SCA profits up 25 percent

Swedish paper and packaging company Svenska Cellulosa AB, perhaps best known as an international paper towel supplier, has announced a 25 percent rise in second quarter pretax profits, compared to the same period last year.

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The company's profits for the quarter were 1.7 billion kronor, and were buoyed by rising operating margins and higher sales across all its business areas.

However the result was slightly below market expectations, after operating margin at its
packaging division came in weaker than expected, and sales fell also shy of forecasts.

Sales increased 5.4 percent to 25.3 billion kronor, slightly below the forecast figure.

The company said since the beginning of the current year it has gained acceptance for price increases of around 5 percent on corrugated board of which about half is expected to have an impact on its earnings during the third quarter.

"For SCA, which has an integrated business model where production of container board is roughly the same size as consumption, the price of corrugated board is decisive for the earnings trend," it said.

Second quarter operating margin rose to 8.4 percent from 7.2 percent a year earlier, and gross margin to 14.4 percent from 13.7 percent.

"Second quarter earnings provided the highest operating profit for three years. Continued strong volume growth for Personal care contributed to this improvement in earnings with sales of incontinence products to the retail sector performing particularly well," said SCA.

It said publication papers and solid wood products also contributed to the improved performance through higher production and increased prices.

SCA said efficiency programmes at its European packaging operations is proceeding according to plan, and the market has also stabilized.

Second quarter operating profit at the Personal Care division rose 21 percent to 693 million kronor, on higher sales and margins of 17.9 percent versus 17.1 percent.
However operating profit was down 1 percent from the first quarter.

"Improved volumes did not fully compensate higher raw material costs and negative currency effects," the company said.

At the Packaging division, operating profit rose 4.6 percent to 476 million kronor. Operating margins edged up to 5.8 percent from 5.6 percent, but was short of market forecasts of 6.3 percent.