Svenska Cellulosa to Focus on Cash Flow, Hygiene

Svenska Cellulosa AB (SCAB) will focus on ways to build up cash and strengthen its positions in more profitable hygiene markets in response to the global financial slowdown.

“We need to keep our appetite for growth in line with cash,” Chief Executive Officer Jan Johansson said at an investor meeting in Stockholm. The trend of negative cash flow “has to change.”

SCA has announced new tissue and diaper plants in emerging markets including Russia and Mexico after solidifying its position in western Europe with the purchase of Procter & Gamble assets last year. The company is now reducing its investments and may leave geographic markets where it doesn’t see enough short or medium-term potential, Johansson said.

“The most important thing is that we increase the margin, not necessarily increase prices,” he said. “We have to have Europe in better shape before we can be a true global player.”

He set long-term targets of 13 percent return on capital employed for the company over a business cycle, with a 30 percent return a the personal care division, which includes diapers and incontinence products. Those figures assume a market recovery beginning in mid-2010, he said.

SCA gets 80 percent of sales in Europe, making profitability there a prerequisite for growth elsewhere, Johansson said. He reaffirmed plans to expand in emerging markets, Latin America, Eastern Europe, southeast Asia and the Middle East.

The company won’t stop any expansion projects that have already been announced, the CEO he said in an interview.

‘Decent’ Return

Johansson plans to trim European tissue brands to four for personal use and one for cleaning by 2011, and has dropped some retail and distribution customers who were too tough on prices.

“We are actively choosing not to work with certain retailers who don’t accept that suppliers have to get a decent return on capital,” he said in the interview.

The company is still reviewing packaging assets, including those in China, as demand falls for corrugated board used to ship large consumer products, he said. About 40 percent of the packaging industry’s production is sold at a loss, according to company presentations.

SCA has no immediate plans to break up its integrated wood, paper and board production, according to executives. Industry consolidation is desirable if it helps reduce oversupply, Johansson said.

“Will we participate? That’s a different question,” he said. “We’ve said we feel a responsibility to create a market that will be profitable in packaging. We haven’t made a statement about other areas.”

-- Editor: Ross Larsen.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Andrew Noel at anoel@bloomberg.net

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