SCA: CHALLENGING TIMES
SCA has had an eventful couple of years, with the acquisition of Procter & Gamble's European operations, investment in China and the start-up worldwide of a number of machines. Jan Johansson talked to Hugh O'Brian about the challenges

Jan Johansson came to SCA, Europe's largest tissue company, as CEO and President in November 2007. Previously he was CEO of the Swedish metals company Boliden, and prior to that he had worked with major companies such as Vattenfall and Shell Oil. The move to SCA, he says, was a little bit like coming home to his roots as his father worked at SCA in Sundsvall, where he grew up. He himself had also worked summer jobs at SCA in his youth. So the change was perhaps not as great as it might appear.

SCA is a very diversified company making hygiene products, packaging, printing papers and forest products based in part on the enormous, well-managed forest assets it owns in Sweden. The company has a total turnover on the order of $14 billion and tissue is in fact SCA's biggest business area, larger than personal care, packaging or forest products.

Johansson, who will be the Keynote Speaker at the upcoming Tissue World 2009 conference in Nice next March, talked recently to Tissue World magazine about his experience so far with SCA and how things are developing.

How has your first year on the job at SCA gone?
It has been interesting and challenging. The changes in the business environment during the year have certainly impacted my initial agenda. My first objective then was to speed up the growth of the company, but as the market has developed during the past year, we have had to readjust. We are still focused on growth in numerous sectors and regions, but we also have to focus more than I had anticipated on the cost side, productivity, cash flow, etc. due to the weaker markets like packaging in Europe.

The challenge is to be braking and accelerating at the same time, with the same people. I should say that I have been in a similar situation in a previous job, so it can be done. The important thing is to create an understanding for it, both internally and externally.

In addition, I must say that SCA is a fantastic company with great, devoted employees and a professionalism that really encourages me, every day. I am convinced that we can deal with the challenges in order to fulfill our business targets.

You announced a new organization earlier in the year. What is behind it?
I saw that we had lots of small islands around the world within SCA that were trying to innovate on their own. This is not efficient use of time or money. So we introduced a new matrix organization to get to the market faster. I think this will help us to really capitalize on the knowledge we have within SCA both regionally and centrally. This also helps us decide, from an overall SCA point of view, where to spend our money and answer questions such as which market to invest in, which category, when, how much, etc.

A good matrix organization can be difficult to introduce but can also be extremely effective when it is done right as it gets people to work together across categories and regions for better results. I think you can see good examples of this at companies like IBM and P&G. To make it work you have to be very clear about responsibility, and measure progress. Of course you also need to have the right people in the right place. So I am confident it is the right strategy, but it does take time to adapt and we are making progress.

In the European tissue market are you still following the dual strategy of making both brands and private label?
In Europe the consumer tissue business has been tough, with unacceptable profits and returns below the cost of capital. This can't continue. Our ambition is to increase our share of brands. For private label we are not going to continue to invest and work with customers who never give us a return on it. We have actively been leaving PL customers where we don't see any profitability. We prefer to leave them to someone else and instead work with customers who want to develop together and recognize that there has to be some profitability all along the chain.

Our brand strategy is also related to innovation in tissue products. We know, as the retailers do as well, that it is the brands that lead in innovations and category growth. Therefore brands are vitally important for tissue. I think Europe is far behind the US in innovation because it is coming from a production viewpoint, instead of looking more at the consumer. European tissue makers see themselves selling paper while in the US it is more functionality that is being marketed. We need to see more of this in Europe.

How has the deal with P&G for the Bounty, Charmin and Tempo brands changed things?
This was a great acquisition and it is on target. We will realize SEK 700 million in cost savings and we got these very good brands of course. This is helping us in the transition to get higher returns, as we can close some plants and make the supply chain much more efficient.

We are also cleaning up the brand platform and starting to work with stronger brands. We own the Tempo brand now and can market Bounty and Charmin under licence in Europefor an undisclosed number of years that we are comfortable with.

With these in place we are migrating into a new brand platform which is one of the key elements of the acquisition. As part of this we will revise our entire present portfolio of about 20 tissue brands so they will become much fewer. This autumn we are launching the new platform and taking a totally new approach to tissue marketing, unique in the business.

What is happening with your away from home tissue brand TORK?
TORK is now our truly global AFH brand, with sales over €1 billion Euros. We have recently carried out a big program called the TORK Revolution to put all of our AFH tissue under the TORK name. In the US we had some old AFH brands that we have very successfully migrated to TORK.

We were actually surprised at how incredibly smoothly it all went but of course there were years of work behind the success. It was a step by step process which was well explained to the customers, who were extremely involved in and excited about the process. So we are very happy that it is all under one name globally now and we are looking of course to grow further with TORK. We also see stronger opportunities to transfer innovations among the US and Europe and other parts of the world to drive the TORK brand.

Where else are you growing?
Our tissue business is growing in many parts of the world, such as Russia where we are developing with the market and China where we have a successful JV with Vinda, which is growing 30-40% annually based on its strong brand. In some respects China is much like the US market as the tissue brands are very strong. We are also growing in tissue in Colombia and Mexico, as well as many other countries in the personal care sector. For example, in the Middle East we have a JV for personal care that is looking very promising.

And this Fall, we are delivering the first paper from our new tissue machine in Barton, Alabama, US. In the US, we have established ourselves as a leading player within AFH. The previous production at Barton was 100,000 tons a year but with the new machine, the production can reach 170,000 tons a year.

What are the reasons behind the big investment in a tissue mill in Mexico?
It's a supply chain project really. We have a good position in the market with good distribution and excellent customer relations but we have outdated equipment and need more efficient production there. So this project will help us get our costs down to a better level so we can be more profitable. It was really a question of investing to fix the supply chain or leaving the market and we clearly see the fix as the best alternative.

How will sustainability issues impact the tissue business?
Sustainability is a critical issue and I am sure it is certainly not going to put less pressure on the tissue industry. Energy and global warming concerns are here to stay and we can see more legislation coming in these areas. Also consumers are more aware than ever about these topics.

I am pleased to say that we are the only company in the world that can show that we are CO₂ neutral when you look at our production. No one else can do this. This is based on our enormous forest assets as we are the biggest forest owner in Europe with 2.6 million hectares of forest lands and the trees we have there are binding 2.6 million tons net of CO₂. I think the forests will prove to be even more valuable in the future.

How do you view the competition that may develop for trees based on new EU directives for bio energy production?
The EU clearly has ambitions to increase bio energy production. The negative side of this is that it will create competition for trees. I hope we will not be so stupid that we encourage burning fresh trees. From both an environmental and a financial point of view that would be crazy because you release the CO₂ and don't add any value in the chain. We are trying to explain this to the political world.

The positive role of the forests has been forgotten in the global warming debate. Deforestation gets all the headlines and attention but the potential to absorb CO₂ is huge and this needs to be understood by politicians. In the countries where deforestation is taking place, many people are not thinking about CO2. They are thinking about eating, as they need the land for growing crops or grazing animals. But it is really a question of incentives, if you get more money from planting than cutting, then you will plant.

We totally agree that deforestation has to stop, but we also want to go a step further and get leaders to understand that we need to plant more trees. Worlddeforestation reduces global forests by about 0.2% per year. In Sweden we are actually growing our forests by 1% annually. In SCA we are planting three trees for each one we harvest. Well-managed forests are simply a fantastic opportunity when it comes to solving the CO₂ issue. It's all about photosynthesis; growing trees bind CO2 and produce oxygen.

What about pulp mills as bio energy plants?
The pulp mills are already today energy plants. Our Östrand plant delivers more energy than needed in the production, and any surplus is sold on the open market. Today the black liquor from this process is burned in a recovery boiler, but there is quite interesting research going on for other forms of using the black liquor. We embrace this development as long as it doesn't lead to the burning of high-quality wood when the black liquor is taken out of the process. TW