SCA to Cut Costs at Forest Unit for Profit Boost by 2015

Svenska Cellulosa AB (SCAB), Europe’s largest paper-tissue maker, said it will cut expenses and increase efficiency in forest-product operations to boost earnings by 1.3 billion kronor ($198 million) annually.

The measures will cost 370 million kronor, of which 250 million kronor will affect cash flow while the rest will be posted as impairment losses, Stockholm-based SCA said in a statement today. The full 1.3 billion-krona earnings effect will come in 2015, it said.

SCA, also Europe’s biggest private forest owner, has increased its focus on consumer-hygiene products to skirt most of the decline that has gripped the Nordic paper industry in the past few years. The manufacturer hasn’t escaped effects of the region’s sovereign-debt crisis entirely, and it announced last month a plan to cut 1,500 jobs at the hygiene unit, becoming the latest Swedish exporter to reduce the workforce.

The forest-products reorganization is starting “against the backdrop of the prevailing economic and currency situation,” the company said. “The program includes a structured plan to reduce fixed and variable costs, income improvements by way of increased production and streamlining activities, and a changed product and market mix.”

The efficiency project at SCA’s Swedish operations includes previously announced shutdowns of sawmills in Vilhelmina and Holmsund, as well as spending cuts at the Ortviken paper mill, the SCA Transforest terminals in Sundsvall and Umeaa, and the research and development center. Most of the 200 jobs being eliminated were already announced earlier, SCA said.

Stock Rises

SCA rose as much as 2.5 percent to 139.8 kronor and was trading up 2.3 percent at 139.5 kronor as of 11:35 a.m. in Stockholm, the highest price since at least 1990. The shares have gained 37 percent this year, valuing the paper maker at 98.3 billion kronor.

Competing paper maker Holmen AB (HOLMB), phone company TeliaSonera AB (TLSN), steel producer SSAB, truckmaker Volvo AB and its former auto-manufacturing unit Volvo Cars are among Swedish companies that have announced jobs cuts since late August.

Costs totaling 175 million kronor will be booked in the fourth quarter, with another 195 million kronor posted in the first half of next year, SCA said.

The manufacturer is also selling its publication paper mill in Laakirchen, Austria, to Heinzel Group, SCA said separately.

SCA will get an initial 100 million euros ($133 million) for the mill, which generated sales of 335 million euros last year with a workforce of 500 employees and annual capacity exceeding 500,000 tons. Another 100 million euros may be earned as part of a two-year profit-sharing model, SCA said.

The disposal will result in an impairment of 50 million euros that will reduce SCA’s profit in the fourth quarter. The Swedish company also said it signed a sales cooperation agreement with Heinzel.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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