Essity AB (publ)

Okay, good morning and welcome to this webcast of S&P's quarter one financials. And during this meeting, I will also give more information on the manufacturing roadmap and I will be joined by my colleague Pablo Fuentes to give more information on the strategic acquisition of Familia in Latin America. So with that, I think to start to say that We have spent this quarter positioning S&P for profitable growth. It's been a quarter where we had maybe a quarter ago expected a quicker opening up of markets and improving market conditions. And instead, we saw, especially in Europe, tougher restrictions and tougher lockdowns that continued for longer than we had anticipated. Even so, we also see where things have started opening up, not least in China, where we see business volumes that are not only much higher than last year, but also even higher than in 2019. So business returning very much to normal. And we've also noted now at the beginning of the second quarter an improving market condition, especially in the United States. And we expect that with the now accelerating vaccine programs, In most of our important markets, we will see a gradual improvement also, step by step, in Europe. But we have not spent this time waiting for market conditions to improve. We've been very busy increasing our ownership in familia, concluding or signing an agreement to acquire AzaleoCare. We have been growing market shares in more categories and markets than ever before, so making sure that we are prepared for the gradual improvement in market conditions. E-commerce continues to become a bigger part of our business also in the first quarter. And as we get back to manufacturing roadmap, puts us on a path to continue to generate efficiency improvements, but also a better service level and higher quality products for the future. So starting then with the increased ownership in Familia. So Familia is a partner with AdCity since 1985. It's a highly innovative and very consumer oriented company. And actually we have learned a lot from this joint venture over the years. But now is the time to take full ownership. And we believe that during this, we can become the fastest growing hygiene and health company in Latin America going forward. And as you can see here on the map, it's a very, very complimentary acquisition from a geographic perspective. The transaction before the transaction, S&T owns 50%, but actually consolidate both sales and earnings fully to 100%. So the impact on our financials is on earnings per share, which will be accretive already this year. However, the bigger benefit comes from the synergies by combining the joint venture business with our existing Latin American business. And we see that this will give good opportunities going forward that Pablo will talk more about. You can see some of the numbers here. And worth noting is that Familia has a very, very attractive EBITDA margin, partly because of their mix, but also because of their very strong portfolio. and also a good growth even last year when many of Familia's markets were very severely restricted by lockdowns. So with that, I would like to hand over to the president of Business Unit Latin America, Pablo Fuentes, to describe the transaction.

Over to you, Pablo. Thank you, Magnus. As you can see on this slide, Familia represents 6% of ACT global sales, and Colombia and Ecuador are the two most important markets with 71% of the sales, but Familia also has presence in many other countries in South America. From a category perspective, as we were saying, more than 60% of the sales are in what we call personal care, which is feminine care, incontinence products, and baby care. And Familia also has sales 31% in consumer tissue and 7% in professional hygiene. When it comes to market positions, Familia has very strong market positions in the markets where it's present. In feminine care in Colombia, market share is 68%. In consumer tissue, market share is 48% with the Familia brand. And in incontinence products with a TENA brand in Colombia, market share is close to 90%. So really very strong market positions where Familia is present. Familia has a quite broad range of products in the different categories. In the case of feminine care, with the brand Nosotras, it has a portfolio focused on menstruation towels, but also on daily intimate care products with liners, washes, washable absorbent, underwear, and wipes. In consumer tissue, it also covers very different segments, including very successful premium assortment. In the case of baby care, it has open diapers and pants, covering different assortments, including successfully the premium positioning. In the case of incontinence products, it follows the successful global leading TENA brand positioning. And in the case of professional hygiene, it is a combination of torque, global products, but also very successful local products and adjacencies, including skin care. Through the ownership in familiates process, SET will have access and will serve more than 600 million people in Latin America in markets where consumption per capita is still low, and we expect as middle class grows and consumption and income per capita increases, these markets will continue to grow. It's mainly a branded region, and the go-to market is split evenly between modern trade and traditional trade. In Latin America, We have been very successful in traditional trade, where we have very strong distribution in the millions of mom and pop stores with our very strong brands. We also see a changing retail landscape with emergence of e-commerce, and we are very proactively leading into e-commerce with our digital transformation programs. As we are building a more integrated region in Latin America, our aspiration is to be the fastest growing hygiene and health company. We will do this with a faster execution across Latin America, now with the ownership of Familia, leveraging innovation capabilities, strong brand equity and entrepreneurship, accelerating on the digital transformation and increasing constantly our e-commerce sales, optimizing efficiency across the value chain, and very importantly, geographical expansion and cross-selling synergy opportunities with our medical solution business. Back to you, Magnus.

Thanks. To give you a compliment, Pablo, already the business that you are running through Familia, but also the fully owned business in Mexico and Brazil and other major geographies is developing extremely well with leading market positions and a very strong development. So thank you for that. And we're really excited about the next steps in Latin America going forward. With that, we move over to the financials. And as I mentioned at the beginning of the presentation, this quarter has been very much impacted by lockdowns and restrictions, especially in Europe. While I always want to also emphasize that we see how quickly the markets can recover when they open up again, Vinda, that also announced the results today, is a good example of that. And we also see gradually improving market conditions, for instance, in professional hygiene in North America in the beginning of April. But for the first quarter, organic net sales were down close to 10%, and approximately half of That decline is due to the tough market conditions in the first quarter, and approximately half comes from very tough comps with the first quarter last year. As you remember, this was a very high sales quarter for us due to stockpiling, panic buying in anticipation of the pandemic rolling out across the world. Adjusted EBITDA margin, very much following then lower production volumes. It was down 270 basis points to 13.1%. and adjusted return on capital employed was down to 13.5%, so very much impacted there by the margin decline. Again, we see some bright spots in all of this. Emerging markets continue to grow, and we see that the vaccination programs are now rolling out at an accelerating pace in most of our main markets, and that this should lead to gradual reopening of markets here in the next quarters. The adjusted EBITDA margin when it comes to gross profit margin was primarily impacted by lower production volumes, of course impacting fixed cost absorption, but also higher distribution costs. AMP was higher, both as a percentage of sales, but also actually in actual terms. We continue to accelerate through the curve here. We want to position ourselves for the reopenings. We continue to invest behind strong innovation, and I have some really good examples on the next couple of slides here coming up. And SG&A was lower. Of course, we are, as always, being very prudent about our costs and trying to save costs wherever. So this was lower in total, but higher as a percentage of sales as sales came down. Talking about innovation, it's a very strong quarter. And to highlight one thing here, to the left on this slide, we now have three categories where we have launched reusable products. So the first example is the Torque microfiber cleaning cloth, so a reusable product. We're also launching the washable, reusable absorbent underwear that we mentioned in the last quarter, not only in Femcare, but also in incontinence care. And we're also launching menstrual cups under the Libres brand in the Nordics. And we will see more of these examples going forward, part of our sustainability journey and very much in line with also consumer expectations and consumer needs. To give some more detail about our e-commerce growth that continue to grow year over year, it's for the first quarter accounted for 13% of group sales, which is up 14% compared to the same quarter last year. And as you can see here, it's a mix of the pure players. That's very much represented by Vinda and China and then the multi-channel players, that continue to dominate the online channels in Europe and then Latin America growing quickly from a low base. And this comparison actually has a negative impact from professional hygiene having a negative sales development in the first quarter since we have a high share of sales online in professional hygiene. So as professional hygiene comes back, this will grow even faster. I spoke about the market shares. It's so important during these volatile market conditions. Whatever happens with lockdowns, restrictions, uncertainties, are we winning the relative game against our competitors? And yes, we are. We continue to hold a very high number of number one and number two positions. And we are strengthening our market shares in more countries and in more categories and with more brands than ever before. This continues to be a key focus for us during this time. And now something about the manufacturing roadmap. And we discussed at the end of the third quarter that we would give more information about the manufacturing roadmap today. And this is a follow-up on some of the very ambitious programs we have been running over the last five, six years, not least tissue roadmap and the cure or kill program and the manufacturing roadmap is a very holistic approach to how we work with our 60 fully owned production facilities in throughout the world and it's organized in four different areas where, of course, efficiency is incredibly important, cost efficiency, but just as much as sustainability and the impact from digitalization. So just a few examples, and I've spoken about this many, many times. Optimization of footprint and production efficiency is both about having the right sized plants in the right place but also having the right assets in the plants and utilizing them to the highest possible extent. And we've done a lot of work and improvements in consumer tissue over the years and to some extent also in professional hygiene. And now we are taking this thinking also to our personal care business. taking a renewed look at our tissue businesses. Digitalization facilitates efficiency improvements. I've spoken about prescriptive maintenance based on sensor technology. We've spoken about process control based on sensor technology that not only increases efficiency, but also product quality and service level. Sustainability and breakthrough technology, it's becoming more and more clear that we need to transform how we make tissue and And the footprint that we leave, of course, by doing this. And we are involved in a number of projects in order to reduce our dependency on fresh wood pulp. And one of them, you know, it's the Columbus project that we're starting up this summer in Mannheim. It's about reducing fiber content, using alternative fibers. to an increasing extent using enzymes, replacing the highest cost fibers. And we have many initiatives going on there. And then integrated supply chains. And we are reorganizing, putting the entire supply chain from when the raw material comes into the plant until the finished product reaches the customer into one organization in order to make sure that we optimize the entire flow here from a demand and supply planning and efficiency standpoint. which will have benefits on working capital. So what will all of this bring? It will bring benefits in a number of areas. Over the last years, we have provided an estimate or an ambition level when it comes to cost savings and cost of goods sold on an annual basis. based on what we have in the pipeline. But after having done this exercise, we can now report that we can sustain this high level of annual savings for the next four or five years until 2025. So a savings rate of between 500 and 1 billion per year. We will also be able to optimize our capital expenditure by using the assets we have more efficiently. And maybe some of that capex can be saved or be invested instead in sustainability initiatives. We have set the target to reduce working capital with 1 billion by being more efficient across the entire value chain. And we have projects in place or looking at opportunities to reduce our pulp price volatility exposure by over 10% through different projects during the next five years. And all of this will also lead us to be able to achieve our ambitious science-based targets in a shorter time period. And just as an example, I will show a very short movie about what we're doing in manufacturing.