SCA's Results Indicate That 2018 Could Be A Good Year For The Packaging Sector: Analysis

By Steve Wynne-Jones
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SCA's Results Indicate That 2018 Could Be A Good Year For The Packaging Sector: Analysis

It's been quite a year for packaging materials firm Svenska Cellulosa Aktiebolaget, known colloquially as SCA.

Last April, the company announced arguably the biggest restructuring in its history, with the spin off of its hygiene and personal care business into a wholly separate entity, Essity, while during the summer, it appointed a new CEO, Ulf Larsson, and announced that an expansion project at the Östrand pulp mill looks set to increase bleached kraft-pulp capacity from 430,000 to 900,000 tonnes per year, following a significant investment.

This week, it capped the year off with the announcement that its full year net sales for the year (January 1 to December 31) increased 8% to SEK 16.7 billion (€1.71 billion), with net profit up 6% to SEK 1.87 billion (€190 million).

Kraftliner Drives Performance

The main driver of the group's improved performance? Containerboard; a key packaging material for the retail and FMCG industry. SCA is the fourth biggest producer of kraftliner in Europe; a market that saw three price increases during 2017.

Full year adjusted operating profit in the group's Paper division, which includes its kraftliner operations, was up by a phenomenal 63% year on year, and by 153% in the fourth quarter.


At the start of the month, SCA announced the latest price increase for all Brown and White Kraftliner grades in Europe from 1 February, by €60 per tonne.

"The market for containerboard continues to be very strong," an SCA spokesperson said. "The demand for kraftliner of all grades is high and the supply is tight."

Positive Outlook

As analysts note, SCA's performance bodes well for the wider packaging industry as a whole.

As Goodbody Stockbrokers reported, "the results from SCA continue the positive rhetoric for the European packaging sector and follows a fresh round of price increase announcements in the US. As a result, the positive share price momentum is set to continue into the results season with our preference for Smurfit Kappa."


Smurfit Kappa Group is due to publish its results on 7 February. In its most recent quarterly results, last November, the group said that its corrugated volumes in Europe improved by 4% year-on-year, while it too had instigated price increases during 2017; a cumulative €150 per tonne increase across the first three quarters of the year.

'Global demand for kraftliner is very strong and supply remains extremely tight,' the company said at the time.

The European corrugated packaging industry is one that has seen a huge amount of M&A activity in recent years - in 2016, a record 30 deals took place, with Smurfit Kappa, DS Smith and Mondi amongst the most prolific in terms of making acquisitions.

Should kraftliner prices continue to rise at the rate they have been doing over the past year, such investments may pay serious dividends in the years to come.

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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