Svenska Cellulosa SWOT and PESTLE Analysis

Strength

1. Comprehensive range of building materials with global sales: SCA provides high quality wood products to customer, who are divided into three segments namely retailers, industry and homeowners. Some of the products offered are machined softwood, carcassing, MDF, sheet materials, saw timber and raw materials. SCA products are superior to its competitors because of following reasons (i) forests in Nordic region gives SCA access to high quality raw material, (ii) superior technology and innovation employed in every step of production and (iii) SCA gives comprehensive solution e.g. for industrial customers in Europe along with raw material supply SCA provides logistics solution and warehouse IT solutions. These factors help SCA in retaining the customers, generating additional revenue and improve the operational efficiency.

2. Consistent financial performance: Over the past two decades, Svenska Cellulosa’s average sales growth is 10% per year. In FY 2017, SCA sales grew by 8% due to healthy demand for the products, especially in wood products and Kraft liner. In spite of marginal increase in the price of products, the EBITDA has increased by 15% to SEK 3,761m and EBITDA margin has increased by 22% compared to previous financial year. The operating profit for the period was SEK 2,511m and operating margin was 8.42%.

3. Strategic Acquisition to Drive Growth: SCA has made substantial business investments in strategic acquisition of companies to gain foothold in Asian and South American market. In 2007, SCA acquired the Proctor and Gamble’s European tissue business, including brands such as Tempo which was leading brand in Europe and Hong Kong. In 2009, on similar lines, SCA acquired Algodonera Aconcagua and Copamex, the leading brands in Argentina and Mexico, to expand business. In 2014, it acquired majority stake in Vinda, one of the largest tissue manufactures in China, which helped in expanding business to China, Australia, New Zealand and Fiji.

4. Strong value chain with modern and efficient sawmills: In SCA, base of every segments business and operations is forest. The SCA owns, 2.6 million hectares of forestland, the largest private forest plantation in Europe and hence it has control from seedling to every part of felled tree. SCA owns mills across Europe to process the timber and the chip from this process are used in pulp manufacturing process and any remaining waste material is used in creation of biofuels. The company’s five sawmills are the largest in Europe and have been equipped with the latest technology and digital industrial automation. It is seen that SCA is gaining operational efficiency due to strong backward integration in value chain.

5. Strong brand identity supported by core values: SCA’s three core values are (i) responsible, (ii) excellence and (iii) respect. These values drive have helped in delivering superior customer service, good relationship with suppliers and Governments and hence contributed to developing a strong brand name in paper and forest product industry. Core values is one of the component of materiality analysis adopted by SCA in determining the strategic focus areas of business. The company ensures that supplier adhere to these values by conducting supplier audits and evaluation, if required providing necessary assistance to potential partners. All these factor into creating lasting and fruitful relationship with supplier.

6. Strategic investments enhancing competitiveness: SCA has been making prudent strategic investments. SCA is the owner of largest sawmill in Sweden, located at Tunadal sawmill in Sundsvall, which achieved record production in 2017. With increase in demand for high-quality packaging paper, SCA has strategically invested to increase production of White- top kraftliner at Munksund paper mill. An investment of SEK 7.8bn was made in expansion of Östrand pulp mill. The wood handling unit which began in 2017 receives far more raw material (timber) by rail. Östrand will secure demand for pulp wood in northern Sweden to meet demand for high-quality pulp based on fresh fibre.

Weakness

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Opportunity

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Threat

1. Digitalization of publication paper: According to a report by McKinsey, the demand for publication paper is declining from 2015 and this rate of decline would be steeper in future. Moreover, even in SCA’s quarterly report there has been acknowledgement by management regarding this decline. So, there is a possibility of decline of revenue and hence earnings from paper segment in coming years.

2. Staying relevant in a fast-changing packaging world: Kraftliner is one of the biggest contributor to revenue of SCA. But, this segment has to deal with increasing pressures about cost, resource conservancy, and sustainability, because plastic packaging continues to grow at a faster pace than fiber-based packaging. There is increasing pressure on company to create differentiated and distinct customer value proposition to customer and achieve commercial excellence at the same time.

Political

1. Protectionist policies in Europe: SCA generates 82% of its revenue from the European region, of which 54% is from 4 countries Sweden, UK, Germany and France. Though SCA owns majority of its forest in Sweden its saw mills and pulp manufacturing industries are spread across the Europe. Hence, events like Brexit, which promote protectionism, tend to disturb the stability of the region leading to political risks. Brexit has also motivated other countries like France and Germany to think of leaving European Union. This will result in change in strategies of operations for SCA.

Economical

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Social

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Technological

1. Product innovation in packaging: Innovation creates value for our business by increasing customer and consumer satisfaction and cutting costs by improving efficiency and SCA is dedicated to drive innovation to meet today's challenges by collaborating with start-up accelerators. Packaging is one of the key-driver segment for SCA. Innovated corrugated packaging allows bending of boards to round shape this enables SCA with superior packaging design with performance and sustainability.

2. Innovative nursery and seed productions:The two factors that determine a generation of forest are tree species and growing region and takes anywhere between 60 to 120 years. Every tree SCA harvests is replaced with more than two new trees. SCA owns Bogrundet nursery with its Wifstamon branch. Bogrundet, with a capacity to produce more than 100 million seedlings per year, is one of the largest nursery in the world. The sapling planted from this nursery grows 15 percent better than naturally regenerated trees. Moreover, study has proven that a Canadian pine that grows 40 percent faster than Swedish softwood species and provides a valuable addition of renewable raw materials. These Canadian pines are used in SCA’s forest.

Legal

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Environmental

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