industry is highly consolidated, with a small number of major Feminine care 3 – 5 global players offering well-known and dominant brands. In 2008, the European market was characterised by continued positive demand and intense price competition. The strong rise in demand continued in emerging markets.

Incontinence care Baby diapers Feminine care Incontinence affects between 5 and 7% of the The total European market amounts to about SEK The global market amounts to about SEK 90bn world’s population, resulting in a market totalling 35bn and is growing by 4% annually. SCA is the and is growing by approximately 4% annually. SEK 50bn that grows by 6–7% annually. Europe second largest player in the market, with a share The European market accounts for about 25% accounts for slightly more than 45% of the total of 14%. The Group holds a strong position in pant and is dominated by pads (50%), while panty market and North America for approximately diapers, an area that is growing faster than the liners and tampons each account for 25%. The 30%. Market growth is driven by a higher pace total market, and currently has a 15% share of the driving forces behind this market are a growing of innovation, high market penetration, an aging baby diapers market. SCA’s Libero brand is the number of women of child-bearing age and a population, increased household incomes and largest brand in the Nordic region and is growing relatively low market penetration in fast-growing growing welfare requirements. Market penetra- rapidly in Russia and parts of Eastern Europe. In countries, while growth is weaker in mature mar- tion in emerging markets is low. Southeast Asia, SCA holds leading positions with kets. SCA sells feminine care products in more Institutional care and homecare facilities its Drypers brand, in South America with Pequeñín than 90 countries. The largest regional market is account for 63% of the global market. The main and in New Zealand with Treasures. Europe, where SCA is the third largest player. The focus is on supplying high-quality products com- The most significant growth is occurring in Asia, proportion of sales is increasing in Latin America, bined with qualified advisory services that simpli- Latin America and Africa, where birth rates are high Eastern Europe, the Middle East and Australia, fy handling procedures and reduce costs for care and household incomes are increasing. More than where SCA is the market leader in several large providers. The retail market is the fastest growing 75% of children in the world under the age of two countries. segment and accounts for 37% of the global still do not enjoy the practical and effective hygiene market. SCA provides support through informa- provided by disposable diapers, which means that tion, advertisements and the development of there is significant future potential. SCA holds lead- More information at www.sca.com products that are increasingly discreet, easy to ing positions in Southeast Asia and parts of South use and effective. America.

Incontinence care – global market shares Baby diapers – SCA’s regional market positions Feminine care – SCA’s regional market positions (examples) (examples)

SCA, 27% SCA’s SCA’s position position Kimberly-Clark, 10% Europe 2 Europe 3 First quality products, 7% Nordic region 1 Nordic region 2 Other, 56% Russia 3 Australia 1 Eastern Europe 3 Mexico 3 Colombia 2 Colombia 1 Malaysia 1 Peru 2

Incontinence care – sales channels, global market Baby diapers – brand categories, European market Feminine care – brand categories, European market

Institutional and home care, 63% Manufacturers’ brands, 77% Manufacturers’ brands, 86% Retail outlets, 37% Retailers’ brands, 23% Retailers’ brands, 14%

Market data is based on SCA’s estimations.

18 SCA Annual Report 2008 Board of Directors’ Report Personal Care

Operations in 2008

Operating profit declined by 2% to SEK 2,912m countries. SCA is developing products and up- Key events (2,960). The effects of improved volumes and an grading its product range for all sales channels • Decision to invest in expanded produc- enhanced product mix were offset by increased that are expected to maintain a high level of tion capacity for incontinence care raw material and production costs, a combination demand. • Decision to invest in a new facility in the that resulted in a somewhat lower operating Major investments in a new generation of Moscow area margin of 12.5% (13.4). baby diaper products are expected to produce • New technology and a new generation of results in the form of enhanced competitiveness products established for baby diapers Operating cash surplus amounted to SEK and growth opportunities, particularly in the large • New technology and product design for 3,940m (3,955). Operating cash flow declined to markets in Eastern Europe and in Russia, where incontinence care SEK 2,591m (2,918) as a result of a higher level a new facility will be put into operation in autumn of tied-up capital and a rise in current capital 2009. The global brand platform for feminine care expenditures. products offers excellent conditions for continued growth in markets with low penetration rates Net sales rose by 6% to SEK 23,331m (22,101), Capital expenditures amounted to SEK 1,685m and high demand, such as Eastern Europe, Latin due mainly to an increase in volumes of about (920). To increase production capacity for the America and Southeast Asia. 5% and an improved product mix. Exchange rate Tena Lady brand, which is encountering favour fluctuations had only a marginal impact on net able demand in Europe and the US, the decision sales. Sales growth in mature markets totalled was taken to invest in the production operations 3%, while in growth countries the increase was in Hoogezand in the Netherlands and Bowling 15%, with particularly favourable trends in Eastern Green, in the US. To take advantage of the growth

Europe and Latin America. Competition remains opportunities in the Russian market, a decision Key figures intense in the retail sector. SCA retained its market was made to establish a production operation for Group shares during the year. personal care products in the Moscow area. This SEKm 2008 share, % 2007 Demand for incontinence care remained investment amounted to SEK 450m. SCA also Net sales 23,331 21 22,101 favourable and sales of SCA’s Tena brand in- decided to make additional investments to in- Operating cash surplus 3,940 28 3,955 Change in working capital –353 –216 creased by 7%. Sales to the care sector, SCA’s crease the capacity for incontinence care prod- Current capital expenditures –910 17 –748 largest customer segment, rose by 8%, despite ucts at its facilities in the Netherlands. Other changes in continued intense competition. The retail segment The major shift underway to a new generation operating cash flow –86 –73 demonstrated positive growth. The markets in of baby diaper products, resulting in extensive Operating cash flow 2,591 32 2,918 Operating profit 2,912 32 2,960 Germany, France, Italy, Russia and Eastern Europe changes in production and logistics, had an ad- Operating margin, % 12 13 were strong during the year. verse impact on sales and profitability. Capital employed 10,383 10 9,269 Sales for baby diapers increased by 5%. ROCE, % 28 32 Sales continued to increase substantially in South The future Strategic investments America, Malaysia and other growth countries. The long-term potential of incontinence care plant and equipment –775 25 –172 restructuring costs 0 –3 Sales of feminine care products rose by 4%, products is considerable due to the aging popu- company acquisitions/ primarily as a result of an improved volume trend lation in the mature markets, the low penetration divestments 0 –156 in Europe. rate and availability in heavily populated growth Average number of employees 7,648 15 7,176

Net sales and operating margin Operating cash flow Operating profit and ROCE

SEKm 18 % SEKm SEKm 36 %

20,000 15 3,000 3,000 30

16,000 12 2,400 2,400 24

12,000 9 1,800 1,800 18

800 6 1,200 1,200 12

400 3 600 600 6

0 0 0 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Net sales Operating margin Operating profit ROCE

SCA Annual Report 2008 19 Personal Care Good personal care is essential to well-being. SCA has world-leading expertise and innovative products that keep babies dry, offer women comfortable protection during menstruation and make life easier for people with incontinence. Our baby diapers, feminine care and incontinence products are available worldwide. They simplify everyday life and contribute to health and well-being throughout the lifetime of a growing number of people.

Personal Care Share of Group Geographic presence

Personal Care comprises three product segments: incontinence care, baby diapers and feminine care. All three segments have a high development rate and new products are launched continuously. Products are sold both under SCA’s own brands and under retailers’ brands, and distributed via retailers and health care institutions. Net sales Operating pro t 21% 29%

Capital employed Average no. Sales in some 90 countries worldwide. 9% of employees Production at 21 plants in 18 countries. 14%

Sales by product segment Sales by region Market positions

Other 2% North Feminine care Incontinence care Australia 4% Europe America Global 16% 55% Asia 5% Incontinence care 1 3 1 Europe 69% Latin America 8% Baby diapers 2 – 3 Feminine care 3 – 5 North America 12% Baby diapers 29%

Incontinence products account for most of the sales in SCA is expanding rapidly in Personal Care and holds the Personal Care segment. strong positions in all continents.

26 sca annual report 2007 Introduction Board of Directors’ Report Financial statements Financial Corporate governance Corporate SCA Data

Keeping dry

sca annual report 2007 27 Personal Care Strategy

SCA is the world leader in incontinence Incontinence care price, and providing a high level of service. care and holds leading regional market po- A continued high growth rate is the top prior- Sales are primarily to markets where SCA sitions in baby diapers and feminine care. ity within incontinence care. Market leader- does not have a position with its own brands. SCA’s strengths are customer and con- ship in developed markets will be strength- SCA accounts for one-third of the European sumer insight, innovative product develop- ened and built up in several of the new, fast- market for retailers’ brands. ment, well-known brands and efficient pro- growing markets in Eastern Europe, Asia and Efforts to develop innovative products duction. Latin America. SCA seeks to develop market- based on insight into customer and consumer leading positions through continuous im- preferences continue. The trends are that the Baby diapers, feminine care and incontinence provements to product range, marketing, diaper age is lengthening and that the priori- care offer people simple, convenient and ef- service and concepts. ties are comfort and easy changing. SCA is in fective personal hygiene solutions throughout One key task is to increase understanding the forefront within development of pant dia- their lives. Demand is strongly linked to in- and acceptance among consumers for incon- pers which are the fastest growing category. creased prosperity and the products make a tinence, a health problem that is often sur- significant contribution to improved stand- rounded by taboos. Demand is strengthened Feminine care ards of health in the world. through marketing and information, com- SCA develops and expands strong, selective The global market for personal care prod- bined with effective and comfortable prod- market positions in Europe, Latin America, ucts is growing faster than GDP. In develop- ucts and improved availability in all sales Australia and New Zealand, and focuses on ing countries use of all product categories is channels. growth in the fast-growing markets in East- rising significantly and the market is growing Most sales go to nursing institutions and ern Europe and the Middle East. in pace with increased purchasing power. In care in the home. For these customer groups SCA focuses primarily on developing pads more mature markets, the ageing population the main emphasis is on supplying high-qual- and panty liners for a number of its own local means high growth for incontinence prod- ity products and qualified advisory services and regional brands which are coordinated in ucts. Baby diapers and feminine care products that improve the quality of life for the end- a global brand platform. This is supported by have achieved high market penetration and consumers and simplify the work and reduce the unique SecureFit product concept devel- growth is calmer. the costs of the health care providers. oped by SCA which provides excellent pro- The industry is well consolidated and In the retail sector, SCA is working to in- tection against leakage and a very good fit. dominated by a small number of major global crease understanding for the need of inconti- players with well-known brands. Products nence care through active information and are continuously developed and diversified in advertising. Sales are growing at a fast pace order to meet different consumer preferences and new products are launched continuously. Brand categories, Europe and needs. The products are increasingly discreet, easy-

SCA’s Personal Care operations have to-use and effective. SEKbn 35 shown good growth and profitability for a long time. The target is organic growth of Baby diapers 30 5–7% per year with maintained or improved SCA is the second largest baby diaper manufac- 25 profitability. The following strategic priorities turer in Europe and number three in the world. 20 apply to the years ahead: The strategy is to further develop and consoli- 15 • Further develop the world-leading date brand positions in mature markets such as position within incontinence care. the Nordic region and New Zealand. SCA is 10 • Increase growth in fast-growing markets also well positioned in large, fast-growing mar- 5 in Eastern Europe, Asia and Latin kets such as Eastern Europe, Latin America, and 0 America. some significant countries in Southeast Asia. care care • Continue development of insight into Sales in India started during the year through a Feminine Baby diapers Incontinence

consumer and customer needs in order to new joint venture. This is a small market so far N Manufacturers’ brands accelerate the launch rate for innovative but one with huge potential. N Retailers’ brands product offerings. SCA is also a significant supplier of baby Within Personal Care, retailers’ brands account for a • Continuously enhance production and diapers for retailers’ brands by offering mod- relatively small share of the total market. distribution efficiency. ern, high-quality products at a competitive

28 sca annual report 2007 Introduction Board of Directors’ Report Financial statements Financial Corporate governance Corporate SCA Data

SCA’s feminine care products are developed to provide a snug fit which gives greater security and comfort.

SCA also supplies growing volumes to retail- in studies that provide knowledge for product tions in response to customer and consumer ers’ brands. development, often in cooperation with cus- needs, which has become increasingly impor- In addition to expansion and product de- tomers, and in brand positioning. This relates tant in recent years. For example, production velopment based on insight into customer to function, fit, communication and design. of baby diapers was adjusted during the year and consumer preferences, priority is also A number of years ago, Personal Care in- so that open diapers with elastic sides can also given to new product concepts, production creased its investments in research and devel- be manufactured. transfers and rationalization of production opment. This has resulted in a strong increase Since 2000 production facilities in Europe structure. This has improved profitability in the number of new and upgraded products has been made more efficient and five have throughout the operations. within all product and market areas and in- been closed. Production is now concentrated creased the rate of product launches. The to seven plants including two new ones in Innovation strategy is to continue to focus on product de- Eastern Europe. All European production of Deep insight into customer and consumer re- velopment and market communication. feminine care products has been moved to quirements is of fundamental importance for Slovakia and a newly established plant in Po- SCA’s success in product development and Efficient production land accounts for an increasingly large pro- brand management. This insight must include Continuous cost reduction is given high pri- portion of manufacture of baby diapers and consumers’ actual behaviour and also un ority. Production takes place in 21 plants in incontinence care products. identified needs, as well as the ability to predict 18 countries. Manufacture is flexible in order Investments in production in Eastern Eu- unexpressed needs and changes in preferences. to adapt to changes in demand. This allows rope are successful and motivate continued For this reason SCA makes regular investments fast adjustment to changed or new specifica- expansion.

sca annual report 2007 29 Personal Care Performance and challenges 2007

Sales and earnings improved during the tablishment in new markets and investments in In baby diapers, the focus during the year year due to strong growth, a high rate of product development. was on development of elastic sides for the product development, innovations and a open diapers. This was well received by con- continued focus on cost control. Growth Future focus sumers. The communications concept was was particularly high in Russia and Latin There is considerable potential for incontinence also updated for the Libero brand and the America. SCA is building up an increasingly care products which are sold in over 90 coun- launch of the spring design collection generat- strong market presence in these regions. tries under the global TENA brand. The major ed stronger market shares for Libero Up&Go challenges include growing in Latin America, in the Nordic countries. Challenges for the fu- Market, sales and earnings Asia and Eastern Europe as well as further ture include growth in markets in Russia and Sales increased by 4% due to growing demand strengthening positions in the more mature Eastern Europe where Libero is one of the within SCA’s major markets in Europe as well markets. New sales channels, such as the inter- leading brands, as well as in India where Libe- as rising consumption in growth countries. net also provide attractive opportunities. ro was introduced during the year through a SCA strengthened its positions in many mar- Penetration remains low in several mar- joint venture. kets due, among other things, to a high rate of kets and the products are not yet fully availa- Development within feminine care was product launches. This gives SCA a better ble in all channels. The growth rate will con- good during the year with increased sales and product mix which strengthens profitability tinue to be substantial within all sales chan- improved profitability. SCA formed a joint despite rising raw material prices, costs of es- nels: institutions, home care and retail. venture during the year to manufacture and Product offerings for institutional customers sell feminine care products in the Middle East are continuously expanded with various pe- and Egypt. Market prospects in this region are ripheral products and services. This is mar- favourable with a young female population. keted and packaged as the TENA Services Significant investments were made in Latin concept to give the customer increased value- America, and Mexico is now SCA’s largest sin- added. Investments in growth in new and es- gle market for feminine care. Further expan- tablished markets continued during the year sion has high priority with Brazil offering at- with a global programme for product renewal tractive possibilities. SCA’s global product con- under the TENA brand. The entire segment for cept SecureFit contributes to good growth and institutional customers was upgraded. is a key platform for continued expansion. The The rate of product development remains rate of expansion is high. During the year a high for incontinence products sold via retail feminine care product with a new surface ma- outlets where new products were launched in terial was introduced in the Russian market. Europe. During the year further investments The new feminine care product Saba Confort were also made to strengthen the global posi- was launched in Mexico. tion within incontinence care products devel- During 2007, SCA launched a limited edition of the first design oped for men, TENA for Men. The product diaper in the Nordic region under the name Libero Spring Collection. portfolio in the US was also upgraded. Key figures Group SEKm 2007 share % 2006 Net sales 22,101 21 21,272

Operating cash surplus 3,955 26 3,778 Net sales and operating profit Operating cash flow Change in working capital –216 –37 SEKm  SEKm 25,000 5,000 SEKm Current capital 3,500 expenditures –748 14 –649 Other changes in 20,000 4,000 3,000 operating cash flow –71 –108 2,500 Operating cash flow 2,918 36 2,984 15,000 3,000 Operating profit 2,960 29 2,799 2,000 Operating margin, % 13 13 10,000 2,000 1,500 Capital employed 9,269 9 8,471 Return, % 32 33 1,000 5,000 1,000 Strategic investments 500 plant and equipment –172 13 –334 0 0 restructuring costs -3 –10 2003 2004 2005 2006 2007 0 company acquisitions –156 3 0 2003 2004 2005 2006 2007  Net sales Average number of Operating proﬁt employees 7,176 14 7,560

30 sca annual report 2007 Introduction Board of Directors’ Report Financial statements Financial

Protect yourself Corporate governance Corporate

More than 300 million people worldwide suffer from incontinence and the number is growing fast in pace with an increasingly ageing population. It is highly likely that the number is actually far higher since incontinence remains very much a taboo subject. Many people still do not receive any kind of Market Incontinence care treatment or protection to handle their incontinence. SCA Data High growth for incontinence care

SCA is the world leader in incontinence market, i.e. more than 90 countries. SCA has products with its global TENA brand. In- 26% of the global market, 40% of the Euro- continence affects between 5 and 7% of pean market and 19% of the North American Incontinence care – sales channels the world’s population. The global inconti- market. SCA is also the leading player in Aus- Home care Institutional care nence care market is valued at approxi- tralia, New Zealand and Latin America. 27% 37% mately SEK 45–50bn. Europe accounts for approximately 45% of the market, North America for about 30% with Asia accounting for most of the remainder. Retail outlets 36% Incontinence care products are used in insti- Annual per capita consumption of tutional care and are also sold in pharmacies, incontinence care No. per capita/year special stores for medical supplies, and 25 through retail outlets. The global market is growing by over 5% per year, particularly 20 Incontinence care – global market shares through increased retail sales. Market growth is driven by increasingly 15 Other SCA ageing populations as well as improved 38% 26% 10 household purchasing power. Wider acceptance of incontinence and related products is 5 also driving growth. Growth is primarily tak- Kimberly-Clark 11% 0 ing place in the light incontinence products Ontex Covidien Asia segment. 4% 8% Unicharm Hartmann SCA’s global TENA brand is marketed in North America Latin America Western Europe Eastern Europe most countries with a developed consumer 6% 7%

sca annual report 2007 31 What goes in must come out

The average baby in the Western world today uses approximately 4,500 diapers before their potty training is fully effective. Of the world’s approximately 300 million children below the age of two, more than 75% still do not enjoy the practical and effective hygiene and protection against infection Market Baby diaper and disease provided by the disposable diaper. Fast growth for Libero in the East

The total European market for baby diapers SCA is the third largest player. In Malaysia, is valued at SEK 30–35bn. Pant diapers ac- Thailand and Singapore, SCA holds leading Regional market positions (selection) count for 14% of this total. A growing positions with the Drypers brand, and in New number of consumers appreciate the secu- Zealand with the Treasures brand. SCA also Market Position Nordic region 1 rity and convenience of pant diapers. has strong brands in Latin America. Malaysia 1 During the year, SCA entered a joint ven- Colombia 2 Pant diapers is the segment with the strongest ture in India and thus laid the foundations for Russia 3 growth in Western Europe, approximately 5% further strengthening of market positions in Eastern Europe 3 per year. Growth for baby diapers is particu- Asia. larly high in markets in Asia, Latin America, SCA also sells baby diapers under retail- Eastern Europe and Africa. The reason for this ers’ brands and supplies several major Euro- is high birth rates, improved standards of liv- pean retail chains. Annual per capita consumption of baby ing and higher disposable income. diapers

SCA sells baby diapers in more than 50 Number/children 0–30 months/year 2,000 countries. SCA has strong brands in the Nor- dic region, parts of Eastern Europe, Russia, 1,500 Latin America, Africa, Asia and New Zealand. Brand categories, Europe SCA is the second largest player in Eu- Manufacturers’ rope, with a market share of 15%. In the Nor- Retailers’ brands brands 1,000 dic region, SCA is the market leader with the 25% 75% Libero brand with a market share of over 500 55%. During the year, a new stretch diaper was launched in Sweden. This is significant 0 for the defence and further development of Asia market positions. Libero is growing fast in Eastern Asia North America Latin America parts of Eastern Europe and in Russia where Western Europe

32 sca annual report 2007 Introduction Board of Directors’ Report Financial statements Financial

Once a month Corporate governance Corporate

For thousands of years women used rags during menstruation. The first disposable pads came on the market in Germany and the US at the end of the 19th century. Today’s newly developed pads Market Feminine care are designed to be almost invisible: thin with an optimal fit.

Good growth in Asia and Latin America SCA Data

The global market for feminine care is val- will enable women in countries that include ued at approximately SEK 90bn. In Europe Saudi Arabia, Egypt and Jordan to buy SCA’s Regional market positions (selection) pads account for approximately 50% of products. SCA also has strong market posi- sales with panty liners and tampons each tions in parts of Eastern Europe. In some Market Position Australia 1 accounting for about 25%. markets where there is intense competition, Colombia 1 such as Germany, SCA is increasing its mar- Peru 1 Global use of feminine care products is rising ket shares through sales of products under Mexico 2 due to an increasing number of women of retailers’ brands. Nordic region 2 child-bearing age. In Europe, however, this age group is decreasing slightly due to an ageing population. Growth for feminine care products is good in Asia and Latin America Annual per capita consumption of feminine due to an expanding target group and in- care creased market penetration. There is also high Number/woman 15–49 years/year growth potential in Eastern Europe. 350 SCA’s feminine care products are mar- 300 keted in 85 countries. This means that about Brand categories, Europe 250 every fifth woman in the world can buy the Manufacturers’ 200 company’s products. SCA’s main market for Retailers’ brands brands 150 feminine care, however, is Europe where 14% 86% SCA is the third largest player. Sales share is 100 growing in Latin America where SCA is mar- 50 ket leader in several countries. In this region, 0 sales are often made via jointly owned com- Asia panies. During the year SCA entered a joint North America Latin America venture company in the Middle East which Western Europe Eastern Europe

sca annual report 2007 33 Personal Care Share of the Group Geographic presence

Personal Care comprises three product segments: incontinence care, baby diapers and feminine care. All three segments are driven by innovation and and new products are launched continuously. The products are sold both under SCA’s own brands and under retailers’ brands, and distributed via retailers and health care Net sales Operating profit providers. 21% 32%

Capital Average no. Sales in some 90 countries in all parts of the world. employed of employees Production at 18 plants in 16 countries. 9% 15%

14 • SCA 2006 Personal Care

Good personal care is essential to well-being. Our innovative products make life easier. They keep babies dry, they promote women’s independence and they help break taboos surrounding incontinence. Quite simply, our strengths are closest to the skin.

Sales by product segment Sales by region Market positions North- Australia 5% Europe America Global Feminine care Incontinence care Europe Asia 5% Incontinence care 1 3 1 16% 55% 70% Latin America 8% Baby diapers 2 – 3 Feminine care 3 – 5

North America 12% Baby diapers 29%

Incontinence products account for most of the sales SCA is expanding rapidly in Personal Care and holds in the Personal Care segment. strong positions in all parts of the world.

SCA 2006 • 15 Personal Care Strategy

SCA is the world leader in inconti- cantly as buying power increases. In the • Establish and consolidate leading po nence care and holds leading regional more mature markets, the increase in the sitions in fast-growing markets in market positions in baby diapers and number of elderly people means high Central and Eastern Europe, Latin feminine care. SCA’s strengths are pro- growth for incontinence care. The indus America and Asia found consumer insight, innovative try is well consolidated and the well- • Continue to restructure and improve product development, well-known known brands dominate. Products are efficiency in production and distribu brands and efficient production. becoming increasingly sophisticated in tion order to meet specific needs. Baby diapers, feminine care and inconti SCA’s Personal Care operations have Incontinence care nence care give people simple and com provided high profitability for a long SCA is focusing on increasing awareness fortable hygiene solutions throughout time. The target is organic growth of 5– and acceptance of incontinence, develo their lives. The growing opportunities 7% per year with maintained or impro ping effective and comfortable products for effective personal care are making a ved margins. In the years ahead SCA will and raising availability through all dist significant contribution to health de be working with the following strategic ribution channels. Health care providers velopments in the world. priorities: account for the majority of sales. The The global personal care market is • Strengthen market positions by deve strategy for this customer group is to attractive and is growing faster than loping innovative product offerings show how SCA’s high-quality products GDPs. The use of these products in • Further develop SCA’s world-leading and expert advice can cut costs for nur developing countries is rising signifi position in incontinence care sing homes and at the same time raise

16 • SCA 2006 the quality of life for the users. In the re Innovation tail area, SCA is working on removing SCA conducts product and brand deve taboos through active information and lopment based on careful studies and in advertising and by developing discrete sight of consumer behaviour and needs. and effective products. The result is constant upgrades or new SCA is working to consolidate the products. Over the past two years the world-leading TENA brand, which of number of new products has increased fers products for all user needs through significantly. These have been developed all sales channels. SCA is in the front line in the global R&D organizations, close in product development and the pace of to consumers and markets and in coope innovation is high – both in terms of the ration with customers. Innovation work development of new products and ongo has resulted in a large number of new Tena Mini Magic, which is a thin, ing improvements to the existing range. patents. In the future even more resour discrete and lightweight incontinence product sold in retail channels, was In 2007 the entire product range aimed ces will be invested in product develop successfully launched in 2006. at institutions and home care will be up ment and market communication. graded. SCA will also launch products that are in the grey zone between femi Efficient production nine care and incontinence care, but that SCA has significant competitive advan are more appropriate for the users. tages due to its global operations. Pro duction takes place in 18 factories on six Baby diapers continents. The number of factories in The strategy for baby diapers is to main Europe has been reduced significantly tain and consolidate brand positions in and efficiency at the remaining ones has Brand categories, Europa the Nordic region, Central and Eastern been improved. Since 2000 five plants have been closed down and production Europe, Latin America, Africa, Southeast SEKbn Asia and New Zealand by continuing to has been concentrated to six factories in 35 develop innovative open diapers and pant cluding two new ones in Central and 30 diaper products. The latter category is Eastern Europe. All European produc 25 showing the fastest growth and here SCA tion of feminine care products, for ex 20 has had considerable success in Europe, ample, has been shifted to Slovakia. A 15 particularly with the Libero Up&Go new factory in Poland that manufactu 10 pant diaper. SCA is also a major supplier res baby diapers and incontinence pro of diapers for retailers’ own brands and ducts is an important element of SCA’s 5 aims to support retailers by providing focus on Central and Eastern Europe. 0 rs e e p e e competitive and high-quality products. The manufacture is flexible in order car car Feminin to adapt to changes in demand and to Baby dia Inkontinence

Feminine care allow for a quick response to changed or ■ Manufacturers’ brands In feminine care SCA intends to conti new specifications based on customer ■ Retailers’ brands Within Personal Care, retailers’ brands account for a nue to develop strong regional market and consumer needs. relatively small share of the total market. positions in Europe, Latin America, Aus tralia and New Zealand. SCA strategy focus primarily on pads and pantyliners. The ten regional feminine care brands are coordinated in a common, global brand platform. SCA is also strengthe ning its position in feminine care pro ducts for retailers’ brands.

SCA 2006 • 17 Personal Care The past year

Key ratios Demand for personal care products Baby diapers Group SEKm 2006 share % 2005 was good and sales increased by 10% SCA’s success in this segment continued Net sales 21,272 21 19,351 in 2006. Growth was particularly strong through Libero Up&Go pant diapers, Operating cash surplus 3,778 27 3,427 in Central and Eastern Europe and which are sold mainly in the Nordic re Change in working capital –37 –334 Current capital Latin America where SCA was able to gion and Russia. In Southeast Asia, sales expenditure –649 11 –436 strengthen its positions. New products of the re-launched Drypantz developed Other changes in operating cash flow –108 –202 were well received by consumers and well towards the end of the year. There Operating cash flow 2,984 47 2,455 customers. was also strong growth in open diapers, Operating profit 2,799 32 2,474 mainly in Central and Eastern Europe Operating margin, % 13 13 Capital employed 8,471 9 7,615 Net sales increased by 10% to SEK and Latin America. SCA consolidated its Return, % 33 28 21,272m. Operating profit increased by leading position as a supplier for retai Strategic investments – plant and equipment –334 36 –715 13% to SEK 2,799m. SCA was able to lers’ brands in Europe. In total, sales of – restructuring costs –10 40 0 raise prices for most products and mar baby diapers increased by more than – company acquisitions 0 0 kets, which compensates for higher raw 10% which led to higher profitability. Average number of employees 7,560 15 6,644 material costs particularily superabsor bents. Feminine care Work on improved efficiency for the The intense competition in the feminine production facilities, mainly in Europe, care segment continued with a high level Net sales and operating profit was carried out according to plan. The of market activity from all major compe new factory in Olawa, Poland has star titors. SCA invested heavily in product SEKm ■ SEKm – 25,000 5,000 ted producing baby diapers and inconti development and launched a new gene nence care. ration of ultra-thin secure pads within 20,000 4,000 the SecureFit concept in most of Europe, 15,000 3,000 Incontinence products Latin America, Australia and New Zea The year was characterized by intensive land. This product launch resulted in an 10,000 2,000 marketing efforts. SCA launched, for ex increased market share, particularly in

5,000 1,000 ample, TENA Mini Magic, a thin but the Nordic region and Mexico, and con highly-absorbent incontinence care pro tributed to the positive trend in this pro 0 0 2002 2003 2004 2005 2006 duct that is sold in a brand new type of duct segment. Deliveries of retailers‘ ■ Net sales discreet and practical packaging. In brands continued to increase and now – Operating proﬁt North America the success of the incon account for approximately 15% of net tinence pant, TENA Discreet Active sales in Europe.

Operating cash flow wear, continued. New types of marke ting initiatives were also tested with SEKm good results, such as increased online 3,500 marketing and sales. In the care sector 3,000 the TENA Services concept was expan 2,500 ded. This concept involves providing ad 2,000 vice to nursing homes with the aim of 1,500 improving the quality of life of the users

1,000 and reducing overall costs for nursing

500 homes.

0 2002 2003 2004 2005 2006

18 • SCA 2006 Personal Care Incontinence care market

The global incontinence care market is SCA the global market leader with 26% Incontinence care – Sales channels valued at approximately SEK 45-50bn. of the market. SCA leads the market in North America accounts for around Europe and is number three in North Home care Institutional care 25% 40% 30% of the market, Europe for around America. SCA is the leading player in the 45% and Asia for approximately 20%. Australian, New Zealand and Latin Market growth is more than 5% per American markets. year with light incontinence products showing the fastest growth. Retail outlets 35%

Incontinence affects between 5 and 7% of the world’s population. The products Annual per capita consumption of incontinence Incontinence care - Global market shares care are used in institutional care and are also No./habitant Other SCA 25 sold directly to consumers at retail out 41% 26% lets and through pharmacies and shops 20 specializing in medical supplies.

Market growth is driven by demo 15 Kimberly-Clark graphic factors, primarily aging popula 12% tions, but also by increased buying 10 Unicharm Tyco/Kendall 6% 8% power. Wider acceptance of inconti Hartmann 5 nence problems, increased availability of 7% the products in retail outlets as well as 0 a ic innovation and brand building are also ope ope Asia Eur Eur n rn rth Amer tin America factors driving growth. ster No e La SCA’s TENA brand is available in al W l/Easte most all countries with a mature market, Centra Consumption of incontinence products is significantly i.e. more than 90 countries. This makes higher in countries with a high standard of living.

SCA 2006 • 19 Personal Care Baby diaper market

The European market for baby diapers high birth rates and the use of disposable Brand categories, Europe is valued at SEK 30-35bn. Pant diapers, diapers increases as standards of living Manufacturers’ which today account for 14% of the improve. Retailers’ brands brands 25% 75% value of the European baby diaper SCA is the second largest player in market, is growing at a faster rate than Europe, with a market share of 15%. In open diapers, with annual growth of the retailers’ brand segment, SCA is a around 5%. leader with one third of the European market. SCA manufactures both open diapers In the Nordic region, SCA is the mar and pant diapers. The latter is the fastest ket leader with the Libero brand and has growing category and here SCA is the a market share of around 55%. Libero is leading producer in Europe. Baby dia also growing rapidly in Central and Eas Annual per capita consumption of baby pers are sold under SCA’s own brands as tern Europe, particularly in Russia diapers well as under retailers’ brands. SCA has where SCA is the third largest player. Number/children 0–30 months 2,000 strong brands in markets in the Nordic In Malaysia, Thailand and Singapore region, Central and Eastern Europe, SCA holds leading positions with the 1,500 Latin America, Africa, Asia and New Drypers brand and in New Zealand with Zealand, and is also a major supplier of the Treasures brand. SCA is also a mar 1,000 baby diapers for retailers’ brands in Eu ket leader with the Peaudouce brand in rope. In total, SCA sells baby diapers in Tunisia and Libya. 500 some 50 countries. Growth in the baby diaper segment is 0 pe high in the markets in Asia, Latin Ame ope ro erica Asien rica and Africa. The reason for this is n Eu n Eur ster North Americae Latin Am W

Central/Easter

20 • SCA 2006 Personal Care Feminine care market

The global market for feminine care is In several markets SCA is increa Brand categories, Europe valued at SEK 80-85bn. In Europe the singly and successfully complementing Manufacturers’ distribution is 50% for pads and its own brands with manufacture of pro Retailers’ brands brands 15% 85% approximately 25% each for panty ducts for retailers’ brands. liners and tampons.

Market growth is determined by the number of women in their fertile years and the degree of usage. In Europe this age group is decreasing slightly due to an ageing population. Growth is strong in Asia and Latin America due to a gro Annual per capita consumption of feminine wing target group and increasing market care products penetration. There is also high growth Number/woman 13-49 years 350 potential in Central and Eastern Europe, 300 where usage is expected to increase. SCA’s main market for feminine care 250 is Europe where SCA is the third largest 200 player. A growing proportion of sales is 150 taking place in markets such as Latin 100

America, Central and Eastern Europe 50 and South Africa. In South Africa and 0 e parts of Latin America, the products are p ro ope Asia erica ur merica E sold through joint ventures. n Eu A n rth ster No Latin Am We

Central/Easter

SCA 2006 • 21 Hygiene Products

AmericanAmerican acquisitionsacquisitions andand

Earnings improved signiﬁ cantly in all product areas. In North America, extensive integration efforts followed the acquisition of Georgia-Paciﬁ c Tissue.

Group Net sales, Av. no. of Key ratios (SEK M) 2001 share % 2000 Net sales and SEK M employees number of employees 2001 2000 2001* Net sales 40,797 50 31,040 Consumer products 20,954 18,373 8,021 Operating cash surplus 6,622 43 4,461 AFH and Incontinence Change in working capital 1,405 –719 products 19,843 12,667 7,048 Current capital Total 40,797 31,040 15,069 expenditures, net –1,139 33 –645 Other operating cash * Excluding employees in joint-venture companies and staff functions. ﬂ ow changes –146 –74 Operating cash ﬂ ow 6,742 47 3,023 Change, Deliveries, tons 2001 2000 %

Operating proﬁ t 4,473 43 2,909 Tissue Operating margin (%) 11 9 Consumer products 696,600 707,200 –1 Capital employed 26,374 39 18,066 AFH products 586,700 275,700 113 Return (%) 17 16 Strategic investments Production capacities shown on page 79. – plants 549 37 891 – restructuring expenses 449 59 299 – company acquisitions 9,493 71 446 Average no. of employees 17,667 42 15,566

14 strongstrong earningsearnings

Extensive work was carried out during 2001 to integrate the North American acquisitions. One of every three table napkins sold in the North American AFH market is now produced by SCA.

NET SALES AND OPERATING KEY MARKET OPERATING PROFIT CASH FLOW SHARES

SEK M SEK M SEK M % 45,000 4,500 7,000 AFH tissue, Europe 18 40,000 4,000 6,000 AFH tissue, North America 19 35,000 3,500 5,000 Incontinence products, worldwide 25 30,000 3,000 Consumer tissue, Europe 19 25,000 2,500 4,000 Feminine hygiene products, Europe 10

20,000 2,000 3,000 Baby diapers, Europe 13 15,000 1,500 2,000 10,000 1,000 The acquisitions of Georgia-Paciﬁ c Tissue and Encore 1,000 made SCA the third-largest company on the North Ameri- 5,000 500 can AFH market. 0 0 0 97 98 99 00 01 97 98 99 00 01

Net sales, SEK M Operating profit, SEK M

Operating proﬁ t rose 54% to Operating cash ﬂ ow SEK 4,473 M. amounted to SEK 6,742 M. 15 H YGIENE PRODUCTS / SCA ANNUAL REPORT 2001

SCA is one of Europe’s leading sup- on reducing costs in the value chain The products are sold through retail pliers of tissue and fl uff products, through continued consolidation and outlets and to companies, industries, with development, manufacturing and rationalization. hotels, restaurants, catering opera- sales. SCA is the world leader in In 2001, SCA’s sales of hygiene tions and institutions, as well as to incontinence products, market leader products amounted to SEK 40,797 M, healthcare services. in Europe and the third-largest sup- of which 73% in Europe, 21% in The world market for absorbent plier of tissue to the American Away- North America and 6% in the rest of hygiene products is estimated at SEK From-Home (AFH) market. the world. Sales outside Europe rose 570 billion in manufacturing opera- SCA’s home market is Europe, 281%, largely as a result of the acqui- tions – about 40% of which is in where the Group has a base with both sition of Georgia-Pacifi c Tissue. North America and slightly over 25% strong regional proprietary brands as Operating profi t improved signifi - in Europe. well as a position as the leading cantly during 2001. With the excep- SCA’s share of the market for producer of retailers’ own brands. tion of North America, market prices hygiene products amounts to 18% in During the year, SCA achieved a were stable on a level higher than the Europe and 5% in North America. strategic breakthrough in North preceding year, while the cost of raw America through the acquisition of materials gradually fell, from the peak Strategic investments Georgia-Pacifi c’s AFH operations. levels at the beginning of the year. Sales In March 2001, SCA purchased US- SCA acquired the Serenity inconti- volumes did not increase to any great based Georgia-Pacifi c’s tissue busi- nence brand from Johnson&Johnson degree. However, as a result of a focus ness in the AFH segment, for SEK already in 2000. Combined, these on the value-added segments of the 8.3 billion. This opened the North two acquisitions have created a strong market, the product mix improved. American tissue market, while con- platform for further organic growth Costs were reduced through better currently creating a platform for fur- and complementary acquisitions in capacity utilization and improved pro- ther expansion within the AFH seg- North America. SCA invests continu- ductivity. Four tissue plants in Spain, ment in the US. The acquisition ously in developing the incontinence one in Sweden and one fl uff plant in gave SCA national coverage in the division’s global world-leading posi- Greece and the UK, respectively, were US, a 17% market share in the tion through product innovations and shut down. This affected a total of AFH segment, and a strong position expansion in new and existing mar- 300 employees. as the third-largest player in the kets. In cooperation with local part- AFH market, after Georgia-Pacifi c ners, SCA becomes established on Market and Kimberly-Clark. new markets worldwide. Absorbent hygiene products include In November 2001, SCA purchased The hygiene products market is tissue, baby diapers, feminine hygiene US-based Encore Paper Company, for highly competitive and SCA focuses products and incontinence products. SEK 969 million. The company, which

INCONTINENCE PRODUCTS MARKET SHARES IN EUROPE AND SCA’s PRODUCT PORTFOLIO MARKET SHARES – THE WORLD NORTH AMERICA

North Market shares, % Europe America Feminine hygiene Tissue SCA 25% products 5% consumer 30% Other 26% Tissue AFH SCA 19 19 Georgia-Paciﬁ c 14 39 Baby diapers 12% Kimberly-Clark 18 27 Procter & Procter&Gamble 4 – Incontinence Gamble 3% products 20% Unicharm 5% Kimberly- Clark 11% Fluff Inco Procter&Gamble 39 – Paper Pak 7% Tyco/Kendall 12% SCA 18 17 Kimberly-Clark 9 24 Tissue – AFH 33% Hartmann 6% First Quality 5% Tyco/Kendall – 29 Johnson&Johnsson 5 – Tissue for the AFH market increased its share of SCA’s SCA has strengthened its position as the world´s leading product portfolio as a result of the North American acquisi- supplier of incontinence products. SCA is Europe’s largest tissue producer, third in the North tions. American AFH market, second largest in the European ﬂ uff market and largest in the world in incontinence products.

16 produces and converts paper and AFH Market growth amounts to about included product coordination, IT sys- products, complements SCA’s tissue 3% annually in Europe and 2% in tems, costs and retention of custom- operations in the US. North America. Growth is controlled ers. The integration process will be After the end of the fi scal year, by economic factors such as industrial completed in early 2002. agreement was reached to acquire production, and also by factors such In Europe, SCA leads the market Italian CartoInvest, Europe’s fourth as increasing travel and the growing together with Kimberly-Clark, each of largest tissue producer, which would trend of dining outside the home. The which has 18% of the market. SCA strengthen SCA’s position as Europe’s market trend during 2001 was also not only offers tissue, but also com- leading producer of tissue. affected adversely by the weakening plete hygiene concepts to its custom- global economy. The downturn was ers in its overall profi ling of the Tork AWAY FROM HOME (AFH) intensifi ed somewhat by the tragic brand, such as “Hygiene at work” Market events of 11 September. and “Partners in your care” – two In the AFH market, The products are distributed via projects to improve hand hygiene and mainly tissue wholesalers and service companies, or contribute to cost effi ciency. SCA’s products are sold to directly to individual customers. The wash-room concept includes hand companies in the market is becoming more concen- towels, toilet tissue and soap plus industrial, administra- trated as customers become increas- matching paper dispensers. In addition and service sectors, ingly international and require service tion, the Tork range includes facial hotels, restaurants and catering across national borders. tissue and table napkins, as well (HoReCa), healthcare and other institu- as products for wiping and cleaning tions. The market consists of four prin- SCA’s strategy and market position applications in industry. cipal product areas: handwiping prod- SCA is the third-largest player in the In 2001, a new hand-towel series, ucts, toilet tissue, napkins, and products global AFH market. In North Amer- Tork Comfort, was launched, to for wiping and cleaning in industry and ica, after the Encore acquisition, the strengthen SCA’s market-leading posi- offi ces. Various types of hygienic dis- market share is 19%. After the acqui- tion in hand towels in Europe. pensing systems are also sold. sition of Georgia-Pacifi c Tissue, the The high-quality hand-towels are Total world consumption amounts Tork brand was introduced to a manufactured using TAD technology to fi ve million tons, valued at SEK 88 wider American customer base. One (Through Air Dried) and developed billion, with about 50% of the volume of every three napkins in the North to meet high standards of hygiene. in North America and about 30% American tissue market is produced The products strengthen SCA’s posi- in Europe. Per-capita consumption of at an SCA facility. Integration work tion in hygiene-sensitive areas such as AFH products is twice as high in within the newly formed AFH Divi- the food industry and healthcare. North America as in Western Europe. sion was carried out successfully and

TISSUE AND FLUFF PRODUCTS ANNUAL PER CAPITA CONSUMPTION OF SALES BY CUSTOMER SEGMENT – EUROPE HYGIENE PRODUCTS

Incontinence products 40 2,000 Retail trade unit/capita Baby diapers Sweden Other customers 14% – brands 32% unit/child 0–30 mos. Western Europe Central/Eastern Europe USA 30 1,500 Latin America Tissue kg/capita

Health care (incl. via pharmacies) 20 1,000 21%

Feminine hygiene products 10 500 unit/woman 13–49 yrs. Retail trade – Retail brands 33%

0 0

Retailer’s brands increased the share of sales while the Less-developed countries consume feminine hygiene products and tissue products ﬁ rst. As living standards rise, consump- share of brand products declined. tion of baby diapers begin followed by incontinence products.

17 H YGIENE PRODUCTS / SCA ANNUAL REPORT 2001

Tena is the world’s largest brand in the incontinence area. The brand platform is global and comprises product speciﬁ cations, packaging design and marketing communications.

INCONTINENCE PRODUCTS 5% per year, with the fastest growth bia, as well as Southeast Asia Market in the retail sector. Demographics, and Australia. In North America, Incontinence products are innovation and brand-building the Serenity brand, which was used for protection against as well as the availability acquired by SCA in 2000 from mild and more serious of the products in the retail Johnson&Johnson, has been vitalized incontinence problems, a sector drive market growth. by means of extensive advertising condition that afﬂ icts 5–7% The transition from an insti- campaigns. During the year, the of the world’s population. The tutionally-oriented business to a launch of Serenity Slender was well demand for these products is grow- consumer- and retailer-oriented oper- received. Serenity Slender is intended ing, as the populations of many coun- ation with an international base also for women with bladder control prob- tries become increasingly older and contributes. lems for which ordinary sanitary through increased market penetration. pads are inadequate and traditional Incontinence products include SCA’s strategy and market position incontinence products too bulky. The everything from adult diapers used in SCA is the world leader in inconti- Serenity brand will gradually be inte- nursing homes to extremely thin pro- nence products, with a total market grated with Tena, SCA’s global incon- tective pads marketed to consumers share of 25%. In Europe, the market tinence brand. through retail outlets. Home users can share is 42%, while in North America In Europe, the launch of Tena pants also purchase the products in pharma- the Group is the third-largest player, continued, and during the year the cies or have them delivered directly to with a market share of 17%. products were also introduced to the their homes. The products are marketed under American market. In Japan and other The global market is estimated at the Tena brand name, and nowadays Asian markets, the market share of SEK 38 billion, with 37% of sales can be purchased in retail outlets Tena products grew as a result of new in North America, 39% in Europe throughout continental Europe, product launches. SCA’s market posi- and 18% in Asia. Average growth is North America, Mexico and Colom- tion was also strengthened in Mexico. 18 SCA achieved a turnaround in the baby diaper segment. The Libero brand is the market leader in the Nordic countries and SCA is the largest supplier in Europe of diapers sold under retailers’ brands.

It is SCA’s strategy to continue BABY DIAPERS amounts to 30–50%, whereas in mar- to offer new and improved products Market kets such as Italy, the Nordic coun- for all segments of the incontinence The European market tries, Central and Eastern Europe, market. The fastest growth is taking for baby diapers is it amounts to only 10% or place in the segment for milder incon- valued at SEK 33 bil- less. Retailers’ brands are growing tinence problems, in which SCA’s lion. Open diapers are substantially in Southern Europe, Tena Lady is showing sharp growth growing about 2% a year however. worldwide. In 2001, sales launched in Western Europe, while in in retail outlets in Mexico, Taiwan, Central and Eastern Europe the market SCA’s strategy and market position Canada and Germany were well is growing 4% a year. The pant SCA is the third-largest player in received by both customers and con- diaper segment, which comprises 5% Europe after Procter&Gamble and sumers. of the market, is showing strong Kimberly-Clark, with a market share annual growth of 16%. While growth of 13%. SCA is the largest supplier BRIEF FACTS, AFH AND INCONTINENCE is determined by the number of infants of quality products for retailers’ own PRODUCTS between the ages of 0 and 30 months, brands, which accounts for almost 2001 2000 in less well-developed markets such as half of SCA’s sales. The 1.5 billion Net sales, SEK M 19,843 12,667 Central and Eastern Europe it is also baby diapers delivered in 2001 rep- Operating surplus, SEK M 3,187 1,968 inﬂ uenced by the ongoing transition resents a three-fold increase in sales Operating proﬁ t, SEK M 2,204 1,515 Gross margin, % 16 16 from cloth diapers to disposable dia- under retailers’ own brands over the Operating margin, % 11 12 pers. past four years. Volume trend, % 1 45.3 6.9 Retailers’ brands comprise a large The Libero brand increased its Average no. of employees 7,048 3,811 portion of the market in some coun- market share to a record level in the 1 Compared with corresponding period previous year. tries. In Germany, France, the Nether- Nordic countries, 56%. An ambitious lands and Switzerland, this portion marketing program including prize- 19 H YGIENE PRODUCTS / SCA ANNUAL REPORT 2001

winning television commercials and with strong positions in the Nordic SCA’s strategy and market position advertisements was a key factor in countries, the Netherlands, UK and SCA is the market leader in Europe, Libero’s success. Another is that since France. Outside Europe, SCA holds with 19%, followed by Kimberly- the mid-1990s SCA introduced new a leading position through joint- Clark with 18% and Georgia-Pacifi c production technology, increased the venture companies in Latin America, with 16%. In brand-name products, pace of innovation and change market- South Africa and Australia. Half of SCA has a strong position in Ger- ing strategy, which transformed baby SCA’s feminine hygiene products are many and Austria with Zewa, in diapers from a declining business into sold through joint-venture companies. Scandinavia with Edet, and in the UK a solidly profi table product area. During the year, SCA’s and Copamex’s with Velvet. SCA is also the largest Diapers for the smallest infants jointly owned Saba brand became the European supplier of retailers’ brands, were improved in fi t and comfort. market leader in Mexico, ahead of with strong positions in most mar- Growth was favorable in the pant brands marketed by Kimberly-Clark kets. SCA’s expertise in brand build- diaper segment, where Up&Go has and Procter & Gamble. ing is utilized in developing coopera- over 50% of the European market. The launch of Libresse Complete tion with key customers and support- The pant diaper range was increased 2in1, the fi rst combined product for ing them in the development of pow- by the addition of a new size and a sanitary pads and panty liners, was erful proprietary brands of their own. new system for easy removal of the well received by the market. The SCA offers increasingly developed used diaper. market introduction of the Libresse products, creating conditions for In the Nordic countries and East- String Pantyliner during the year was higher profi tability and market shares. ern Europe, SCA continues to focus highly successful in all core markets. New toilet-tissue products were mainly on brand-name products and In 2002, SCA will launch Libresse launched in both the brand-name seg- on the rapidly growing pant diaper Micro, the world’s smallest panty ment and the retail-brand segment. A segment. SCA plans to further develop liner, for the rapidly growing panty new household towel concept involv- its strong position in retailers’ brands liner segment. ing folded single sheets was also in the pan-European market. launched. The paper is produced with CONSUMER TISSUE TAD (Through Air Dried) technology FEMININE HYGIENE PRODUCTS Market and marketed under the Edet and Market Every year, the world’s Zewa brands name. SCA entered the The product area con- manufacturers pro- fast-growing box segment in han- sists of sanitary pads, duce about 14 kies, a product that adds conve- panty liners and tam- million tons of nience for consumers. A new prod- pons, and the world consumer tissue, uct system was also launched in the market is valued at valued at SEK 230 facial tissue segment. SEK 75 billion. In billion, and Europe Europe, the distribution is accounts for 25% of that market. BRIEF FACTS, CONSUMER PRODUCTS 60% pads and 20% each for The European market grew 3% in (baby diapers, feminine hygiene products and consumer panty liners and tampons. The market volume and 6% in value in 2001, tissue) is fairly stable – however, panty liners largely because consumers increas- 2001 2000 show growth of about 7%. Generally, ingly demand value-added, high-qual- Net sales, SEK M 20,954 18,373 brand loyalty is high among consum- ity products. Operating surplus, SEK M 3,445 2,483 ers of feminine hygiene products. The market is dominated by retail- Operating profi t, SEK M 2,269 1,394 Gross margin, % 16 14 ers’ own brands, which account for Operating margin, % 11 8 SCA’s strategy and market position 60% of the volume and 55% of the Volume trend, %1 1.5 11.1 With 10% of the market, SCA is value in Europe. Certain markets, such Average no. of employees 8,021 8,854 the third-largest player in Europe as Germany, the Netherlands, France 1 Compared with corresponding period previous year. after Procter&Gamble and John- and Spain, have a high percentage of son&Johnson. retailers’ brands, whereas in others, Libresse is SCA’s umbrella brand such as the Nordic countries, brand- within feminine hygiene products, name products are dominant.

20 SCA builds strong brands

Today’s consumers have a growing SCA’s brand strategy Brands in different product areas range of brands from which to SCA has a number of strong regional Within SCA’s hygiene products opera- choose. brands in tissue and fl uff products, as tions, proliferation of retailers’ brands Building a long-term brand rela- well as brands with a truly global reach is greatest in the consumer market, tionship with the consumer is a com- in incontinence, feminine hygiene prod- in product areas corresponding to plex process and requires investment, ucts and tissue. The aim is to strengthen major household expenses, such as not only in advertising, but in every- these brands to capture the leading posi- toilet paper and baby diapers. Here, thing from product and packaging tions in the various markets. price sensitivity and brand-switching development to understanding con- As a result of the consolidation are considerable. The products have sumer behavior. and internationalization of the retail a high degree of maturity, and con- There used to be a distinction sector, particularly in Europe, retail- sumers may select from a wide between brand names and retailers’ ers’ own brands have become increas- range of brands. SCA commands a own brands – that is, private labels ingly signifi cant. SCA’s international leading position as supplier to retail- – the latter consisting of traditional presence and knowledge of brand- ers’ brands throughout Europe in low-price products attracting minimal building provides a solid platform for tissue and baby diapers. brand loyalty. This has changed in further growth in partnership with Products such as sanitary pads, the past few years, as retailers’ brands customers. Moreover, the company’s panty liners and incontinence prod- have acquired the high quality and cooperation with the major interna- ucts are less price-sensitive. Accord- brand awareness associated with tra- tional chains, such as Ahold, Carre- ingly, retailers’ brands are much less ditional brand names. four, Aldi and Metro is an opportu- prevalent in this area. These products The increasingly international nity to develop these relationships and depend on quality and function, so retail chains cooperate with their sup- in partnership with the customer opti- there is a high degree of consumer pliers in creating brand capital. These mize the entire value chain. Profi tabil- loyalty. The market is also less pen- are the main reasons behind the ity of retailers’ brands is fully compa- etrated and developed. As a result, growth of the retailers’ brands in rable with own brands since the man- industrial innovation combined with Europe. A corresponding trend is also ufacturer does not incur any market- investment in advertising broadens the discerned in North America. ing expenses. market, creating openings for new brand-name products.

RETAILERS’ BRANDS, SHARE OF TOTAL BABY DIAPERS Ð RETAILER’S BRANDS CONSOLIDATION OF THE RETAIL SECTOR MARKET FOR HYGIENE PRODUCTS IN EUROPE SCA’s SALE IN EUROPE (TOP 3)

SEK billion Volume, index % 400 Consumer Nordic region tissue 350 Benelux AFH tissue 300 France Great Britain Baby diapers 250 Spain Feminie hygiene 200 Germany products

150 US Incontinence products Italy 024681012 100 97 98 99 00 01 0 20406080100 Retailers' brands Total market

Retailers’ brands represent a major share SCA’s sales of baby diapers The US has a relatively low level of con- of the tissue and baby diaper segments, under retailers’ brands rose solidation within retail trade, but there are while traditional brands are totally dominant sharply in recent years. major differences nationwide. in the AFH, feminine hygiene and inconti- (1996=100) nence segments. 21