Annual Report 1998

4
Cash flow and dividend growth
Our operations are always keyed to the objective of giving our
shareholders a competitive return on their investment. The
strategy for creating growth in value is based on being able to
use the cash flow from operations for dividends and for profitable
strategic investments. These investments in turn create a
growing cash flow that strengthens the base for consistent
growth in dividends.
In conjunction with the Board’s strategy review of the
Group, the Board concluded that the current Group structure
and earnings capacity supports a somewhat higher dividend
level in 1998 in relation to reported shareholders’ equity. The
Board has proposed an increase in the dividend for 1998 of
13 percent.
Since the company was listed on the Stockholm Stock Exchange
in 1950, SCA’s dividend has been raised continuously
or kept unchanged. Growth in the dividend during the most
recent five-year period, including the dividend proposed for
1998, has amounted to 14 percent. The dividend today is equal
to approximately 4.9 percent of the shareholders’ equity’s
book value.
Outlook for 1999
Development in 1999 is difficult to assess, but the relative
stability of economic growth in Europe and the US provides
some cause for optimism.
Volume growth for SCA products in 1998 was strong while
price pressure in virtually all areas occurred. Competitive
pricing was also noted for both raw materials and finished
products. Raw materials, however, were also affected by surplus
supply caused by the financial crises in Asia and Latin
America, while price pressure on finished products was caused
by low inflation and competition in Europe.
Prices for hygiene products at year-end 1998 were 1–3 percent
lower than average prices for the year. Pulp prices also declined,
which compensated for most effects of lower prices for
3,000
2,500
2,000
1,500
1,000
Importance of forest raw material
to SCA’s competitiveness (Sweden)
500
0
Operating profit, SEK M
–500
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Forest raw materials SCA’s production industry
in Sweden
The forest operations are of major importance for SCA’s cost situation and quality orientation.
The stable earnings level of the forest operations over time also offset the more varying earnings of the
Swedish industry, primarily within Packaging and Graphic Paper.
finished products during the fourth quarter. Internal programs
to improve productivity will be intensified in 1999 and are expected
to gradually improve margins by 2 percentage points
over the next two years. Demand is expected to remain strong,
and determined efforts will be made to restore higher prices.
In the Packaging business area, the prices for corrugated
board were relatively stable toward year-end but at the beginning
of 1999 volumes were weaker and prices were under pressure.
Prices at the beginning of 1999 were 2 percent lower than
the average in 1998. Prices for both kraftliner and testliner declined
toward year-end and, in the beginning of 1999, were
about 5 percent below average prices in 1998. An increase of
15 percent in the price of kraftliner has been announced by
North American producers. Conditions for a price increase in
Europe during the second quarter are considered good.
Within the Graphic Paper business area, price uncertainty
prevails. The price situation for SC paper is projected to remain
stable, while newsprint and LWC are facing price pressure.
The price of LWC paper in the beginning of 1999 was
about 3 percent below the average price in 1998. Demand for
coated fine papers in sheets is strong, but prices in the beginning
of 1999 were about 5 percent below average prices in
1998. Pulp prices appear to have hit bottom.
A number of strategic acquisitions and expansion investments
were carried out in 1998. These investments will
generate increased cash flow. Accordingly, the cash flow goal
for 1999 was adjusted upward to SEK 7.0 billion (operating
cash flow) and SEK 3.8 billion (cash flow from current operations).
This is also described in “Business control and financial
goals” on page 6.
Stockholm, 19 February 1999
Sverker Martin-Löf
President and Chief Executive Officer
30
25
20
15
10
5
Effective return on the SCA share
based on time held and average share prices
%
0
1980
1985
Average 15 %
1990
Average 17 %
DATE OF ACQUISITION
1995
The diagram illustrates the annual effective return, through 1998, based on the date of acquisition of
the SCA share. For example, if the SCA share was purchased in 1996, the effective return through
1998 amounted to 25%. Effective return is defined as the share’s appreciation in value and the annual
dividend being continually reinvested in SCA shares.
The horizontal lines show that the average over the entire period is 15% and 17% for the past five
years.