Annual Report 1998

44
Board of Directors’ report *
CHANGE IN SCA GROUP STRUCTURE
In 1997 it was decided to establish a so-called Control Agreement
between SCA and PWA, to be effective in 1998. The
Control Agreement creates conditions for implementing
desired structural changes and facilitates the continuing integration
of PWA and SCA. The integration measures that continued
in 1998 included establishment of a common legal organization
for hygiene-products operations. The packaging
operations in PWA were also transferred to SCA Packaging.
During the autumn the name of PWA AG was changed to SCA
Hygiene Products AG.
CAPITAL EXPENDITURES AND ACQUISITIONS
In addition to current capital expenditures of SEK 2,058 M,
strategic capital expenditures amounting to SEK 2,248 M were
made during the year, with Hygiene Products accounting for
SEK 1,617 M and Packaging for SEK 512 M. Projects within
Hygiene Products include a new tissue machine and converting
capacity for tissue in Mannheim, Germany, new capacity in the
incontinence segment and establishment of new production
technologies for baby diapers. The capital expenditure in
Mannheim is estimated at SEK 1,400 M and is being carried
out during the period 1998–2000, with most activity in 1999.
In the Packaging field, capital expenditures include rebuilding
and new construction in Obbola, Sweden, and Witzenhausen,
Germany, as well as new converting technology for corrugated
board at several production plants.
SCA’s acquisitions during 1998 and certain acquisition at
the beginning of 1999 are presented below in the business area
sections. In total, acquisitions in 1998 amounted to SEK
2,793 M, including the additional purchase of PWA shares.
As of 31 December 1998, SCA held 96% of PWA’s shares.
Hygiene Products
Early in 1998 the Hygiene Products business area acquired
Marpo, a Spanish tissue company with annual sales of approximately
SEK 550 M. The purchase price was approximately
six times Marpo’s 1997 operating profit.
In Russia, SCA acquired all the shares of Svetogorsk Tissue
for approximately SEK 200 M. Svetogorsk Tissue, which is
located in the St. Petersburg region, has Russia’s most modern
tissue machine, built in 1989.
During 1998 the business area increased its holding in
Productos Familia, a Colombian tissue company, to 50%,
which in turn acquired all the shares of the Tecnopapel tissue
company in Ecuador.
Previously announced plans to acquire a shareholding in the
Melhoramentos tissue company in Brazil have not yet been
completed as a result of the financial uncertainty prevailing in
the country.
The business area also acquired three retailers of incontinence
products in France with total annual sales of SEK
140 M.
Involvement in Asia was increased through acquisition of
a Philippine tissue company. The purchase price was SEK
130 M.
Packaging
In the beginning of 1998 the Packaging business area acquired
a minority interest in the corrugated board operations of the
Spanish company Lantero. SCA paid SEK 196 M for 25% of
the share capital and has an option to increase its holding to
49%.
The business area will acquire a 49% interest in OBALEX,
a Czech packaging company with annual sales of SEK 260 M.
The acquisition is being made in two stages; 33% of the shares
were acquired in 1998 and the remaining shares, up to 49% of
the total, are being acquired in 1999. SCA has an option to buy
the remaining shares.
In the beginning of 1999 the corrugated board division of
Rexam Plc was acquired. The purchase price was approximately
SEK 2,600 M, equal to about 6.5 times the operating
surplus and about 9 times the operating profit, based on estimated
results for 1998. The business has sales of approximately
SEK 2,700 M. The acquisition increases SCA’s share of the
market for corrugated board in Great Britain from 13% to
21%, and from 13% to 14% in Europe.
Danapak Papemballage, the third largest packaging company
in Denmark, was acquired in January 1999 for SEK
636 M. The purchase price corresponds to eight times operating
profit for 1998. Annually, the company produces about
100 million m 2 of corrugated board and has sales of SEK
650 M.
During 1998 the business area acquired all shares outstanding
in the Widmer-Walty Group in Switzerland.
In early 1999, SCA acquired an 11% interest in a Singapore-based
packaging company for SEK 36 M. SCA has the
possibility of increasing ownership to 51% within five years.
The company produces about 50 million m 2 of corrugated
board annually.
Graphic Paper
During 1998, Graphic Paper acquired additional shares in
Laarkirchen AG for SEK 44 M. Currently, compulsory redemption
is under way of the remaining shares. The remaining
purchase amount, SEK 54 M, will be paid during the first quarter
of 1999.
DIVESTMENTS
SCA divested the Clinical Products business unit (surgical and
wound-care products) in the beginning of 1998. The sale
amounted to approximately SEK 1,500 M, resulting in a
capital gain of SEK 400 M, which was reported during the first
quarter of 1998.
RESTRUCTURING
The integration of the Group’s tissue and fluff operations is
continuing. SCA’s plants in the hygiene sector in France are
* In addition to these pages, the Board of Directors’ report includes the discussions and analyses accompanying the cash flow statement, statement of earnings and balance
sheet (pages 46, 48 and 50).