Business World

Saturday 22 October 2016

Global warming throwing up more spaces to fill

John Lynch

Published 19/01/2016 | 02:30

One of the great ironies about the tragedy of global warming is that the likely beneficiaries could well be the very same people who caused it.

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Just as the mistake of putting greenhouse gases into the atmosphere has taken so long to crystallize in the minds of scientists, economists and politicians, the impact of the retreating ice caps in the Arctic is going to throw up major fresh challenges for countries along the Arctic rim.

We can only hope that the recent weeks spent in Paris hammering out an agreement on how the world should respond to its most critical emergency were well spent.

Meanwhile, the retreating ice caps will offer immediate opportunities for a whole range of vested interests. The first thing will be the exploitation of natural resources, especially oil, natural gas and many, many of the minerals that feed the technology sector.

It will mean also shorter sea routes through the hitherto ice-blocked Arctic (imposing interesting question marks over facilities like the Suez Canal.) If the response to these changes turns out to be short term and selfish, we are all in trouble.

This bit of fire-side philosophy was inspired by the thought that the forestry business would also get a fillip from the retreating ice cap and tree-planting is one useful antidote to the greenhouse gas problem. Are there big companies who could play a part in this eco-revolution? Of course, there has to be, though they are unlikely to be dedicated 'tree-huggers'; they will more likely be doing it because it makes commercial sense.

Svenska Cellulosa AB (SCA), the Swedish forest and hygiene products company, could be one of them. It is listed on the Stockholm stock exchange, having sales of SEK 115bn (euro=9.3 SEK) last year with a market cap of SEK 172bn. The company has been around since 1929 and now has three business divisions - personal care, forest products and tissues. It is a world leader in personal care products. Sales last year for this division amounted to SEK 34bn and operating profits show an increase to SEK 4bn. The personal care division has 30 operations in 25 countries.

SCA's forest products division, which got me thinking about it in the first place, has four business segments - publication paper, Kraft liner pulp, solid wood and renewable energy. Its operations are concentrated in northern Sweden close to its forests and to the possible new forestry areas that may now be opening up. The company's private forests cover is an enormous 2.6 million hectares (that's 100,400 square miles in old money) and it prides itself that over the last 50 years the volume of its forests has increased 50pc. In the pulp market the company uses 40pc of its capacity, selling the remainder.

Solid wood products are used mainly for constructions and house building and while cyclical, has growth between 1 and 2pc.

Demand for publication paper is falling as fewer people are reading newspapers. Forest product sales last year were SEK 17bn with operating profits of SEK 2.6bn. The tissue business is SCA's largest and includes napkins, facial tissues and kitchen rolls. It sells under its own brands Torc, Lotus and Temp, but also produces for other retailers. Sales last year were SEK 64bn, with emerging markets accounting for 30pc of sales.

Operating profits increased to SEK 7bn thanks to higher volumes and contribution from its majority stake in the Hong Kong-listed Vinda.

SCA is going through a rocky patch at the moment. It is having to answer awkward questions about the use of its corporate jet for 'jollies' and execs are falling like ninepins. The system of cross shareholding between Sweden's largest companies is starting to unwind. Nevertheless investors holding SCA shares since 2009 have done well and it may be worthwhile to pocket some profits as the shares have moved from SEK 60 to SEK 229 today. However, if I'm right and there is a small bonus for a Scandinavian forestry giant as the ice retreats, SCA could bear watching.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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