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.

Thank you. And if you do wish to ask a question, please press one on your telephone keypad now. Our first question comes from the line of Victoria Nice from Society General. Please go ahead. Hello there.

Good morning, everyone. My first question is on the tax rate, which seems very low in the fourth quarter, around 13%. Can you give us some color on what's driving that and what the tax outlook for 2022 is? And then also related to raw material inflation, with inflation expected to increase sequentially in Q1 and prices where they are, Could we expect the first quarter to be the peak? And can you give us some sense of the sequential input cost inflation, please?

Yeah, hi, Victoria. And I'll just mention a couple of things about the tax rate. Now, obviously, tax is always a full year number, so it will vary a bit in between the quarters. But if you specifically take Q4, there were a couple of, you can say, one-offs there related to actually tax cases that we prevailed in. And that's had a bit of a positive impact on the quarter. And there was also a kind of a final calculation for the year. So that was the reason for the low tax rate in the quarter. Looking forward, our structural rate is roughly about 25%, so perhaps somewhat below that. It varies a bit, of course, because of country mix, and we are slightly lower now in structural than 25, but it's approximately there, and that would also be the best guess for 2022.

So maybe I could give an outlook then for the first quarter when it comes to raw materials and energy and we expect to see in the first quarter compared to the first quarter of last year significantly higher raw material costs as well as significantly higher energy costs and sequentially we see a stabilization of raw material costs with some increases, maybe in recycled fiber, but to a minor extent, while from an energy perspective, we also expect significantly higher costs in Q1 compared to Q4 sequentially. And transportation costs remains on a high level, as we've seen throughout the last couple of quarters.

And plastic-related products also up a bit.

Also up. Sorry, I forgot that. Thanks for including that. And you asked about the peak Victoria. So to put it this way, if we assume that these costs would stay on the level that we expect to see throughout the first quarter, according to what I just mentioned, I am convinced that the price increases that we have already implemented and the rounds that we are now planning for, will lead to a gradual recovery in margins from the second quarter and going forward. This is what we see currently.

Thank you. And the next question comes from the line of Fulvio Cazor from Bernberg.

Good morning, and thank you for taking my question. So I have a couple. The first one is in Q4, you have reduced marketing costs as a percent of sales in every division. Just wondering what your expectation is on the impact from this on volumes and mix in 2022. Are you a little bit nervous that maybe the volume and the mix impact might suffer as a result of these cuts? And then my second question is on personal care. It seems that on a two-year basis in Q4, there was a sequential acceleration over Q3 for almost every product segment with the exception of medical solutions. So could you provide a bit of color as to why we didn't see this acceleration in growth quarter on quarter versus 2019 for medical solutions, please? Thank you.

So if I start with the first question, Fredrik, and you think about the second question. So SG&A, I think this was very prudent behavior and responsible behavior from our organization, of course, to manage margins in a tough quarter in combination with actually a lower need for for these investments which can have a seasonal impact and also be related to to price increases and so on we will continue to invest between our innovations both through sgna and and through advertising and promotion going forward and also in 2022 so we have an ambitious program for product innovation launches that we will support. So I expect those costs to be restored to levels similar to what we've seen historically. Fredrik.

Yeah, I think your question was on medical and the growth. So if we just compare Q4 of 2021 to perhaps Q4 of 2019, the growth was roughly about 5%. So we had a good growth in medical. And contrary to some of the others, you've seen that medical for the last, I think, six consecutive quarters or where in that ballpark has had a very continuously strong growth. So the pace or the momentum when it comes to all three therapy areas is actually quite strong for medical.

Okay, great. Thank you.

The next question comes from the line of Celine Panuti from J.P. Morgan. Please go ahead.

Thank you. Good morning, everyone. My first question is on consumer tissue. The volumes were flat or thereabout in the fourth quarter, despite very tough comparative both in Q4 of 21 and in 22. So could you explain why it was so resilient? Was there a bit of buying ahead of price increases? I mean, it's not something you can stop, but I just would be interested to understand the dynamics there. And then my second question, you said that you are going to raise price. First of all, the first wave of price is now fully implemented, been fully agreed with your customers. And can you talk about the pricing momentum that you see now in the market, especially I would think in Europe, And what kind of pricing are you trying to implement? Is it another mid-single legit or higher than that? Thank you.

If I try to start with the second question, Fredrik, and you continue with consuming tissue. So actually last year we had two rounds. The first one that was very challenging was in the first half of the year when we renegotiated a number of of actually annual contracts with meeting great resistance. And this was based on the press release, I'm sure you remember, that we launched in April, where we saw higher input costs coming. Of course, not to the extent that we've seen since, and maybe we didn't see it in energy, but still. And then we started a second... And this, as you could see from the price mix in the third and fourth quarter, had a positive impact, but not sufficient. Then we continued negotiations in the second half of the year, and this was very much focused on price increases starting from this year. We still have some positive impact, as you can see in the fourth quarter, and quite good positive price mix improvement in all areas. But we also have agreed on price increases that we will see coming through gradually in the first quarter. So some of it 1st of January, but quite a lot also 1st of February and 1st of March. So that's important to take into account. So some of the price increases already negotiated will not really be visible until the second quarter of this year. But that's achieved. Then in certain markets where we are more flexible, like in emerging markets, we have actually negotiated even further rounds of price increases. And what we're doing now is making it clear for our customers and consumers that we have a need to compensate for the increasing input costs. And the aim, as always, is to compensate fully for the costs that we see in our books today. I mean, that's what we can argue about in addition, of course, to the pricing and mix benefits that we see from innovation and so on in the longer term. But in the short term, this is what we will be talking about with our customers and consumers now in the first quarter. And momentum, yes, momentum has absolutely improved since our first round in the first half of last year. And I think there is a strong understanding, especially in the tissue categories. And now with the additional pressure from energy, that's of course something we have never seen. I think you mentioned the word monumental, Fredrik. I noticed. And that this creates very strong momentum for price increases, while in personal care, it varies a bit, I would say, and there's slower progress, but still better momentum than last year.

Maybe on your first question, I'm not fully sure that I'm answering the right thing now, Celine, so you've got to help me if I'm wrong. But just to give you a bit of maybe numbers here, if you compare Q4 of 2021 versus Q4 of 2019, we're up in consumer tissue with roughly about 11%. Yeah, a bit over 11%. And if you decompose that a bit, as we have discussed during this call, there is a fairly big part of that that relates to then price. And we have continued to do really well in terms of mix in both 20 and 21. So the volume growth there is roughly half or in that ballpark, a bit lower than that. And if you compare kind of the growth that we've seen historically coming from predominantly Asia and Latin America and coupled with some remaining, you can say, COVID impact, I think the growth is pretty much as one could expect. I'm not sure if I'm answering your question now, but this is a bit of perspective, perhaps.

Yeah, maybe if I go on this one again. In Q3, your volume were down 3% on a very tough comparative. And in Q4, you were flat on a 9% volume comparative. So that's where I'm a bit surprised because I think there was some extra consumers demand at the end of Q4 last year. So just was wondering why you've not seen a negative volume as you had seen in Q3.

Yeah, I can understand it's not always easy to follow. And this, of course, has to do with the different cycles that we see in different countries. So if you compare Asia or you compare Latin America, I think what you're referring to is that there was a bit of pre-buying in a couple of countries. Germany was an example last year in Q4. And we did not, of course, see it this time. As I mentioned before, we saw a bit of contraction in the private label part, as an example, in Europe. So, of course, on the aggregate, it becomes a bit more, as I described before, but in certain markets, you have the impact that you're talking about there.

And then there are, I think, reasons that are just difficult to explain. I think Q3 of last year was quite soft in Europe in consumer tissue in general. And we don't have a good explanation to that. And there was a little bit of a recovery in the fourth quarter, while in China we actually saw a similar development. So that's where we saw, I think, the biggest growth from Q3 to Q4 last year.

Thank you. Can I just ask a clarification, Magnus, on what you said? So in Europe, have you started the second round of a negotiation? Or are we just going to see the impact of the negotiation you did last year?

We're mostly going to see the impact of the negotiations from last year now in some, as I said, but gradually in the first quarter and then mostly in the second quarter. And in the meantime, we've already started discussions again with both retailers but also business-to-business customers in all our categories for price increases throughout this year, maybe to some extent implementable already in the second quarter and then in the second half of this year.

All right, thank you so much. And the next question comes from the line of Charles Eden from UBS. Please go ahead.

Hi, good morning. If I could just push you a little bit on the pricing again, apologies for the further focus on pricing, but when you talk about intending to recover margin, can you just maybe help us how much of the pricing you've already agreed with customers would be able to contribute and how much do you need further pricing based on negotiations which have not yet commenced and if you could kind of give us a or at least some commentary around that, that would be helpful. My second question is on professional hygiene. And maybe you could just give us some commentary on the volume development throughout the quarter. Did you see any material slowdown in the recovery in December as we saw the increased mobility restrictions, I guess, particularly in Europe? I'm just trying to think about how that might impact sort of, I guess, January and potentially February trends in that. Thank you.

Okay, I'll start with the second question again here. Professional hygiene recovery. Yes, we did see a slowdown actually in December, more or less, when we had the lockdowns announced and restrictions in several markets. So there's a very clear correlation. But as soon as lockdowns and restrictions are removed, it increases again. And actually... As we've shown now in the fourth quarter, we were more or less back to 2019 numbers. We're still missing a percent or something like that when it comes to sales in professional hygiene. And that means that in many markets, we're actually above 2019 numbers, while some where there still are significant restrictions, like in China, for instance, professional hygiene is still quite slow. And there was also a slowdown in some European markets. We expect this to be temporary and that this will recover quickly as markets open up again. Then when it comes to pricing and the how much question, which is, of course, difficult to answer, I think the starting point, as we said many times, and it's fine to ask about pricing, that's what we talk about. every day when it comes to operational issues here in the company to really work on the momentum that we see now. What we are starting to see is a move in shelf prices in many markets. and also price increases from our distributors in the B2B category. So this is happening as we speak. So that's positive. How much more? I don't think we provide that number. That was a quick answer from Fredrik. I think I said something a year ago, and of course, at that point, the world looked quite different. But of course, getting back both to yours and Celine's question, with what we've seen now in the fourth quarter, we need substantial price increases going forward, clearly.

Super, thank you. Maybe I can just squeeze a quick follow-up in. Given the kind of pull from China has been more sharp than we've seen in Europe. Would you expect China, specifically I guess Vinda, to also contribute materially from a pricing perspective or is it really the balance of your business that you're focusing on that price increases?

We have been increasing prices across the board in consumer tissue and this goes for Vinda as well.

Great, thank you. And the next question comes from the line of Linus Larsson from SED. Please go ahead.

Yes, good morning. Thank you very much. First of all, may I just double check what you said on energy costs? Are you saying that the first quarter group energy costs compared to the fourth quarter will be significantly higher? Just to double check.

I'm sure that you've seen, Linus, all the discussions about the natural gas prices in Europe and also, of course, electricity prices skyrocketing everywhere. We're fortunate to have a significant hedging program in place. And I think we spoke about this the last quarter, which is really helping. But in spite of that, this has a significant impact and actually Linus, when looking at some of the breakdowns that you and your colleagues have provided, I think this explains quite a lot, a big part of the difference in adjusted EBITDA that we've seen between consensus and what we actually reported. There's a significant difference in the view on energy, and that's no surprise, of course, because This happened very much towards the end of the fourth quarter, and also raw materials. So it's a mix of those two components.

Great. Thank you for that clarification. And then on raw material costs and specifically in personal care, on a year-on-year basis, We saw some 500 million raw material cost increase in the third quarter and then more than 850 million raw material cost inflation year on year in the fourth quarter in personal care. Is this still an accelerating trend in the first quarter?

Yes, Linus, as we mentioned before, we are seeing that particularly in personal care. So if you compare sequentially, we expect raw material to be largely, you can say, stable when it comes to care. professional hygiene and consumer tissue, but personal care will continue to increase. And that's mainly on the back of increased costs for super absorbent and plastic products. So we'll see that a lot higher in Q1. So it is still accelerating.

Thanks. And with those price hikes or cost increases, I should say, in super absorbents and plastic products, for how long are you set? Or could you just maybe say something about the contract structure and how to think for the remainder of the year? Could there be potentially additional cost increases? And if so, when given your contracts in place?

I can try and shed some light, Linus, but we try not to give estimates longer than a quarter in advance. The reason is simply that it's quite difficult to actually estimate. We don't know. to be to be fair and when it comes to to q2 there is a bit of longer lag as as you will recall in some instances up to six months when it comes to plastic products so in that case we actually do know that we'll see and this is why we know so much that we will see sequentially a higher cost here in in in the first quarter and potentially also in in the second quarter there but but of course we don't know our expectation our best guess at this time is of course that after q1 most raw material prices will will start to flatten out that's our estimate but it is of course incredibly difficult in this market to have a a firm view of dinos great now that's very helpful and then just one final question from my side as a

I read the report quite quickly, but if there was anything about the private label separation into its own division, I missed it. Could you just give a quick update as to where you stand with the private label?

Yeah, it's progressing well and we have a separate organization. We have worked through the financials and we are in discussions with the unions about how to do this and looking into now also the different legal structures that could be applicable. So good progress, still some work to do. And of course, from Q1 this year, we will provide some financials about how we're doing in this division.

Great.

And the next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead.

Hi, yes, a couple of questions from me. First on the theme of margin recovery, you mentioned earlier here that margin recovery would be starting in Q2. So I have a couple of follow-up questions on that. First of all, just to understand that correctly, is that Q2 will be the trough in margins or the first quarter of sequentially increasing margins? And will that margin recovery, you think, will be driven by lower costs, or is it higher prices that are behind that forecast?

So what I referred to in general terms, because of course we typically don't give forecasts and it's very unpredictable, but still to instill some confidence in our development going forward and give some insight into the price increases that have already been achieved, we expect a sequential improvement in in margins Q2 compared to Q1, and then quarter over quarter sequentially. And this is based on, as Fredrik mentioned, unchanged input costs and so raw materials, energy and transportation. So it's purely based on our planned and achieved price increases, savings and other initiatives.

All right, thank you. Second follow-up question here is, I mean, you mentioned price increases, and that wasn't quite clear to me if it was the latter part of Q1 that we would start to see these or price increases in the latter part of 2022.

The latter part of Q1, Oskar. So we have negotiated price increases in practically all our areas, also for Q1, but they will take effect, the majority of it, in the latter part of Q1. And, of course, we'll see the full impact of the already negotiated price increases in Q2, and we will continue thereafter to increase prices until margins are restored. Throughout 2022, of course.

Thank you. A second question here is on, I mean, you've obviously faced quite significant energy and raw material costs, headwinds in the quarter in your tissue operations. Have you seen any impact on capacity or output levels in the overall consumer tissue industry or the tissue industry in Europe due to this? Are any competitors folding or reducing production, basically?

We've seen some announcements of very small family-owned players that have actually stopped production because it's not worthwhile for them to run. And of course, one small factory is in Sweden, but then mainly in Italy. So that's what we have seen and heard so far.

So are you getting new customers contacting you for... for volumes as a consequence of this?

It's clear that our very high service levels that we've been able to keep has been very much appreciated both by our existing customers and also by potential customers here, because there are customers that are very frustrated with low service levels who are working with other suppliers. And this is definitely benefiting us at this point in time. So that's clear. I mean, we are also very much working every day to manage our supply lines to get material in place, to keep the plants running with big parts of the staff, of course, quarantined or out because of being infected and so on. But managing that in a fantastic way, I'm very proud about that. And that's also helping us, of course, when it comes to price negotiations, to be perceived as a dependable, high-quality supplier.

All right, thanks. My final question is on the... other line in your adjusted EBITDA calculation or details. I mean, this year it was minus $789 million, which is actually less than last year, despite the SAP project that you're rolling out. What kind of number should we expect for the other line in 2022? What are the different parts of that?

Oskar, there is a bit of facing there, if I just start with 21. So it was lower than our own expectation, actually. There are many different reasons facing being one of them. So for next year, it's going to be about a billion, or actually, planning-wise, a bit even further than that, so 1.1%. But time will tell, it's roughly a bit over a billion for 2022.

And in terms of the different quarters, should we then expect sort of a bit of a bulge in the first quarter and then even?

Yeah, maybe perhaps a bit, but not dramatically. It will be an increase, Oskar, in Q1, but we are not really planning for a kind of a major volatility there, so... It should be reasonably even, but with a bit of increase in Q1.

All right. Thank you very much. Thank you. Those were my questions.

And the next question comes from the line of Ian Simpson from Barclays. Please go ahead.

Thank you very much. I wondered if you could just give us a little bit more help around the magnum of the increase. A magnitude of the incremental raw material and energy pressures in Q1-22 versus Q4-21. So if I've understood you there, the two main incrementals are increases in plastic costs and energy costs. At my right, those are the two drivers, and any help you can give us in terms of the quantification of that would be hugely appreciated. And then secondly, just as we think about logistics pressures through 2022, a number of your competitors... have sort of said that they're finding logistics increasingly challenging. If you could just sort of give a bit of information as to how you feel about your logistics setup and your ability to keep service levels high as we go through a relatively challenging period. Thank you so much.

Yeah, I can start with just to confirm exactly what your question was there. It is actually what you say is plastics and energy. And I think we mentioned that previously and that we see significantly higher cost in both of those areas. But We never quantify exactly. I understand the need for you to see that, but we don't because it's actually difficult to say and competitively not exactly what we want to do. But it will be significantly higher.

logistic costs logistics very challenging and has been for for a long time and and so far and that's also my expecting expect and expectations for this year we will continue to manage it and provide good service levels not what we had before the pandemic but better than our competitors and this is on the back of a lot of hard work actually related to digitalization and and centralization where we have a a global transport hub located in Barcelona, where we oversee both transportation and scheduling and planning, so both demand planning, supply planning and SNOP, and the different stock levels we have in different parts of the world. So we have a very, very good overview. And of course, that helps us to manage very tight situations that we see locally all the time. But of course, we're able to manage by buying spot or by having contracts with specific suppliers and so on. So I expect that we will be able to outperform our competitors in this area also in the year to come.

Thank you very much.

And the next question comes from Lana Carol, the author from Kevlar Chevrolet. Please go ahead.

Yes, good morning. Thanks for taking my questions. I first have a question with regards to a remark during the presentation that you expect that the online sales from your own propositions will increase. will grow in the coming years. Can you elaborate on that, some of the actions you put in place to have more direct business online yourself? The first question.

It's a general trend that direct sales online from the producers, the brand owners, the suppliers is growing. We also see that this is growing quick in some emerging markets like Latin America, for instance, where these channels are growing disproportionately from very low levels because online sales have historically been low there. And of course, from our perspective and also from the consumer's perspective, it's very interesting to have a channel where you can exchange information, where you can learn and develop and where we can get feedback. So I think it's very much the mutual interest of consumers and the suppliers to work with the direct online sales. So those are some of the reasons for this expectation that I mentioned.

All right, thanks. The second question is on capital allocation and portfolio. 2021 has been a busy year with six deals, including some larger ones in Latin America. If you look to 2022, can we anticipate a continuation of that strategy or would you say first integrate what we have? And would you potentially also be open to take larger steps when looking at the portfolio?

We are committed to our transformation journey, which is based on a capital allocation to where it makes most sense, whether it's in organic growth or acquisitions or in M&A in general. It could also be divestments, which we do now and then, but typically in smaller ones. And we still think that there are opportunities around in line with what you've seen during 2021 when it comes to acquisitions. And then when it comes to bigger deals, that's, I think, always very speculative. So I don't really want to comment about that. I think that's more unusual than a continuous flow of small, medium-sized deals.

Thank you. And the last question, again, coming back to pricing, of course. What are you currently seeing in the market in January? Of course, you don't want to speak what you expect specifically in March. But if you look in your European and the U.S. market, what kind of price increases have you seen in personal care and consumer tissue?

I don't think we can go into that. That's quite confidential and competitive information. So I think you will have to follow that through the price mix component in our P&L. All right.

Thank you. And the next question comes from the line of Harry Teitelman from Nordea. Please go ahead.

Yes, good morning. One quick question. But are you seeing the peers taking downtime in the consumer tissues because of the high cost and there must be quite a significant margin pressure among your peers? How does the supply-demand balance look like in consumer tissue at the moment?

The supply-demand balance in Europe and in Latin America is quite good, I would say. It's quite balanced. As mentioned earlier, we haven't really seen any major capacity reductions at this point in time, but of course, we don't really see any investments. There has been some more capacity coming into the Chinese market during last year. But on the other hand, as you know, there's also quite a lot of capacity being closed in China and there's a healthy underlying growth. So no drama really when it comes to supply-demand in consumer tissue, which is of course a good thing.

So basically, even the high-cost producers, they are still running and not priced out of the market.

We are seeing some smaller producers that have stopped individual machines or plants. So there's a little bit of that since the fourth quarter of last year, especially in Europe.

All right. Okay. Thank you very much.

And the next question comes from the line of John Ennis from Goldman Sachs. Please go ahead.

Yeah, hello, everyone. Most of my questions have been asked, but a couple of quick follow-ups from me. The first is on the consumer tissue volume growth in 4Q, and it comes back to Celine's earlier question on the potential buy-in ahead of anticipated price hikes. I guess, was there a notable change in the volume performance by month, i.e., was the volume performance materially better in December, for instance? Maybe that could... help us quantify that earlier. Then my second question is on the private label consumer tissue outlook. I guess How are you thinking about the mix impact for the consumer tissue business moving into 2022? As pricing steps up this year, are you expecting any down trading at all and therefore a potential recovery in the private label part of your consumer tissue business? Any information you have with regards to what you've seen historically during price hikes could be helpful for us. Thank you.

Yeah, when it comes to your first question, I think Fredrik and I asked exactly the same thing. Was there now a lot of pre-buying before the price hikes? And the answer has been no. It's more maybe an impact of a soft third quarter. So we don't expect that to have a negative impact on the first quarter in consumer tissue. And

More of a catch-up.

Yeah, more of a catch-up, exactly. And when it comes to private label versus brand, we've seen a very strong mix improvement over the last years and also the last quarter. So growing in brand and actually a negative volume in the fourth quarter in private label. And this is related to the price increases that we are negotiating and the subsequent actions from private label. from some customers at the same time we're also seeing actually some of some retail some customers who are coming back to us after leaving us because of the differences in in quality and everyday quality and service levels as i mentioned before We haven't seen much down trading yet. I think the reason is that the shelf price increases are just happening now as we speak. So there hasn't really been a movement in shelf prices before during last year. So typically, I don't expect that to have a major impact on the business going forward.

And maybe to add there, John, on your question, I mentioned before that we have lost volumes when it comes to private label in Europe. And this is quite often the case, actually, when you see movements like this, because we think that we should be fast in terms of increasing prices and compensate for for cost inflation. So we are early, always early. So in the initial parts of cycles like this, you would typically see that we lose a bit of relative volume in the private label part of the business. where competition is quite fierce, and then we tend to recover that volume as we go along, and everyone else will need to do exactly what we are doing. So whether that will happen this time is a very difficult question to answer, but at least that's been the historical trend.

So I'm just... Thanks, John. I'm just thinking, since I'm the organizer today of this event, big responsibility, there are still quite a number of questions. We're on the hour. It's fine with me to continue for another 10, 15 minutes, if it's okay with those of you who want to stay on the line. And I think, Fredrik, you look fresh. So let's continue with a few more questions until a quarter past or something like that. So over to the next question, please, operator. Thank you, Mark.

The next question comes from Laino Kari-Rynta from Henfmarken. Please go ahead.

Yes, thank you. I'll just take one. If I look at some official statistics from the U.S., I can see that the consumer tissue prices have increased by some, in total, 10% in the last few years in the U.S. And if I look at your price mix for your consumer tissue business, it was flat in 2021, and it was down 20%. slightly in the year before. So, the question is that, is there any structural reason why we wouldn't see the 10% bump up? The government is more sluggish in Europe, and that's why we're lagging, but in terms of magnitude, Are there any structural reasons to explain the difference?

I don't follow the U.S. consumer tissue market closely. We're more, of course, looking at the professional hygiene part of the business in the U.S. So I really can't comment because I know there has been some variations in underlying developments in raw materials and currencies and so on. So I'm not aware about the plus 10% that you mentioned. refer to. From our perspective, of course, it's been more volatile than we're used to. We expect most of our businesses normally to be quite stable. And of course, towards the end of 2020, so not last year, but the year before, we have had the highest margins in consumer tissue ever, as you know. on the back of a lot of innovation, price and mix, but also very, very low raw materials. And at that point in time, of course, price increases were not really justified or meaningful or possible. And since then, we have seen a dramatic development that was quite unpredictable. So I think the dynamic is somewhat different in the different markets. I don't know if you have anything to add there, Fredrik.

No, not really. Perhaps with, once again, perhaps the historic perspective that it typically takes somewhat longer time in Europe because of slightly less consolidation in the marketplace, but over time. As you have seen, the pricing in the European market is compensating for raw materials. So, of course, our own ambition and, of course, also historic achievement is exactly that. And we are convinced, as we have said before, that we will see that compensation over time.

And what we do follow is the margin gap and how that develops too. to all our peers, and some of them are US companies. And over the last number of years, that margin gap has actually reduced quite significantly. This is an overall number. So it's not only consuming tissue, it's also personal care and professional hygiene. So of course, that's been a positive development from a margin perspective, then I think it's difficult to follow pricing action specifically in these two different markets.

Okay, thank you.

And we have one more question from the line of Tom Sykes from Deutsche Bank. Please go ahead.

Yeah, morning, everyone. The extra time, just a couple of quick ones on consumer tissue just to clarify your previous comments. So have we seen a full quarter of the volume benefit that you seem to be outlining from stresses at some of your So the higher service levels, as you put it, is that would we expect a greater benefit in Q1? Would you expect any negative price elasticity from your own price increases? And indeed, in regards to stresses, are there any parts of your own business that are loss making within consumer tissue that might see considerable gearing in 2022? And then just coming back to your comments on marketing spend and the other line, it does feel like you've managed those to manage a margin. Is that still the case in Q1? Or could we see that as you're supporting that those may increase a little bit faster than the price increases that are coming through? And obviously that may have a slight negative impact on the margin, please.

Yes, so consumer tissue, I don't expect we will have a big positive impact on volumes from our excellent service levels, but it helps us in price negotiations, making our relations more sticky and more positive discussions than just price increases, price increases, price increases. So it's just to underline that we've been able to to have a quite nice development also in terms of volume even when we've been negotiating significant price increases both in private label and in brand so i don't see that that you know will will show up in the numbers as a specific volume increase and then when it comes to Marketing spend, I expect that to normalize this year. We have a full program when it comes to product launches and that we expect to support. Fredrik, you want to fill in on that?

Yeah, I think just one perhaps very obvious comment there, Tom, is that, of course, marketing spend will vary over the quarters. But if you take the 21 numbers, the total number, it was approximately five and a half percent versus sales. And, of course, we grew in the year, so in absolute amounts totally for the year in comparison to 2020, it actually grew because we also had 5.5% in 2020. So from that perspective, you can say we are fairly constant. And we have, Tom, communicated many times before that we expect that number to be roughly stable and potentially even increasing. So... So movements in between quarters can vary, and this is what's basically the case here in Q4. So roughly, as a whole year, 5.5% approximately.

Okay. Can you give us any indication of how quickly that will normalize over the course of 2022? Should we be expecting that to normalize pretty quickly in Q1, please?

Yeah, it's hard to give you exact numbers there, Tom. But as Magnus said, this will be roughly on that same 5.5% level for the year. And we don't expect any big variations over the year. So probably it will normalize during Q1. Okay, fine. Thanks very much.

And we have just one more question from the line of Ian Simpson again from Barclays. Please go ahead.

Thank you so much for allowing me a follow-up. Just in terms of capital deployment, I understand that you don't want to talk about big M&A because who knows when it's going to happen. I was just wondering in terms of what categories you'd find attractive enough to put incremental capital into though. Is feminine care a category that you'd like to get bigger in potentially?

I can only speak in general terms when it comes to our M&A strategy that we prioritize the health and medical segment and also definitely feminine care because it's so successful for us and we see opportunity for kind of line extensions in this area. There's a lot going on in this area. And then also finally, as we stated many times before, in professional hygiene to the extent that we can strengthen our presence in wiping and cleaning and with some adjacent product lines. That's something we're looking into as well. Those are the areas where we are focused. And of course, the ones excluded are consumer tissue and baby.

Thank you very much.

If there are no further questions, I'll hand it back to the speakers.

Okay, thank you very much for your time. I appreciate the discussion. With that, we close this presentation. I wish you a good day.