SCA Group Holding, the Swedish hygiene products giant that is acquiring Chinese tissue paper maker Vinda International Holdings Ltd. (03331.HK), expects the household tissue market in the world’s second largest economy to remain in a consolidation phase over the next few years.
“The tissue market in China has already started to consolidate, driven by the largest four to five players in the market, which now have about 40 percent share of the market,” Ulf Söderström, president of SCA’s Asia Pacific division, told EJ Insight.
The bigger Chinese household tissue makers are boosting production capacity while the small producers are shrinking their output, Söderström said in an interview.
After a couple of years, the market will probably be dominated by just three to four players, taking up about 60 to 70 percent of the industry revenue, said the executive whose group’s brands include Tempo.
He expects the Asia Pacific region to contribute 60 percent of growth for the hygiene products industry overall. Within the region, China is seen contributing about 80 percent.
As for his group, it aims to become “the Number One or Number Two player” in all its product categories in China, Söderström said, admitting that it “will take some years” to achieve that.
Major players in the Chinese tissue market include Hengan International Group Co. Ltd. (01044.HK), Vinda, C&S Paper Co. Ltd. (002511.CH) and Gold Hongye Paper Co. Ltd., which is a unit of the Indonesia-based Asia Pulp & Paper Co. Ltd.
SCA, which had been the second largest shareholder of Vinda, had in September offered to acquire all the remaining shares in the Chinese firm that it does not own, for HK$8.65 billion (US$1.12 billion) or HK$11 a share. The offer price represented a premium of about 38.36 percent over Vinda’s HK$7.95 share closing price on Aug. 30.
The acquisition of a controlling stake in Vinda will help SCA improve its market presence in China, the executive said. “We will look into different collaborations with Vinda where we can create win-win partnership,” he said.
The Swedish group is likely to collaborate with Vinda, China’s third largest tissue producer, on distribution networks, logistics for online business, and raw materials procurement once the acquisition deal is completed in November, Söderström said.
SCA, which had global sales of about 85.41 billion Swedish krona (US$13.14 billion) last year, is optimistic on the tissue market in the mainland given the huge room for growth. China consumes 3.5 kilograms of tissue per capita each year while Europe takes in 13 kilograms and the United States about six times of that in China.
“Our portfolio in the Asia Pacific region will be more balanced after getting a major shareholding in Vinda,” Söderström said, adding that he would be able to offer more details of the group’s plans after the acquisition is completed.
Incontinence products and baby products account for 90 percent of SCA’s sales in the Asia Pacific region while feminine and tissue products take up the rest.
Listed in Stockholm, the company posted a net profit of 4.5 billion krona for the first nine months of this year, up 6 percent over the same period last year, it said in a statement in mid-October. Revenue climbed 7 percent to 66.58 billion krona while operating profit jumped 11 percent to 6.89 billion krona.
In the incontinence products segment, the Chinese market is still very small although it is growing at a fast pace, Söderström said, adding that it will take some time before consolidation starts in that category.
Baby & elderly products
Tissues accounted for 52 percent of the company’s business while other personal care offerings including incontinence products and baby products make up 30 percent of its global sales as of end-September. According to a company statement, operating profit for tissues surged 25 percent in the nine months to September while that from personal care increased 5 percent.
Besides tissue products, the company sees great opportunity in incontinence care and baby products in China due to the nation’s aging population and possible relaxation of the one-child policy.
“We have both superior and affordable incontinence products that can support the Chinese aging population. We are confident about taking a big portion of the market as we have already taken up one-fourth of the world market share,” Söderström said.
The Asian giant will have more than 300 million senior citizens in 2025 and the number will reach 400 million by 2034, posing a challenge for the Chinese government on the aging issue, mainland media cited Civil Affairs Minister Li Liguo as saying earlier this month.
Söderström, meanwhile, believes a relaxation of the one-child policy, if it comes about, will fire up the prospects of baby diaper players.
“The market is expected to grow dramatically from now on… we will make sure that we have enough capacity to meet the rising demand,” he said. “We have a lot of strategies to reach out to consumers, one of them will be increasing online sale channels for shoppers, such as integrating O2O [online to offline and offline to online] platforms,” he said.
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