sca magazine shape 1 / 2006

8/7/2019 SCA magazine SHAPE 1 / 2006

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Growth markets in focus * Sri Lanka No. 1 in daily newspaper readers

KEY TO THEFUTURE OF

MAGAZINES

D e s i g n

a t t r a c t s

c o n s u m e r

s

BOOM FORBIOFUELS

Teresa Presas: Energy is a

burning issue

IN TO EAT OUTIN THE U.S.

Big steps fordiapertechnology

From Pravda to PradaRUSSIAN SHOPPING SPREE

SHAPEA NEW MAGAZINE FROM SCA ON TRENDS, MARKETS AND BUSINESS N 1 2006


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S H A P E

THEIR DISPOSABLE INCOME ON

MOSCOW RESIDENTS SPEND

TWICE AS

Russian consumer habitsare undergoing a revolution.

SHAPE COVER page 6-13.

MUCH OF

COMSUMPTIONAS RESIDENTS OF PARIS OR

LONDON DO

Content N 1 2006

6

4 SHAPE UP

One billion new consumers. 50 million EU citizensabove the age of 80. Read which worldwide changesare affecting SCA.

6 SHAPE COVER

Forget oil millionaires with appetites for luxury.In the new Russia, rapid wage increases havecreated a sizeable middle class of eager shoppers inMoscow and St. Petersburg.

14 TRENDSEating out in the U.S. is big business, with 925,000outlets feeding 130 million stomachs every day.The current trend is towards casual dining, whichis good news for suppliers of tissue.

18 PROFILE

Shape visits the special-interest magazine companyFuture, one of the fastest-growing and most creativemagazine publishers in the world.

22 TECHNOLOGY

Diaper technology development has taken hugestrides in recent years.

26 SCA INSIDE

Growth prospects and strategic focus on productswith higher value content were the main topics atSCAs capital market day in September.

30 CAMERA

After the grapes have been harvested, it takes the

right packaging to attract consumers. Corrugatedbord packaging wine-in-a-box is increasinglythe choice of winemakers.

34 SHAPING A VIEW

Continuing rises in energy prices in Europe couldbecome a major reason for moving paper produc-tion, says Teresa Presas, managing director of CEPI,the Confederation of European Paper Industries.

SCA Shape An SCA Group magazine AddressSCA, Communications and Investor Relations, Box

7827, SE-103 97 Stockholm, Sweden, Telephone +46 8 7885100, Telefax +46 8 6788130 Publisher Bodil Eriksson Editor-in-chief Anna Selberg Editorial management Anna Selberg, SCA andGran Lind, Appelberg Design Tone Knibestl,Appelberg Print Srmlands Grafiska QuebecorAB, Katrineholm Cover Frans HllqvistSCA Shape is published in Swedish and English. The con-tents are printed on GraphoCote 80 g from SCA ForestProducts. Reproduction only by permission of SCA Cor-porate Communications. The opinions expressed in thispublication are those of the authors or persons intervie-wed and do not necessarily re ect the views of the edi-tors or SCA. You can subscribe to SCA Investor Reportor read it at www.sca.com

Wine increasinglyends up in a boxinstead of a bottle.

30

SCAS PRODUCTS and servicesare not just important they are of-ten indispensable. Hard workers inthe service of everyday life, they areeverything from the paper in yourfavorite magazine to napkins, babydiapers or ingenious packaging.

SCA is a consumer-orientedcompany with a strong sense of its heritage within theforest industry. We work in an exciting and dynamicenvironment where developments in the retail industryand demographic changes are affecting consumers and

consequently, our demands on product performance.Shape is about providing a perspective on these issues.

We want to portray the exciting environments where SCAis present, and how processes and trends are affecting us.Thats why Shape has a clear external perspective.

Enjoy your reading!

BODIL ERIKSSON, PUBLISHER

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SHAPE UP

Over the next 10 years, according tomanagement consultants McKinsey,nearly a billion more people will be ableto afford more than just the basic essen-tials of life. Estimates are based on thenumber of households with a yearly in-come of 5,000 dollars or more, seen asthe threshold where people start to buycommodities that are not purely neces-sary for survival.

The majority of the new consumers willbe found in Asia. Today, Asia excluding Japan creates around 13 percent of theglobal GDP as opposed to Western Eu-ropes 30 percent. In 20 years time, theirrespective parts will be roughly equal.

A billion newconsumersOlder and, in time, fewer citizens. This iswhat the future has in store for the EU, ac-

cording to a Eurostat forecast. It is estimat-ed that the total population of the presentEU states will increase slightly to about 470million around 2030, then decline to just

under 450 million by 2050.However, the really dramatic change will

be in the structure of the age pyramid. In2004, there were 75 million EU citizens overthe age of 65. By 2030, this gure is expect-ed to rise to 116 million.

And aging in the EU will continue. Today,there are nearly 20 million people aged 80or older. By around 2050, almost 50 millionpeople will be in this venerable age group.

According to Pyry, the Finnish consult-ing firm, Eastern Europe will be the scene of the fastest growth in paper and paperboard.Through to 2015, the Eastern European mar-ket is expected to grow by just over 5 percentper year, somewhat faster, in fact, than in Chi-na and the rest of Asia.

Within the OECD countries in general, growthis forecast to be considerably lower. As a conse-quence, in the world as a whole, the consumptionof paper and paperboard will increase by 2.2 per-cent through to 2015. The total consumption of paper and paperboard in 2004 was 358 millionmetric tons and this figure will increase to 456million by 2015.

EASTERN EUROPE TOOUTSTRIP CHINA

Despite the Internet, sales of daily news-papers are increasing around the world. In2005, the total global print run increasedby 0.5 percent, and over the last ve years,it increased by 6 percent, according to theWorld Association of Newspapers. If freenewspapers are also included, the increasewas 1 percent and the ve-year print run g-ures increased by nearly 8 percent. Adver-tising sales improved even more, increasingby 6 percent in 2005. And, as in many oth-er elds, it was mainly in Asia where expan-sion took place.

On the other hand, in the USA, 2005 wasa weak year. During the period from Marchto September the greatest decline in printrun was recorded since the beginning of the1990s, with a fall of 2.6 percent, accordingto statistics from Newspaper Association ofAmerica. The main explanation was that anincreasing number of Americans read theirnews on the Internet. During the same periodthe number of visits to the newspapers Websites increased by 8 percent.

DAILY READERSHIP, NEWSPAPERSCountry. % of adult population

Sri Lanka 90%

Costa Rica 89.7%

Sweden 88%

Finland 86%

Norway 86%

Si ngapore 82 .9%

Hong Kong 80. 4 %

Japan 80.4%

Germany 78%

Latvia 76%

1

2

3

4

5

6

7

8

9

10

Newspaper circulationworldwide increases.But in the USA it is toughfor daily newspapers.

TOP 10 READING COUNTRIES

d a i l y n e w s p a p e

r

SOURCE: WORLD ASSOCIATION OF NEWSPAPERS, PARIS; NEWSPAPER ASSOCIATION OF AMERICA

PHOTO: FOLIO

By around 2050, almost50 million EU citizens willbe aged 80 or older.

FOR A RETAIL TRADE COMPANY , India isthe most attractive market in which to establisha presence. This is what the A merican manage-ment consulting firm A.T. Kearney said in itsanalysis of retail trade investment attractivenessin emerging markets in 2005.

The analysis takes into consideration a numberof factors, such as how well developed the marketis, risk levels, the importance of early entry andgrowth potential. In second place comes Russia,which is regarded as the market where the impor-tance of early establishment is rated highest. Russiaused to be at the top of the table but has droppeddown to second position because of increasedcompetition. The country enjoying the quickestgrowth in market attractiveness is Ukraine.

INDIA THE MOSTATTRACTIVE

RETAIL MARKET

India is rated as thenumber one market for

foreign retailtrade investment.

5 0 5 0 the age of 80the age of 80

million EU citizens overmillion EU citizens over


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BY MATTIAS ANDERSSON PHOTO OLEG NIKISHIN

t

SUPER CONSUMEROil millionaires with an unbridled passion for luxury and ost-entation are the predominant image of the new Russian consumer.But as salaries rise rapidly, a middle class with serious spendingpower is growing in Moscow and St. Petersburg.

From worker hero to

oday, young Russians in particular arechoosing beer over vodka to an ever greaterextent. Between 1998 and 2002, beer con-sumption doubled to 48 liters a year per per-son. Winners include Carlsberg, which has

33 percent of the market through Baltic Beverage Hold-ing. At the same time, international coffee chains likethe American company Starbucks and the Swedish firmWaynes Coffee are making inroads as cosmopolitanRussians switch from samovars to espresso machines.

Beer and coffee are two examples of the revolution inconsumption habits and commerce that has transpiredin Russia over the last decade or so. And it is often youngpeople who lead the way. Ivan, the average Joe of Rus-sian advertising, has numerous brothers and sisters inreal life. Moscow, the capital, is home to 33 billionairesin US dollar terms more tha n London or New York.Its also home to 103,000 US dollar millionaires.

Russia has the worlds fastest growth in the numberof people who are extremely wealthy, according to areport on the worlds wealthiest by investment groupMerrill Lynch.

FOR EUROPEAN MANUFACTURERS of luxurycars, Moscow is the leading market today for theirmost expensive and exclusive models. Russia is the fast-est-growing market for German producer BMW, whichsaw sales increase 44 percent last year.

Nowhere else in the world has consumption of ex-pensive designer clothing from Dolce&Gabbana,Gucci, Fendi and Chanel grown faster than in the Rus-sian capital. A stroll down the shopping thoroughfaresof St. Petersburg or Moscow is enough to see how thependulum has swung from programmed restraint to anunabashed orgy of luxury and display.

There is a group of people in Russia who are very fu-ture-oriented and whove made a lot of money on all thechanges and the new, more open economy. Its a coterieof materialist careerists who want to be recognized asstars and use labels from the West to give these signalsto people around them, notes Thomas Peichl at theGerman market research institute GfK, which has in-terviewed 12,000 consumers in Western Europe and theformer Eastern bloc to analyze and compare attitudes.

Family, friends, success and materialist values arestronger today in the East. The West has a strongerinclination toward individualism, the single life andpost-materialist values, where self-actualization is im-portant, says Peichl. In their analysis, GfK has dividedconsumers into three groups:

The magical world populated by extreme shop-pers with an enormous interest in fashion whose iden-tity is determined by the labels they buy.

The established world cautious, conservativeconsumers whose focus is on safety and security whenthey shop.

The authentic world quality-conscious, criticalconsumers who look at content rather than form. Theydo not care about fashion and prefer shopping for theirhome or garden.

Despite a strong trend toward fashion and extremeshopping in the West as well, there is an overrepresenta-tion of Eastern consumers in t he first group. Westernconsumers are overwhelmingly predominant in thegroup that wants security, while Eastern consumersconstitute a majority in the realistic group, with its fo-cus on function and quality.

PEICHL OBSERVES THAT many of these chateristics can be explained by different attitudes andbackgrounds. The most obvious one is pent-up de-mand after many decades of imposed shortages in theEast, which consumers are now compensating for. Bycontrast, Western consumers, after decades of socialwelfare, can indulge themselves in a more distancedaristocratic attitude toward material goods.

It may seem odd that Russians, of all people, havbecome icons of the hungry super consumer in the EastA quick look at the statistics shows that Russia is oneof the poorest countries in the former Eastern bloc.The average Russian salary is only about 300 dollars amonth, compared to the average Polish monthly salaryof close to 800 dollars.

But as is often the case when Russia is involved, thstatistics show only part of a dynamic, disjointed reality.

Moscowresidentsspendtwice asmuch oftheir dis-posableincomeon con-sumptionas resi-dents ofParis orLondonspend.

MORE SHOPPING IN MOSCOW THAN PARISSize of retail market, USD

Warsaw5.4 billion

Paris34.5 billion

Moscow39 billion

SOURCE: EAST CAPITAL

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Russia is not merely gigantic in geographic terms. Theeconomic gaps are likewise vast.

Turbulent economic growth, first with wide-scaleprivatization and now enormous profits from ex-ports of gas and oil at record prices, has producedmany newly wealthy individuals. The gaps betweenthe big cities, especially Moscow and St. Petersburg,and the countryside are enormous.

The threefold rise in GDP over the last six years haslargely ended up in these cities. For people in business,Moscow today is the worlds most expensive city tolive and work in.

IN THE HOT ZONES of this rapidly expanding eco-nomy, growth has now begun to trickle down to broa-der groups. The average salaries of skilled workers inRussia have increased between 10 and 20 percent overthe last few years. Foreign companies are experiencingmajor problems hiring and especially retaining talen-ted employees in the Russian capital.

Salaries in Moscow are twice as high as here in St.Petersburg, but weve noticed the change. Theres con-siderable pressure for people who have skills that arein demand, says Harri Suominen, president of the busmanufacturer Scania Peter.

Economic growth in general and oil revenues in par-ticular have filled the Russian states coffers a badlyneeded addition given that a large part of the Russianeconomy still operates outside the law. This means thatmany Russians have more money at their disposal thanis indicated in official statistics.

Relatively low costs for basic outlays like housing,electricity and telephones, high inflation and lowsaving rates have helped make urban Russians majorconsumers. Moscow residents spend twice as much of their disposable income on consumption as residents of Paris or London do.

Despite significant opportunities, many internation-al players in consumer goods are still hesitant to breakinto the Russian market.

Its odd that many companies that dont hesitate toenter India or China are reluctant when faced with thegreat opportunities in Russia, says Suominen.

Yet even though Russia belongs to Europe in termsof its history, culture and religion, the country todayis in many ways more exotic and divergent from a po-litical and economic perspective even compared withcountries that have traditionally been seen as more ex-otic from a strictly Western point of view.

India has an established middle class of 300 millionpeople, or almost a third of the countrys population of one billion. According to the Carnegie Foundation, theRussian middle class still only constitutes 7 percent of the population. But the rate of change in Russia is fast,and with the exception of political democracy, whichhas generated anxiety, the country is moving toward in-clusion in the community of global market economies.

But what is most astonishing is how the East andWest are moving toward one another. Since 1995,their values and attitudes have become increasinglysimilar. More things unite them than divide them,Peichl says.

RUSSIAFACTS

Population:about 143 mil-lion

Moscow:10.4 million

Area:17,075,200 sqkilometresAverage lifespan: Women74 years

Men 61 years

RAPIDLY GROWING ECONOMYGDP, USD billion

Year 2000 2001 2002 2003 2004 2005 2006*

2 5 1 , 6 3

0 6

, 2

3 4 5

, 64

3 2

, 2

5 7 3

7 0 2 7

4 4

*FORECAST

A new middleclass is emerging

in Moscow.

The Eastand Westaremovingtowardoneanother.

ur growth-oriented bu

ue to focus on East

sia, says Dr. Hans-Joacim Krber, managing director of the German trading giant Metro AG.

Together with fellow countrymen aSpar, the French Auchan Group, thTurkish Ramstor chain and the Swedish furniture giant Ikea, Metro is one othe pioneers in retail trading to invesheavily and reap substantial benefits inthe rapidly growing Russian markeAmong the domestic players are chainsuch as Pyaterochka, Perekrestok anSemj Kontinentov.

In 2005, Metro Cash & Carry increased its sales in Russia by 63 percenits turnover reaching nearly 2 billion dollars. The number of supermarkets in Russia doubled during 2005 and the increasein Russian retail food sales was the fastesin the world. Continued growth is forecastfor the coming years, and according to themarket research company RNCOS Research the retail food market will doublby 2008. Development like this maketrade giants in mature Western marketsput their hopes in Russia and the rest ofEastern Europe for future growth. Therapid increase in the number of modernsupermarkets, hypermarkets and retaichains has opened up distribution channels for a number of foreign suppliers.

WE HAVE GROWN by betweenand 30 percent over the past few years,says Christina Hedstrm, export manager at Semper, the Swedish baby foocompany. Fundamental to this has beenclose and excellent collaboration withour distributors in Russia.

Semper is a veteran in the Russian maket, where it has been established sinc1997, the year before the so-called Russian crisis gripped the country and thoroughly cooled off the economy

Even though foreign products oftecost considerably more than domestiones, many customers are prepared tpay the price.

The oil-driven Russian economy hasmade the country an interesting target for

foreign retail giants looking for newmarkets and rapid growth . The risks are

great but, in return, growth is many timeshigher than in the mature home markets.

BY MATTIAS ANDERSSON

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o

TRADING GIANTSHUNT FOR RUBLES

Metros growthorien-ted strategy focuseson Russia.

S O U R C E : M

I N I S T R Y F O R E C O N O M Y D E V E L O P M E N T A

N D T R A D E O F R U S S I A

, W O R L D B A N K

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Russians will now gladly pay for goodquality, says Viktoria Gileva at the Swed-ish Export Councils office in Moscow.There is also an element of prestige inwhat you buy, just as in the West.

Ikea is one of the most highly profiled for-eign players in Russia and a few years agowas the driving force behind building East-ern Europes largest mega-mall in Moscow,to the tune of 250 million dollars.

Russia is the only country in the worldwhere we can start to build a productionplant before all the permits have beengranted, says Per Kaufman, CEO IkeaRussia. In most cases, the local authori-ties greet the establishment kindly. Weusually invite the mayor to participate inthe groundbreaking ceremony so therewont be any trouble. Then, citing whathas become a truism for those who havechosen to establish themselves in the Rus-sian market, he says, If youre going to dobusiness in Russia, then you have to takerisks. And if you do, there are huge profitsto be made.

LAST YEAR the company had a 1.65-billion-dollar turnover in Russia, runningeight stores and planning for continuedrapid growth. Profits have been returnedsince 2004. Ikea has taken a risk and won,partly thanks to its founder and principalowner Ingvar Kamprads well-known per-sonal engagement in the country.

Other major companies still hesitatewhen it comes to crossing into the Russianmarket. For a number of years now therehas been wide speculation as to when andwhere the American giant Wal-Mart now the largest company in America willestablish itself in Russia. Even the globalSwedish clothing giant H&M has decidedto wait and see, although the Spanish com-petitor Zara has made major investmentsin the Russian market.

Wal-Mart and H&M have deemedChina to be safer ground for their invest-ments. Ikea has succeeded well thanks totheir willingness to take risks. But they cando that because Ikea is a private companyand Kamprad is risking his own money,comments a senior manager of a globalcompany operating in Russia.

Tissue paperin short supply

in RussiaAfter decades of using Pravda forbathroom tissue, Russians now

nd demand for tissue paper isgreater than supply. Still, despiteincreased consumption over thelast few years, Russians use only athird as much tissue paper asBulgarians or Poles.BY MATTIAS ANDERSSON PHOTO OLEG NIKISHIN

uring the Soviet era,Russians did not haveaccess to bathroomtissue as a daily com-modity, says Urban

Lundberg, the Vienna-based head of SCA Tissues expansion in the East.They used t he daily newspaper Prav-da or whatever was available. In that

respect, you could say t hat propagan-da was useful.

During years of short supplies, theRussians adapted their consumer habitsand this is still noticeable today. Ivanand Olga consume on average 3.5 lbs(1.6 kg) of tissue paper a year, comparedwith the average American who uses 46lbs (21 kg).

There is a clear link between GDPand consumption of tissue paper, Lund-berg says. But even taking into accountthat the Russians are poorer, they still lagbehind other countries. For example, inPoland they use three times as much tis-sue paper. This is a tradition that we are,of course, trying to change.

Together with others at SCA with a

focus on Russia, he sees this low con-sumption as an opportunity for goodbusiness rather than an obstacle. Overthe past few years we have seen double-digit growth, he says.

SCAS VENTURE into the Russianmarket has been far from smooth. Whenthe company bought a factory in 1998 in

Svetogorsk, close to the Finnish border, itwas a daring step to make into a high-risk,turbulent market.

Only a few months after SCA hadestablished itself on Russian territory,the Russian crisis hit the country withfull force. Numerous companies andindustries were paralyzed, and severallost years of negative growth followed.

d

consumers are familiar withSCAs Zewa brand.

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But we managed reasonably well, andwith hindsight it was a wise decision andone that has benefited us, Lundberg says.

TODAY, SCA IS THE dominant playerwith 40 percent of the Russian marketin the 23 largest cities. Ninety percentof Russian consumers are familiar withSCAs Zewa brand the same brand thatis used in Germany.

We have been successful in creatingnot only high growth but also a very highvalue increment, says Timofei Sokolenko,head of SCAs division for tissue paperin Russia.

This means that customers are not

only buying more, but theyre buyingmore expensive tissue paper.

The goal is to grow as much in volume,measured in tons, as the market itself,which has a yearly volume growth of 9 percent, and this is something th atSokolenko and his colleagues in Russiacan easily meet. Pure volume growth ratesare double-digit, while the products them-selves are commanding even better pricesthan before.

Our margins are among the best in thewhole group, Sokolenko says from a cellphone in Siberia, seven time zones east of Moscow, where he was on a business trip.

Even though there are markets with a

STRONG POSITION IN PERSONAL CARE

SCAs sales in Russia are not lim-ited to tissue. The company al-so has a strong position with in-creasing market shares in thefast-growing market for personalcare. SCA has a No. 2 or No. 3 po-sition in all three market segments incontinence, baby diapers andfeminine hygiene.

The market potential in Russiaand the rest of Eastern Europe isseen as substantial. The consump-tion of personal care products in

Eastern Europe is still far belowlevels in Western Europe. One ex-ample is baby diapers, where theaverage consumption in EasternEurope is 400 diapers per childper year, while in Western Europethe average consumption is 1,500.The use of incontinence productsis almost 10 times higher per capi-ta in Western Europe, and womenin Western Europe use three timesas many feminine hygiene prod-ucts as those in Eastern Europe.

greater number of consumers, Russia is byfar the greatest when it comes to size. Andthat puts great demands on logistics andpriorities.

We have chosen to concentrate onRussias 23 largest cities, Lundberg says.The advantages gained by being first onthe market and having efficient produc-tion in our own factory formed the plat-form for success. In fact 44,000 of the50,000 metric tons of tissue paper sold inRussia are produced locally.

OTHER IMPORTANT ingredients in thisrecipe for success are good, well-nur-tured relationships with our partners, toa great extent the fast-growing majordomestic and foreign retail chains thatare now starting to replace traditionalmarkets and stalls. Even here the com-pany has succeeded well. In 2004 and2005, SCA won an award that Lundbergdescribes as the Russian retail tradeequivalent of an Oscar.

Growth has been so rapid that demandtoday is greater than supply. Demandnow exceeds production, which meansthat we are forced to prioritize, Soko-lenko says.

PRIORITIZATION MEANS THAT deli-veries to so-called modern trade partners often large domestic or foreign retail chains are guaranteed. But consumers who shopat traditional markets may miss out.

SCA intends to start a new factory nearMoscow, the companys largest invest-ment in Russia to date. However, Lund-berg emphasizes that having patience andworking for the long term are the twogolden rules for anyone who wants to dobusiness in Russia.

Russia is special: it requires patience,Lundberg says.

And corruption is a big problem, espe-cially in Moscow. We are consciouslylooking for an area with little corrup-tion. Even if Russia in some ways ismuch more risky and complicated thanWestern countries, the opportunitiesare much greater. In a mature market,growth is 1 or 2 percent per year. Hereit is 10 times higher.

SCA is the dominant player on the Russian tissue paper market.

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FOR US, IT HAS ALWAYS been aquestion of following our customers, themajority of whom are manufacturers of consumer products, says Jarmo Varjo-salmi, director for the operations in theBaltics and Russia at SCA Packaging.

Striving to follow its customers, SCAover the past 10 years has established op-erations in Poland, the Czech Republic,Hungary and China, among other coun-tries. Manufacturers of consumer prod-ucts, from computers to bookshelves, haverelocated their businesses to countries of-fering the lowest production costs.

The upside of this for Western con-sumers has been cheaper products in theshops. The downside is that growth inmany companies with roots in WesternEurope has taken place in low-cost coun-tries. But now it now seems that some of the driving forces behind this relocationphenomenon have begun to change.

It can hardly have escaped anyone thatthe trend to outsource has contributed todouble-digit growth rates in China, andthe same thing is happening on a smaller

scale in many of the former Eastern Euro-pean states. China, however, has not onlycheap labor but also 1.3 billion potentialconsumers. Even in Poland, Russia andother former Eastern European states,investors are attracted to a large extentby growing domestic consumption.

If many companies previously usedto look mainly for cheap manufacturing,it is the closeness to new markets andconsumers that is the driving force to-day, Varjosalmi says. He mentions twofood giants, Kraft Foods and Nestl, asexamples of companies investing in newplants in Russia and focusing on theRussian market.

Foreign food giants and coffee chainshave worked hard to get Russians todrink coffee. That Nestl has just com-pleted the second-largest coffee plant insouth of Russia in Timashevsk is a signthat these efforts are bearing fruit.

For SCA, it is important to be presentat an early stage when customers start toexpand on new markets. An example of this is our collaboration with Philip Mor-

ris: SCA Packaging was already engageat the planning stage regarding a newproduction plant in 1997. Since thenSCA and Philip Morris have worketogether to improve the packaging theyneed, including the service level.

Today, SCA has two plants in Russi in the north close to the dynamic citof St. Petersburg and in the south in thKrasnodar region near the Black Sea.

Our growth in volume is keeping stewith the market, between 7 and 8 percentper year, which is excellent compared tthe situation in many of the countries inWestern Europe, Varjosalmi says.

Just like many other companies thahave experienced business on a markethat swings like a pendulum betweeintensive turbulence and clashes witdifferent cultural and administrativestructures, Varjosalmi preaches patienceand respect.

Russians are often proud of theicountry and their traditions, he saysYou have to play by local rules. We arethe ones who have to adapt.

BY MATTIAS ANDERSSON

For consumer product manufacturers, the term outsourcing wasthe buzzword of the 1990s. Today, the next chapter in the hitory of globalization is being written, as new consumers in theEast are now a more important driving force than cheap labor.

Customers in the East

NOKIA ON THE CLIENT LISTLocal presence is a cornerstone in

SCAs packaging operations. Due to thisstrategy, SCA has established operationsin many Eastern European countries, fol-lowing in the footpaths when SCA clientshave entered new markets. The rst op-eration was started in Hungary in 1996. Inthe following year Poland, Czech Repub-lic and Slovakia were added to the list.

Operations have also been started inEstonia, Lithuania, Russia and Romania.Three business segments are top priorityfor SCAs continuing growth in EasternEurope: consumer electronics, cars andhigh-quality consumer packaging.Today, SCA is cooperating with a numberof well-known brands in Eastern Europe,such as Nokia and Philips.

New consumers in the Eastare now the driving force for

Western investments.

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BY JONAS REHNBERG

TREND

FROM THE JUNGLE OF fast-food out-lets lining the boulevards of Los Ange-les to the 1950s-style coffee shops of Small-Town Americas Main Streets,the windswept freeway diners along theInterstates, and Manhattans world-class restaurants with such a widerange of taste-bud temptations, its nowonder Americans have more mealsoutside their homes than is the case inmost European countries.

Statistics show that 58 percent of household spending on food in the US isdevoted to eating out and only 42 percentends up in grocery store cash registers.

To SCA and other suppliers, thisobviously translates into major opportu-

P H O T O :

G E T T Y I M A G E S

nities in the Away-From-Home (AFH)tissue segment, notes Don Lewis, Se-nior Vice President Sales and Market-ing at SCA Tissue North America. Thecompany has a 39-percent share of themarket for the food services business inNorth America, with wash-room towel,tissue and table napkins being the majorproduct categories.

THIS YEAR, THE COUNTRYS 925,000establishments will serve more than 70 bil-lion meals annually and on a typical daywelcome some 130 million patrons. Lewisbelieves the nations love of eating out alove affair that seems to grow stronger ev-ery year is a part of the American way of

Eating out in America is big business, with 925,000 outlets serving 130 million daily.But the present weakening of the economyactually favors suppliers of tissue, bringing a shift towards more casual dinner options.

life: It goes with the fast-paced lifestyle.Many people spend a lot of time on theroad, and the number of multi-job house-holds is growing all the time.

Research also indicates that as incomelevels rise, consumers eat out more fre-quently and spend a greater proportionof their food dollar away from home.

LEWIS SAYS ONE of the biggest chal-lenges for the restaurant owners is to tryand keep up with the trends and comeup with innovations in terms of menusand services in order to keep attractingpeople.

The trends affect our business verydramatically, says Lewis, explainingthat SCA has divided the restaurantmarket into three segments fine din-ing establishments, with white linen andsit-down service, more casual dining of the pizzeria and sandwich shop varietyand the genuine fast-food outlets. Wespend a lot of time researching the needsof the various segments, Lewis adds.

While the fine dining segment con-sumes relatively fewer paper towels and

disposable napkins, Lewis notes that the present weakening of theeconomy has brought a shift towards the more casual dining op-tion, which in turn favours suppliers of tissue.

The American food services industry feeds more than hung-ry mouths; it also offers jobs and helps keep unemployment at arate that most European countries can only dream about. With12.5 million employees, the restaurant industry is the largestemployer in America outside the government, and nearly half of all adults have worked in the restaurant industry at somepoint during their lives.

Enjoy your meal! Youre certainly not the only oneSource: The National Restaurant Association of America .

SCA tissue is one of thethree largest producers ofAway-From-Home tissueproducts in North Ameri-ca. Its highly segment-driv-en solutions include napkins,towelling, bath and facial tis-sue, specialty wipers, inno-vative dispenser systemsand soap systems.

With nearly 50 percent ofthe restaurant napkin busi-

ness, SCA works hard to re-main an industry leader withthe help of innovative towel,tissue and napkin solutions.One example is Xpressnap, anew food service napkin thatful lls a number of needsand is based on a uniquedispenser that is more us-er friendly and also saves onnapkin usage for the restau-rant owner.

Boom for biofuels

P H O T O :

S C A

The relentless rise in oil prices and con-cern about carbon dioxide emissions

and climate change have prompted agrowing number of homeowners andenergy producers to switch to heatingwith wood pellets. Sweden has alsomoved to the forefront in this market.

ONE OF THE EUS GOALS is to havemember countries double their use of re-newable energy by 2010, to 12 percentof consumption from about 6 percent to-day. Wood pellets made from sawdust

are one of the fastest-growing biofuelsand offer a popular alternative to oiland wood for homeowners as well aslocal governments, businesses and en-ergy companies.

Heating with wood pellets releasesno more carbon dioxide than a treeconsumes as it grows, and only a smallamount of sulfur is produced. As a re-sult, heating with pellets contributes toneither increased carbon dioxide emis-sions nor acidification. The fuel is usedin wood-burning stoves, home furnaces,

heating plants and combined heat anpower plants.

Wood pellets are a relatively younfuel that is only now gaining recogntion. In the early 1990s they werenused at all, but their use in Sweden expanding rapidly with both productionand consumption growing by leaps anbounds, says Tomas Isaksson, chaiman of the Swedish Association of PelProducers, PIR.

In 1992, PIR members deliver5,000 tons of wood pellets. In 200the figure was up to 1.07 million tonIsaksson estimates that the industry as whole will deliver between 1.7 and 1metric million tons this year.

The demand for biofuels is driven bmany factors, says Stefan Rnnqvispresident of SCA BioNorr in Hrnsand

This rate of growth will continuand the industry predicts a sustained increase in total volume over the next feyears of between 20 and 25 percent.

CHEAPER MEALS FEEDTISSUE MAKERS

Statistics show that 58percent of householdspending on food inthe U.S. is devoted toeating out.

HI-TECH TISSUE


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TREND

Government grants for converting to heating that uses renew-able energy have helped accelerate the rate of conversions, butRnnqvist thinks fuel prices alone offer an incentive to switch.

The cost of heating with pellets is two to three times lowerthan the cost for oil or electricity, he says. It rarely takes morethan two years to recoup the investment of converting to pellets.

HOUSEHOLDS THAT SWITCH their heating from direct elec-trical heating to heating with biofuel can get a subsidy of up toSEK 30,000 for the conversion. Moreover, pellets are signifi-cantly cheaper for heating, compared to oil and electricity.

Isaksson at PIR thinks that Swedish exports of wood pelletswill incre ase. Swedish pellets have an advantage in quality, andwhats more, the European market is growing at an extraordi-nary rate right now. Europe today is where Sweden was five yearsago. The potential for the future is fantastic, Isaksson said.

SCA BioNorr produces wood pellets for energy productionfrom sawmill by-products.

The raw material in pellets is pure sawdust from pine andspruce with no additives or binding agents.

SCAs strength is access to our own high-quality raw mate-rial and the fact that we control the entire supply chain, saysStefan Rnnqvist.

SCA was among the first companies to offer FSC-certifiedwood pellets.

Many foreign customers are asking for pellets that use FSC-certified raw materials and, for BioNorr, it was value added to beable to offer FSC-c ertified pellets, Rnnqvist says.

JONAS REHNBERG

PACKAGING

HELPS BOOST

SALES

DESIGN

Packaging design has become more andmore important in the retail sector.

Competition is tough as a modern supermarketcarries 20,000 articles.

ompetition in the retail sec-tor is tougher than ever.The trends and character-istics prevailing in different

arket segments and geog-raphies obviously vary a great deal, butthere are a number of common trendsthat run across borders. One of thesetrends is understanding and building onactual shopper behavior at the point of purchase.

THAT PEOPLE today are pressed fortime and demand convenience, speed andsimplicity from their shopping experience.Most shoppers dont treasure shopping forgroceries as such they just want to findthe goods they came for and then get outand do something else with their precioustime, says Peter Blomstrm, Market Ma-nager Europe at SCA Packaging Europe.

In addition, modern shoppers have amore postive approach towards retailbrands.

Traditional brands are being serious-ly challenged by the retail brands, whichare no longer seen as low-quality, un-emotional copy cats, states Blomstrm.

BLOMSTRM ALSO TESTIFIES to theincreased focus on price and promotionsas key tools to attract buyers and saysthat discount retailers are frequented by

shoppers from all income brackets.Nobody wants to pay more than they

have to, he concludes.Between 70 and 80 percent of all new

products fail within a year of their launch.To play it safe, manufacturers practice

line extension, or launching modifiedversions of existing products.

These modified versions are often very

similar to the originals, which placestough demands on packaging design if the shopper and the store staff are to beable to distinguish between the productsand to increase the chances of a success-ful launch.

Another trend is the demand for shelf-ready packaging, which serves as an ac-tive sales and marketing tool on the storeshelf and aids retail staff in quickly get-ting the right product to the right place.

The transport packaging often trans-

forms to a shelf-ready packaging, and thegraphics and functional features used onthis new multi-purpose packaging are be-coming highly sophisticated, he says.

To SCA, this means new packagingdemands and stronger participation inthe in-store sales process of products.

A modern supermarket carries 20,000articles, which makes availability on the

shelves a main challenge to the retail tradDespite their proficiency in logist

and supply chain management, retailestill fail in getting all the right product tthe place on the shelf where the shoppis looking for it, Blomstrm conclude

THESE LAST percentages are big moin a market valued at more than 900 billion euros.

Being in the retail market today is cetainly a complex operation compare

with the days of the local mom n pocorner store, but there is still money to bmade in a stagnating market, and SCA well equipped to support the growth ambitions of its customers.

Many of the current trends in globretail business speak in our favor, sayBlomstrm.

JONAS REHNBER

Most shoppers dont treasure shopping forgroceries as such they just want

to nd the goods they came forand then get out and do something else

with their precious time.

DESIGN DRIVES DEMAND Trends like line extension offer a formidable opportu-

nity for SCA to introduce creative packaging solutionsthat help shoppers and retail staff nd the productsthey are looking for.

To create packaging solutions that are able to pro-tect, yet at the same time facilitate speedy and ef-

cient handling by store staff and easy recognitionby shoppers, SCA Packaging Europe draws on thegraphics and packaging construction skills of its de-sign community working across Europe.

SCA has also developed software called I magine bySCA, which is unique in the packaging industry. It is avirtual in-store category tool that lets key customerssimulate ideal packaging solutions for different storeenvironments and shelf con gurations without any(or prior to) costly investments and complex research.

cPHOTO: GETTY IMAGES

SCA BioNorr in Hrnsand, Swedenproduces 160 000 metric tons ofwood pellets per year.

TOP SALES OF WOOD PELLETSMarket sales in Sweden , metric tons.

Modern shoppers have a more postiveapproach towards retail brands.


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PROFILE

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THE KEYTO THE

FUTUREThe special-interest maga-zine company Future is not

only one of the worlds

fastest-growing magazinepublishers, it is also one of

the most innovative.Interactive communication

is the watchword in anindustry that has undergone

major structural changesin recent years.

BY PER QVIST PHOTO PHILIP BLYTHMAN

ur philosophy is to de-liver content, regardlessof the medium. Someonereading about cars willalso want to attend auto

shows or perhaps exhibit their own car,says Robert Price, who heads Futures op-erations in Britain, the companys largestmarket with roughly half of sales.

Today in Britain, were doing 20events. Thats less than 1 percent of oursales, but its important to our readers andsomething that generates a healthy profit.As a special-interest magazine publisher,we have to be good at making money on

small editions, small Internetsites, small trade fairs. Wehave titles selling fewer than3,000 copies that we stillmake money on.

MANY TITLES ARE sold toa small, passionate group of readers who are willing topay high prices. In 2005, theaverage price of a magazine inBritain was 1.56. The aver-age price of a Future maga-zine was 4.87. Our adver-tisers also pay a high price perreader because we reach themost active customers in theirmarket, Price says.

Future also makes moneyon the Internet and throughcell phone services, by helpingadvertisers reach readers di-rectly, and through text-basedsearch services. Future says itwas the first in the world toattach CDs and full-lengthDVDs to their covers, knownas cover mounts, a move thatalso creates reader loyalty.

Total Guitar is an exam-ple of good integration, says Jim Douglas, who has edi-torial responsibility for thecompanys English-languagetitles. There are pages in the

magazine with chords to songs, mixedwith interviews where the readers idolstalk about their favorite riffs and showhow to play them. On the CD, there aresongs with the guitar parts taken away,so that people can play their idols part.

THE HOTTEST THING on the Internetright now is reader-created content,with Web sites like MySpace or YouTube,where readers upload texts, songs andmovies. The stars of tomorrow are foundhere. Future has quickly learned how touse reader-created content. Readers sendin photos, articles, movies and computer

programs, Douglas says. Sometimeswe include one of these in our magazines.This creates an interactiveness whichmakes the magazine come alive, andthats good for us, the advertisers and thereaders.

Future has grown quickly, with an an-nual rate of growth above 10 percent evenover the last few years. The purchase of Highbury House in 2005 for SEK 410million added 37 new titles, although,along with the rapid rate of growth,Futures profits have declined recently.The company has also hired a new CEO,Stevie Spring, with 16 years experience inthe advertising industry. She worked mostrecently as CEO of Clear Channel.

TODAY, FUTURE IS THE fifth-largestmagazine publisher in Britain but thesecond largest in special-interest maga-zines. It is the 10th-largest publisher inthe US. The goal is to be number one inBritain and one of the top five in the US,Price says. Over the next few years, wellconsolidate the company, further expandour mission and increase our focus on theInternet and other new media.

In all, there are some 3,300 magazinesin Britain. Special-interest magazinesrepresent 45 percent of total sales. Fromhere on out, its likely the number of titleswill decline, Price says. The marketcant sustain such an extremely largenumber in every field t hat there is today.

Douglas agrees that there is a con-solidation in the works and thinks this isdriven more by consumer behavior thanby the strategic decisions of people inpublishing. The most important thingis how loyal the readers are, how far wecan penetrate the market and what ad-vertising opportunities this creates, hesays. I usually talk about our readers asa dot within a dot. Its not just about thelargest number of potential readers.

We have three guitar magazines onefor learners, one for somewhat more ex-perienced players and one about specificguitar techniques. If we only published

Future was started in 1985 byChris Anderson, an out-of-workeditor with 1,000 in the bank andan idea for a computer magazinecalled Amstrad Action.

After three months, Andersonfound a garage in th e back of a gasstation in Bath, England, which be-came his of ce. He also nally ma-naged to get a 10,000 bank loan.The rst edition had 100 pages,and 40,000 copies were printedbut only 16,000 sold. Before these

gures leaked out, there was

enough time to make improve-ments to the magazine and come

up with an innovation that wouldchange the entire magazine ind-ustry mounting a computer pro-gram on the cover of the magazine.

Today, just over 20 years later,Future is listed on the London StockExchange and is one of the fastes t-growing magazine publishers in theworld. The publisher puts out morethan 150 magazines in computers/ technology, games, music/ entertainment, sports/hobbies,

cars and life/living. Future also has65 Web sites and a growing number

of events. There are some 10 mil-lion unique visitors to the publish-ers Web sites each month. Lastyear, Future had sales of 212 mil-lion, with Britain its largest market.Future has of ces in four markets:Britain, the US, France and Italy. Ahundred local editions of Futuresmagazines are also published in 30countries. In addition, 3.6 millionmagazines were exported last yearto 98 countries around the globe.

STARTED BY AN OUT-OF-WORK EDITOR

o

JIM DOUGLAS

The most importantthing is how loyalthe readers are, saysJim Douglas.

A newspaper is like a

better-informedfriend, a wiser older

brother or the voiceof a group you

belong to. Readinga really good

magazine creates afeeling you can never

get on the Internet.


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PROFILE

one guitar magazine that included every-thing, we would lose readers.

Even though the underlying trend forprint media is negative in the Britishmarket, there are signs that magazineswill fare better than newspapers. Forinstance, advertising revenues for maga-zines increased slightly last year whilethe newspaper market declined overall.

Despite the decline for magazines,we have managed much better than thenews-based dailies, Price says. News issomething that you can get quickly on theWeb. The morning papers now have to gointo more detail. The news is rarely whatsimportant anymore. Nor have newspa-pers been as innovative or competitive asmagazines. For instance, only in recentyears have newspapers understood thatthey have to change their format so thatthey are easier to read. Its amazing theydidnt understand this a whi le ago.

FOR AN INTERNATIONAL publisherlike Future Publishing, national differ-ences in the magazine industry are alsoimportant. In Britain, France and Italy,more than 80 percent of magazines aresold on newsstands. In the US, two-thirdsare sold by subscription. Readers in the USwant shorter texts than readers in Europe,although the trend in Europe is moving to-

20 *SCA SHAPE [ 1*2006 ] [ 1*2006 ] SHAPE S

ROBERT PRICE

ward texts that are easier to read as well.For us, the future is a multi-channel

environment, Price says. The changewere seeing now is dramatic. Young read-ers in particular want fewer words, textsthat are easier to understand and moregraphics that quickly explain whats mostimportant. Im not saying that youngpeople are reading less theyre prob-ably reading as much overall, but manyshort texts in many different areas. In-stead of one long article, they read per-haps 20 short ones. We shouldnt seethe change as a threat but rather as anopportunity for us.

DESPITE ALL THE NEW technology,there are still great advantages to thetraditional magazine. A magazine isportable, says Price. It doesnt needbatteries. You read it differently moreslowly and with greater reflection.

And nothing can even come near tothe close relation a magazine has withreaders who buy it every month, Doug-las maintains. A newspaper is a better-informed friend, a wiser older brotheror the voice of a group you belong to.Reading a really good magazine createsa feeling you can never get on the Inter-net. And that creates added value for theadvertisers.

A magazine is portableand it doesnt need batteries,

says Robert Price.

The change wereseeing now is dramatic.

Young readers inparticular want fewer

words, texts that areeasier to understand

and more graphics.

Every year, 800,000 tons of paper are sold tomagazines, catalogs and commercial publicationsin Britain. SCA has roughly 10 percent of the market.

SCA produces publication paper. In newspapersand magazines, LWC (light-weight coated print-ing paper) and SC (uncoated super-calenderedpublication paper) are the main sorts used. All pa-per is bleached without any form of chlorine ( To-tally Chlorine Free, or TCF). A signi cant portionof SCAs publication paper is sold as FSC-certi edpaper. The Forest Stewardship Council is an inter-national organization that works to develop re-sponsible forest management. FSC-certi ed paperis produced from timber grown in forests that havebeen managed responsibly.

One important customer is the special-interestmagazine publisher Future.

SCA is a good supplier, says Futures RobertPrice. What we look at are paper quality, deliv-ery times and service, degree of whiteness and ofcourse price but also their environmental concern,which is becoming increasingly important to us.

SCA has delivered paper to Future for some 10years and has developed a relation that has grownover the years. We deliver 60 to 65 percent of allpaper that Future buys, says David Lucas at SCAin Britain. What I like is that they take environ-mental issues very seriously.

ENVIRONMENTALCONCERN IMPORTANT


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TECHNOLOGY

P H O T O :


BY ERIK ARONSSON

aper technology development hdvanced remarkably in receears. One major technologic

shift was the introduction of suer absorbents at the end of th

1980s. Super absorbents are petroleumbased products that can absorb five tosix times more than wood fiber-basematerials, or so-called fluff pulp. Todaysuper absorbents have replaced a considerable part of the fluff pulp content idiaper products.

When super absorbents came on thscene, diapers could be made much thiner without manufacturers having tgive up absorption capacity, says Bigitta Ihrfelt, director development BabySCA Personal Care. In turn, this meanthat diapers became more comfortablfor babies to use.

A WHOLE SERIES OF other technchanges have also made life easier fboth babies and parents. An elastic waisVelcro fasteners and improved materialboth inside and out are all product devel-opments that have made the diapers better, simpler for parents to use and morecomfortable for babies to wear. Onmajor step in diaper development was thdiaper pants that can be put on just likeregular underwear.

The modern baby diaper is a compleproduct in which several layers of differenmaterials with different properties combine to give the best possible function.

Today product development focuses omuch more than just the basic propertiesof the diaper to be dry and leak-freeNow, it is just as important to adapt dia-pers to a babys different stages of deveopment, and to see that the product is easyto find in a store and easy to carry home

This product is loaded with high-tech material, smart functions and hyper-modern design solutions . No, its not anew automobile were talking about the latest generation of diapers.

Blissful and drywith super absorbents.

NEW TECHNOLOGY FOR

d


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TECHNOLOGY

The design of the diaper has become in-creasingly important, and not just in termsof its function. One example is the use of exterior printing, such as with pictures, tohelp stressed parents distinguish betweenthe front and the back of the diaper.

Another area that has increased in im-portance over recent years is patent pro-tection of products and innovations.

Its important to make sure that weprotect our own products and ideas aswell as keeping an eye on our competi-tors, to make sure that t hey dont infringeour patent rights, Ihrfelt says.

RETAILERS PRIVATEBRANDS ARE GROWING

For diaper manufacturers today itsa question of adapting to the grow-ing market for retailers private brands.SCA sells its diapers under its ownbrand names, such as Libero, Drypersand Treasures, but it also supplies com-panies that want to sell diapers undertheir own brands.

Its a question of being exible asdifferent customers target differentmarket segments, Ihrfelt says. Weneed to adapt the total product offer inquality and price.

Fit is a key concept in SCAs dia-per design. And development workdoesnt just take place in the labo-ratory focus groups and custom-er meetings are of great importance

when diapers are being developed.SCA has two targets for its baby

diaper product development aproduct vision and a product rangevision. The product vision is that adiaper should resemble, feel like andbe just as comfortable as a babysunderwear. The product range visionis to have products that are suitablefor all stages of a babys develop-ment. A key word that keeps turn-

ing up in SCAs diaper design is t.We have a legacy to uphold when

it comes to t, and this goes back tothe 1970s when we introduced the

rst b ody-shaped diaper on the mar-

ket, Ihrfelt says.In todays SCA diaper, the T-shape

has been enhanced with an anatom-ically shaped absorption core andelastic leg openings.

Development work is often carriedout in project form, the primary con-sideration being business opportu-nities. An example of this is the newabsorption technology that has beendeveloped to upgrade the Libero di-

aper in 2005. A new pattern on thesurface of the diaper creates a capil-lary effect that gives quicker absorp-tion and thereby a drier feel.

This year two new products have

been launched, a pant diaper forslightly older children for when itstime for potty training, and dia-per pants for older children who areprone to bedwetting.

SCAs development work is carriedout not only in the laboratory but al-so with focus groups and at custom-er meetings, where children and par-ents are given the opportunity to tryout new products.

MADE TO FEEL LIKE UNDERWEAR

FUNCTIONAL DESIGN

4


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SCA INSIDE

Focus on growth markets atSCAs Capital Market Day

SCA IN CANARYISLANDS

Good opportunities for higher op-erating surplus margins and expan-sion in the worlds growth marketswere the main message at SCAs Cap-ital Market Day in September.

Price pressure and stagnating growthin consumption in the OECD region,plus rapid growth in developing coun-tries with an expanding middle class add to these an aging world populationand you have a few of the internation-al trends affecting SCA, which servedto start off the presentation when SCAheld its Capital Market Day in earlySeptember at Moderna Museet, Stock-holms Museum of Modern Art.

THE INTERNATIONAL overview al-so clari ed the major challenges forSCA: creating value in mature mar-kets and growing pro tably in devel-oping markets, all while facing great-er competition.

SCAs CEO Jan strm and othermembers of senior management hada positive message to convey basedon these challenges: SCA sees good

opportunities for growth and im-proved margins in the years ahead.This applies to all business areas forest products, tissue, personalcare and packaging.

We can strengthen our marketpositions considerably throughstrategic investments, selectiveacquisitions and divestments with-in the framework of our businessareas, strm said. We also seevery substantial growth opportu-nities in three regions outside ourtraditional main markets.

STRM REPORTED that SCAsoperating surplus margins improvedduring the last 12 months to over 14percent. At the same time, SCA seespotential for improvement of 2 to 3percentage points over the next fewyears from the present level, an es-timate that strm called relativelyconservative.

For instance, we have not includ-ed compensation for the dramaticrise in energy prices in recent years.

That said, there is an upside in theform of a continued improvement inthe market situation.

THE STRONG MARGINS are theresult of cost-savings program, fur-ther ef ciency enhancements in thevalue chain and new product inno-vations and offerings.

A separate item on the program,Opportunities in Growth Markets,underscored the importance of theworlds developing countries forgrowth at todays SCA. Growth mar-kets still account for a small share ofGroup sales, but the percentage isrising steadily, increasing from 8 per-cent in 2000 to 14 percent in 2005.

strm said SCA sees growth op-portunities primarily in three mar-kets: Eastern Europe, Latin Ameri-ca and Asia, mainly China.

For the Group, we expect annu-al organic growth of 3 to 4 pe rcent,which will be driven, among otherthings, by high growth within Per-sonal Care, strm said.

Tree stumps tested as biofuelGrowing demand for biofuel has led

SCA to now test tree stumps as a fuel.We estimate that tree stumps from allaround Sweden could give as much as 5terawatt hours of fuel each year, saysBertil Leijding, head of Norrbrnslen.Stumps are clearly an interesting op-tion in order for us to meet the demandfrom internal and other fuel customers,but also obviously so we can avoid us-ing industrial raw materials for fuel.

At the start of the summer, SCAForest Products tested the harvesti ng of

tree stumps on a clearing in Vsternorr-land County. The stumps were removedusing an excavator with a special attach-ment and will be used as a biofuel for atrial period at Ortviken Paper Mill.

We want to investigate whether wecan use the resource that stumps rep-resent, says Per Anders Hedstrm,head of development at Norrbrnslen.We will evaluate the technical, eco-nomic and environmental aspects of handling stumps. We have great hopesthat stumps are something to invest in.

P H O T O :


SCAs CEOJan strm believes

there are greatopportunities

in growth markets.

SCA intends to start a facility formanufacturing and converting tis-sue in the growing Moscow region.This investment is expected toamount to about EUR 54 M.Provided the necessary permitsare obtained, production can startat the beginning of 2008.

The reason for the investmentis the growing market for tissue inRussia, with annual growth of 7 to9 percent. SCAs Zewa brand has aleading position in tissue in Russia,with about 40 percent of the mar-ket in Moscow and an even highershare in St. Petersburg.

INVESTMENT ON THEWAY IN MOSCOW

SCA IS ACQUIRING the CanaryIslands tissue converting companyMAPACASA, with a convertingcapacity of 9,000 metric tons of finished goods.

The deal gives us the opportuni-ty to improve service to our custom-ers thanks to local production andincreased efficiency in the supplychain, Ole Terland, president of SCAs European tissue operations,said at SCAs Capital Market Dayin Stockholm.

MAPACASA has two tissue con-verting lines with a focus on boththe consumer goods and Away-from-Home markets as well aslogistics facilities in Gran Canariaand Tenerife. Sales in 2005 totalledEUR 9.7 M. The company is locat-ed in Las Palmas on Gran Canariaand employs around 40 people.

With a combination of syner-gies, we reach a stronger positionin the tissue market in the region,Terland said. SCA has strategicpartnerships that will furtherbenefit from our MAPACASAacquisition.

WE CANSTRENGTHENOUR MARKETPOSITIONSCONSIDERABLYTHROUGHSTRATEGICINVESTMENTS,SELECTIVEACQUISITIONSAND DIVEST-MENTS WITHINTHE FRAME-WORK OFOUR BUSINESSAREAS.


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Once the grapes are harvested, winemakersneed to find the right packaging to attractconsumers to purchase the finished product.

In the last few years, there has been astrong increase in different kinds of corru-

gated board packaging at the expense of tra-ditional wine bottles.

SCAs products include a package that canhold one, two or three bottles of wineequipped with a special handle made of pa-per, Champion Handle. This handle is moreenvironmentally friendly and softer on thehand than handles made of plastic.

ERIK ARONSSON

30 *SCA SHAPE [ 1*2006 ] [ 1*2006 ] SHAPE S

Easy to carry

CAMERA

A box full of sunshine

Package made withSCAs soft paper handle,

Champion Handle.


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CAMERA

P H O T O :


Above: SCAs packaging solutionscan be adapted to the special needs of

its customers. Below: Vineyard inautumn raiment in Bordeaux, France.

33 *SCA SHAPE [ 1

Grape harvest in St. Tropezon the French Riviera.


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SHAPING A VIEW

nergy developments will have a profound im-pact on the EU pulp and paper industry andwill set the agenda for the years to come. Thecosts of energy for our industry have in manyplaces surpassed the costs of personnel, beingsecond only to raw materials costs. They vary

from mill to mill and grade to grade, having on average ashare of 15-20 percent of all production costs. T he currentincreasing energy bill explains many recent corporate re-structuring announcements. They influence todays profit-ability, but also the investment climate of tomorrow.

IF ENERGY COSTS CONTINUE TO SOAR in Europe,and to higher levels than in competing regions of the world,they will become one of the prime allocation factors of paperproduction capacity. Europes energy policies are therefore of critical concern. A clear signal is needed from the EuropeanUnion, to keep and attract investments in the energy inten-sive industries, as well as short-term measures to limit theconsequences of energy costs increases. The energy-inten-sive industries constitute one of the pillars of the Europeaneconomy, playing a fundamental role in meeting the growthand employment objectives of the Lisbon Strategy. Marketand regulatory conditions must therefore create a predict-able business environment to stimulate investments both inenergy production and in the energy-intensive industries.

The pulp and paper industry is addressing these trends.Efficiency programs are run in every European paper mill toreduce costs and to achieve the optimum energy mix.

Companies and paper industry associations, such as the

Swedish Forest Industry Federation, are stepping up theirefforts to draw political attention to the needs of the in-dustry. In Brussels, the Confederation of European PaperIndustries (CEPI) works with the EU institutions towardthe best policy solutions.

An EU-wide innovation programme, the Forest BasedSector Technology Platform, has been set up and has a fo-cus on improving energy efficiency and renewable energyproduction. Three issues are central to the energy problem:

The European energy markets a radical change from asellers to a balanced supply-demand market is needed.The EU emission trading system a combination of theEmission Trading Scheme and an ill-functioning powermarket has even further increased electricity prices.Bio-energy and raw materials subsidies should not dis-courage the use of wood for value-added industrial prod-ucts.The European Commission has created a special High

Level Group on Competitiveness, Energy and Environ-ment that aims at ensuring positive synergies in thosethree areas, and contributing to better regulatory coher-ence among the related policies.

No small task indeed. Four national ministers, four EUcommissioners and a select number of CEOs of compa-nies and civil organizations form this High Level Group.SCAs CEO Jan strm is one of the invited members of this group. Experts from SCA, SFIF and CEPI provide thesupport from the European pulp and paper industry.

Energy and energy-impacting policies are at the top of CEPIs agenda.

e

Teresa PresasManaging Director

CEPI Confederation of EuropeanPaper Industries

AS EINSTEIN SAID, ONECANNOT SOLVE THE PROBLEMS

OF TODAY BY THINKINGIN THE SAME WAY AS WHEN

THEY WERE CREATED.

ENERGYA BURNING ISSUE


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