Svenska Cellulosa Aktiebolaget
Svenska Cellulosa Aktiebolaget
851 88 Sundsvall
Fax: (060) 19-33-21
Sales: SKr31.12 billion (US$5.52 billion)
Stock Exchanges: Stockholm London Oslo Frankfurt
Svenska Cellulosa Aktiebolaget (SCA) is one of Europe’s leading forestry companies. Founded in 1929 by the famed Swedish financier Ivar Kreuger, SCA initially served as a marketing organization for pulp producers in northern Sweden. After transforming itself from a holding company into an integrated forestry concern in 1954, SCA gradually expanded into the areas of newsprint and linerboard over the next two decades. In 1975, the company entered the consumer products field with the purchase of Mölnlycke, a manufacturer of fiber-based disposable hygiene products. This marked the start of SCA’s increasing concentration on value-added products based on wood, and its decreasing activity in traditional forestry products, such as pulp and low-grade paper. This development has coincided in the 1980s with SCA shifting some of its production from its Swedish homeland to the European mainland through a series of corporate acquisitions.
The roots of the establishment of SCA lie in the economic problems that hit the Swedish forestry industry in the 1920s. Forestry products, such as timber, pulp, and paper, were the country’s largest export items, but their competitive position in the European market was damaged during the 1920s by the government’s deflationary monetary policy that boosted the value of the krona. This coincided with strong competition from the USSR, which was dumping cheap timber products in Europe.
Faced with declining prices and profits, Swedish forestry companies were forced to hypothecate their fixed assets and stocks to commercial banks as security for loans. By the late 1920s, Svenska Handelsbanken, then Sweden’s largest bank, feared that its lending position to the forestry industry was overexposed and sought ways to reduce its liabilities. It proposed that the Swedish financier Ivar Kreuger, who had gained a virtual monopoly over the production of matches worldwide, should take over its forestry industry holdings.
Kreuger was at first reluctant to accept the Handelsbanken’s proposal since it would tie up capital, but, having recently bought several sawmill and pulp companies in the Sundsvall region in northern Sweden, he eventually saw possibilities in combining his forestry holdings with those of Svenska Handelsbanken. The merger would prevent cut-throat competition, would reduce production costs, and consequently help raise and stabilize export prices. In addition, Kreuger would acquire several hydroelectric power stations as a result of the deal. His control over the power sources for the pulp and paper industry would also improve profitability.
In 1929, SCA was created with Svenska Handelsbanken selling its forestry shares to Kreuger’s investment company, Kreuger & Toll, mainly on credit. SCA was designed to be a holding company to sell the pulp produced by its ten subsidiaries in northern Sweden. The companies that made up SCA included Bergvik & Ala, Skönvik, Sund, Travaru Svartvik, Nyhamns Cellulosa, Torpshammars, Björknás Nya Ságverks, Salsakers Ángságs, and Holmsund & Kramfors. The tenth company, Munksund, was added in 1934. SCA was Europe’s largest forestry company, a position that it would maintain until the mid-1980s. At the time of its formation, it accounted for almost a third of Sweden’s total pulp exports.
The SCA combine amounted to a loose confederation with each member company having its own president and board of directors as well as administrative control over finance, sales outside of pulp, and forest management. Svenska Handelsbanken retained its role as primary lender to SCA and most of its member companies, and their shares were hypothecated to the bank.
The first few years of SCA’s existence were devoted to rationalizing its operations and constructing Europe’s largest and most modern cellulose plant at östrand. The large investment costs meant that the company did not pay a dividend for the years 1930 and 1931. The following year, SCA faced its first serious crisis with the suicide of Kreuger, an event that triggered the collapse of Kreuger & Toll. The value of SCA’s share capital dropped from SKr1OO million to SKr4 million and Handelsbanken assumed control of SCA by purchasing its shares from the bankrupt investment company. Lacking experience in managing industrial concerns, Handelsbanken then sold most of its interest in SCA in 1934 to the Swedish industrialist Axel Wenner-Gren, the founder of the household appliance company Electrolux.
But Handelsbanken continued to play a supervisory role as the main creditor to SCA. The company’s performance under the chairmanship of Wenner-Gren was lackluster and Handelsbanken grew concerned about the company’s ability to repay its debts. In 1941, the bank forced Wenner-Gren to sign an agreement that reduced the nominal share capital from SKr30 million to SKr1O million and converted SKr40 million of the company’s assets to new shares that would be held by Handelsbanken, thus giving it majority control over SCA. The timing of the deal was fortunate since the United States was threatening to place SCA on a trade blacklist and freeze its assets in the United States because of Wenner-Gren’s suspected business ties with Nazi Germany. Handelsbanken’s assumption of control prevented this from happening.
Handelsbanken used its controlling stake to carry out a reorganization of the company by consolidating the activity of each of its subsidiaries in the river valley where it was most dominant. It then decided to sell some of the subsidiaries to improve the company’s financial position, with Bergvik & Ala and Hammarsforsens Kraft, a hydroelectric power company, being divested in 1943. Handelsbanken bought the remainder of Wenner-Gren’s shareholding in SCA in 1947 and the company became a subsidiary of the bank.
The change in ownership coincided with a buoyant market for the forestry industry in the early postwar period, with prices hitting a peak during the Korean War boom of 1950-1951. As a result, SCA finally managed to free itself from debt. In 1950, Handelsbanken decided the time was right to reap profits from its long-term involvement in SCA by introducing most of the company’s shares on the Stockholm Stock Exchange. But SCAs ties with Handelsbanken have remained close ever since with the bank continuing to act as prime lender to SCA and maintaining a representative on the board of directors.
Axel Enström, who became SCA president in 1950, charted a new corporate strategy by promoting closer cooperation among the company’s various subsidiaries. This led to a full-scale merger of their activities in 1954, which transformed SCA from a holding company into a single integrated forestry concern.
During the 1950s and 1960s, SCA greatly expanded its activity from its traditional area of pulp and sawn timber into paper production, primarily newsprint and kraft paper, kraft liner, and corrugated board. Between 1959 and 1969, pulp production increased from 690,000 tons to 1.1 million tons, while paper production jumped from 160,000 tons to 600,000 tons, despite a reduction in the number of mills from eleven to eight. Revenues during this period climbed from SKr375 million to SKr825 million.
The appointment of Bo Rydin as SCA president in 1972 marked the beginning of a new period for the company. In 1974, Rydin decided to diversify the company into value-added fiber-based products. A year later, SCA purchased Mölnlycke, which had been founded in 1849 as a Swedish spinning and weaving business but had been transformed into a manufacturer of disposable hygienic products in the 1950s.
By 1979, when it celebrated its 50th anniversary, SCA’s activities covered all segments of the forestry industry, from raw materials to consumer products. It was Europe’s largest private forest owner with 1.7 million hectares of forest land, equivalent to half the size of Switzerland, that provided 60% of the company’s timber needs, a high level of self-sufficiency by international standards. Its six mills, which produced 1.3 million tons of pulp and 1.1 million tons of paper, were powered by the company’s own hydroelectric stations run by the Balforsens Kraft AB (BAKAB) subsidiary. The mills were equipped with pulp and paper machinery produced by another SCA subsidiary, Sunds Defibrator. Pulp and paper accounted for half of SCA’s sales of SKr5.965 billion in 1979, while Mölnlycke was responsible for 30% of sales, with BAKAB, Sunds Defibrator, and packaging companies making up the rest.
The 1980s were characterized by three major developments: a rapid increase in sales, growing internationalization through the purchase of several important European companies, and a reduced dependence on pulp and paper production combined with an emphasis on higher-value products. The company’s diversification program during the early 1980s concentrated on increasing the number of its corrugated board operations in Sweden and the rest of Europe. Average annual output by these companies reached 750,000 tons by the mid-1980s, providing a captive market for 40% of SCA’s production of linerboard, which is used as the outer surface of corrugated containers. SCA became Europe’s largest linerboard producer in 1985 when it assumed majority ownership of Obbola Linerboard, a joint venture it had established with the U.S. St. Regis Paper Company in 1973.
Meanwhile, SCA was concentrating its pulp and paper production at four mills, with an average capacity of 300,000 tons, although its largest facility, the Ortviken newsprint plant, had a capacity of 600,000 tons. SCA then accounted for 25% of Sweden’s total newsprint production. It also curtailed the production of pulp for outside consumers, its original business, with only 5% of its pulp being sold to third parties in the mid-1980s compared with 75% in the 1960s. This was designed to reduce its exposure to the sharp fluctuations in the world pulp market.
By the mid-1980s, Mölnlycke had become the market leader for disposable consumer hygiene products—such as diapers and female hygiene goods—in Scandinavia and the Benelux countries, and was Europe’s leading supplier of disposable hygiene products to hospitals and industrial users. Bolstered by a cyclical upturn in the global forestry industry, SCA’s sales almost doubled from SKr6.7 billion in 1980 to SKr12.6 billion in 1985, while profits before extraordinary items climbed from SKr688 million to SKr1.3 billion during the same period, reaching a peak of SKr1.5 billion in 1984.
In 1987, SCA signaled its determination to expand beyond Scandinavia by raising SKr1 billion through a new share issue to fund an acquisition spree for hygiene and packaging companies on the European continent. In January 1988, it purchased Peaudouce, France’s leading disposable diaper producer, for SKr2 billion in a move to strengthen Mölnlycke’s market position in Europe and build up its consumer products sector, where profits are higher and more stable than in the traditional forestry products area.
Under its new president Sverker Martin-Löf, SCA then turned its attention to the corrugated board sector. It acquired Italcarta, Italy’s largest corrugated board manufacturer, in July 1988, followed by a number of other corrugated board manufacturers, among them Bowater Containers, Belgium. With the Italcarta deal, SCA for the first time was consuming more linerboard than it was producing itself, thereby no longer having to sell linerboard on the open market. Its position as a net consumer of linerboard would also protect the company against a drop in demand.
While SCA was limiting its production of pulp and liner-board to in-house needs, it also decided to reduce its production of newsprint at the Ortviken facility in favor of lightweight coated paper. This move toward the production of high-quality printing paper was confirmed with the purchase of a majority shareholding in Laakirchen, an Austrian producer of magazine paper, in October 1988. The deal extended SCA’s range to cover all grades of printing paper. Control of Laakirchen also made SCA a leading producer of tissue paper in Europe.
The desire to broaden its international production base led to SCA’s £1.05 billion purchase of the U.K. firm Reedpack in June 1990. The deal not only bolstered SCA’s position as a leading European producer of corrugated boxes, but also made it a major producer of newsprint using recycled waste paper. SCA’s gradual shift from manufacturing newsprint from virgin fiber in Sweden to using recycled wastepaper gathered from Europe’s cities reflects the increasing importance played by recycling in papermaking. The need to have access to wastepaper and to site manufacturing facilities close to consumers is one reason that SCA is moving its operations near major population centers in Europe.
In late 1990, SCA turned its attention back to Sweden. It became the dominant shareholder in the country’s third-largest forestry concern, Mo och Domsjö (MoDo). The strategic alliance was forged to promote collaboration in printing, paper production, and joint investments in paper mills. Although SCA controlled slightly more than half of MoDo, there were no immediate plans to merge the two companies to form a concern that would rival Sweden’s Stora, Europe’s largest pulp and paper company, in size.
SCA’s acquisition spree in Europe and the transformation of its product mix toward higher value-added consumer products has forced the company to divest some subsidiaries that were once considered central to its traditional activities in pulp and newsprint. In 1990, it completed the sale of its pulp machinery company Sunds Defibrator to Rauma-Repola in Finland. SCA also mortgaged half of its BáKAB hydroelectric assets to the Swedish government-affiliated National Pension Funds to raise SKr5 billion for new investments. In early 1991, it sold the tissue operations acquired from Laakirchen as well as several units of Reedpack.
During the second half of the 1980s, SCA saw both profits and sales continuing to grow at a rapid pace. Sales almost doubled between 1986 and 1989 from SKr15.2 billion to SKr24.8 billion, while profits after financial items jumped from SKr1.4 billion to SKr2.7 billion. However, SCA is expected to face a period of declining profits in the early 1990s due to a cyclical downturn in the forestry industry.
Mölnlycke AB; SCA Packaging AB; SCA Graphic Paper AB; SCA Forest and Timber AB; Balfor-sens Kraft AB.
Utterström, Gustaf, SCA 50 ar: Studier kring ett storföretag och dess föregangare, Sunds vail, SCA, 1979.