Essity AB (publ)

Good morning everyone and welcome to ESSID's year-end report 2021. My name is Magnus Groth, I'm the CEO of ESSID and I'm joined today by our CFO Fredrik Rystedt. So I would like to start by talking about the full year 2021 that we have behind us. Fredrik will focus on Q4 and talk a little bit about our expectations for 2022. So to summarize some key achievements during 2021, we have taken great strides on our transformation journey, including six acquisitions focusing on personal care and on health and medical. We have had a good price mix improvement throughout the year, not sufficient to cover cost increases, But we are today announcing further cost increases and we will also see price increases coming from agreements achieved during the fourth quarter now into the first and second quarter of 2022. We continue to see a high innovation pace. E-commerce is now 14% of sales. It's important because this is the fastest growing channel. And as we are overrepresented in these channels, this helps our market share development. And we continue to be leading in sustainability with a new target set in 2021 to achieve net zero emissions by 2050. And of course, the digital transformation continues in all areas. Financials for the full year and just a reminder that our first quarter had negative growth of 10%. Our final quarter that Fredrik will talk about in a few minutes had a positive growth of around 10%, so it's been, of course, a hugely challenging year with a lot of changes due to the pandemic and how that has progressed and the associated restrictions and lockdowns. But overall, very strong organic growth, 3.5% organic, 4.5% including acquisitions, adjusted EBITDA margin down 330 basis points following increases in raw materials energy distribution. And we'll talk more about that, to some extent compensated by price increases. And this is something that we will continue to pursue going forward. Operating cash flow at 11 billion and return on capital deployed 12%. The board proposes to the annual shareholders meeting an increased dividend of 4% to 7 kronors per share. So a gradual improvement, which also underlines the confidence that we have in the development of the business going forward. Adjusted EBITDA margin for the full year, just to have a quick look at the bridge. As mentioned, margin declined by 330 basis points, of which raw materials, energy and distribution had a negative impact of 480 basis points. But thanks to good volume development, price and mix development, in more or less all our geographies and all our categories, we were able to offset parts of that resulting in the numbers that you see here. We have been growing margins in emerging markets very successfully over a long time period, closing the gap to the margins in mature markets. And as you can see here, share of adjusted EBITDA has increased over the last six years from 22% of overall group EBITDA to 36%. Of course, you wonder why haven't share of net sales increased in the same way since we continuously see much higher organic growth in, for instance, China, Latin America and Eastern Europe. Well, the reason is the acquisitions that we have done, BSN, WASO and lately also ASALIO that are mostly then in mature markets, which are kind of counterbalancing the rapid organic growth that we have in growth markets. but still a very positive development in emerging markets. And actually looking at external conditions such as raw materials, energy distributions, it seems as if the challenges are also significant, of course, in emerging markets, but actually slightly easier to manage than in mature markets, which in our case, of course, is Europe and North America. The value creating acquisitions and underlining value creating all of these acquisitions are contributing not only turnings per share, but also to margin and to growth in a very positive way. And as mentioned, this is a mix of personal care, health and medical acquisitions. So exactly where we want to position ourselves for the future. And speaking specifically of Hydrofera, which was the latest acquisition that we did towards the end of the year, so I think it got a little bit lost when a lot of investors and analysts and others were maybe having some well-deserved time off. We closed this important acquisition in advanced wound care, so completely in line with our strategy. And I just want to draw your attention to some of the financials here that are regarding the first nine months of the year. And you can see a significant growth of over 20% and an EBITDA margin of over 27%. So it's exactly the type of growth. business that we want to be in so very happy about this and also that specifically hydrofera has a strong position in the us market where we are working to to strengthen our positions in in general and specifically in health and medical so very happy about that and A very rich year when it comes to innovations, and we actually launched more and bigger innovations than we've ever done before. And this has helped us with price mix, the brand development, of course, and strengthening our market positions. And just to give some examples from the fourth quarter here, it's about wiping and cleaning that we've been talking about over the last couple of years, about sustainability and premiumization. So very much in line with our long-term strategy. And some other examples here from our health and medical assortment and also incontinence development in emerging markets. So a very strong innovation pipeline in 2021 that we expect to continue into 2022. And this is very much the result. We are positioned as the number one, number two brand in over 90% of our branded sales. And we have increased market shares in around 70% of our branded retail sales. And as you see, we continuously add strong value enhancing brands like Tom Organic, for instance, which we acquired together with Asalio and now recently the ones I just mentioned. E-commerce, it's important that we grow this channel faster than our competitors and faster than the market, because then we will have a leverage from the growth there. And organic sales growth in e-commerce was 16%, and as you can see, it's a good mix of pure players and multi-channel players. And over the next number of years, I expect that our own channels will also be a growing part. Quick changes between the different players here in e-commerce. TikTok is now the fastest growing channel in China, for instance. And we are a leading actor also in this channel. So we're continuing to stay ahead in this very important area. sustainability where we are working hard to stay in the lead and to achieve our ambitious targets and we made great strides during the year and when it comes to our science-based targets we were able to reduce emissions in scope one and two with two and a half percent so that we are now at 15 percent and on our glide path to 2030 to achieve 35 percent So positive development, and we have announced a number of efforts and investments that are really contributing to these targets here. With that, I would like to hand over to our CFO, Fredrik Rydstedt.

Welcome. Thank you, Magnus. And as you can see here, we continue the strong growth path that we've had in previous quarters, and we grew organically with 8%, and if you add the acquisitions that we've made with a bit over 10%. So if we look at our sales, the market share gains that we've had, e-commerce growth, good performance from all the launches that we have made during the year, All of that contributed to good volume and mix development. And of course, also the executed price increases that we have done now throughout the last couple of quarters have had a very good impact. Our growth was strong in both emerging and mature markets, and the acquisitions that we have made performed well. So Familia and Asalio both performed really well during this quarter and also last. Now, of course, obviously, as Magnus has already alluded to, a major theme in the quarter was the continuously growing negative headwinds from cost inflation and, of course, from material distribution and energy. The negative total impact was, as you can see here, 10.4%, which, in consideration of the fact that last year we had a margin of a bit over 14%, is obviously quite monumental. So we have compensated a big part of this through volume, price and mix and continued really good cost savings. But of course, also in Q4, margins and cash flow were considerably reduced. If we look at the bridge, a consequence of this cost inflation was that the gross margin fell with 750 basis points. And we did save in cost of goods sold, but we also managed to maintain a rigid cost control in terms of all other costs. So here you can see AMP and SG&A all contributing to margin. So, of course, part of the reason why, as percentage of sales, this is contributing to margin is the very strong sales growth. But in fact, both AMP and SG&A in the quarter were actually down also in absolute terms. Now, this bridge is showing the comparison to Q4 of last year. But if we look at it sequentially between Q3 and Q4 of 2021, we also there had very, very considerable increases. So combined raw material distribution and energy all amounted to an additional cost of 1.5 billion between the two quarters. And we expect, as we go forward now into Q1, that we will have additional sequential significant cost increases, not least related to energy, but also predominantly in plastic products and in personal care. So more to come in terms of cost inflation. Now, as history shows, and we have said that many times, we have always compensated cost inflation with price increases, and we are fully convinced that we will do that this time as well. Now, we have already negotiated further price increases for the first quarter of 2022, and the majority of those will have an impact towards the latter part of the quarter. And of course, it's our absolute conviction that we will continue or ambition to continue to raise prices until margins are fully restored also after Q1 and throughout this year. So turning a bit to personal care, we had a good growth of 6.5% and strong growth actually in all categories with the exception of baby. And the reason why baby didn't grow was, we could say, unusual market conditions in Asia. And this was the reason. So it was more related particularly to this quarter. But emerging markets in total was nevertheless very strong, as you can see, with 11.2%, and specifically also in Latin America, and not least Familia, as I've already mentioned. Our feminine business continues to do really well, not least in terms of volume, but also in terms of price mix, and Incontinence keeps on doing well in practically all markets. We're also quite happy to say, and we have... spoken about this many quarters before that the medical part of our business has now grown for several consecutive quarters and in q4 if we compare to last year the growth was strong in all of the three therapy areas so somewhere between five to seven percent for for all of them And if we talk about volume, you can see the volume grew totally with 2.6% and price mix with nearly 4%. And the majority there was related to price, but we continue to do well in terms of mix as well. Now, if you look at all the three business areas we have, personal care is the area where we have the least content of raw material and distribution and energy. And despite that fact, you can see that the impact, the negative cost impact was quite significant. We compensated a very large part of that. So the margin was down by only 210 basis points, if you look at it that way. We compensated with volume price mix and in this area also cost savings. But as I said, for the group as a whole, we will continue to do price increases here. And we'll see some of it already in Q1 towards the latter part. Now, coming to consumer tissue... Also here, we had a good organic growth, so 5.5%, and the majority of that growth came from price and mix. As you can see, volume half a percent up in comparison to last year. We had a good growth in Asia, we had a good growth in Latin America, and we had a strong growth also in the branded part of the European business, whilst the private label part actually contracted. So we're happy here to see that also here, the premiumization, the new launches that we have done contributed to both volume and mix, and we have executed quite significant price increases in this area. Now, if you compare, once again, if personal care is the one with the least impact from raw material and distribution and energy, the opposite holds true for consumer tissue. So a very big part of the margin we had last year has been eroded by by this cost inflation to the magnitude of 13.2%. So we compensated a lot, good cost savings, volume price mix, as I have mentioned. But of course, here as well, obviously, we are continuing with our price increases. And also here we'll see some in Q1 towards the latter part. And we will continue until margins are fully restored. So the last business area, professional hygiene, a really, really strong growth here with a bit over 16%. So really recovering from that sense. And this is as well a result of good volumes in most markets or all markets, good mix everywhere and also executed price increases. As you can see, volume growth was really strong at 11%. So, of course, it's recovering at a very fast pace. And we have also increased prices on pretty much all markets when it relates to professional hygiene. As with the other business areas, cost inflation was very significant. And also here, we'll see sequentially higher cost as we will for all three business areas. In this case, in particular, relating to energy, but for most. And we will continue to do price increases here as well. I'm sounding a bit like a broken record here, but it's very much the same story for professional hygiene. So with those words, Magnus.

Thank you, Fredrik. So I would like to summarize and put things a little bit in perspective. These were the three everyday priorities that we set up two years ago now, almost exactly when the pandemic first became evident. And they have served us extremely well, and I'm very proud of the achievements that all our staff has achieved over these two years. So our priorities were to care for our people, make sure that they feel safe, both in their working environment and on the way to and from their jobs and also at home. and staying healthy and engaged to continue to run our business, to contribute to society, which has been incredibly important in these difficult times for everyone. And, of course, to secure business success, which is very much a result of the two first ones. And these priorities remain, it seems, who knows, but a little bit more hopeful than what we've seen over the last two years when it comes to the progress of the pandemic maybe turning into an endemic event during the year. And of course, even though the pandemic put a lot of focus on health and hygiene, which is good for Essity, that's the business we're in, it's had a very negative impact on, as you know, on our business from lockdowns and restrictions, which has hampered sales and supply chains, which has also created the situation with the raw materials that you see now We've continued to have very good service levels to our customers. All our plants have been running continuously through these years. So I'm very proud about that. Of course, we continue with these priorities, but look forward to gradually improving business conditions throughout 2022. during 2022 and also for the longer term we stick to our strategic priorities and you recognize these from our capital markets day and from from many other presentations it's so important with with our people and our culture efficiency in everything we do but also continuing with a transformation journey, innovation to build our leading brands, digitalization, sustainability and the growth in emerging markets. So this focus remains unchanged, but of course, in the short term, very, very much a focus also then on margin enhancements through price increases. With that, we finish our presentation. It's time for questions. So please, operator, if you could open up the line and start the Q&A session.