Essity AB (publ)

Welcome to Essity's conference about our half-year report 2022. I'm Josephine Edwell, head of communications for Essity, and I will be your moderator today. Today's presenters will be, of course, our CEO and President Magnus Groth and our CFO and Executive Vice President Fredrik Rystedt. And then we are happy to have Joanna Griffith here, the founder and CEO of Nix. After the presentations, we will have a Q&A session. So with this, I hand over to you, Magnus.

Thanks, Josefin. Welcome, everyone. And I'm pleased to report the strongest sales growth quarter that we have ever seen. And a large part of this is price increases also, the highest price increases that we've ever seen in a quarter by far. And this has resulted in a sequential EBITDA improvement, even though it's small, but still an improvement. We see that the price increases that we have achieved are significantly higher than we had expected, but also the cost inflation that has continued to accelerate throughout the quarter. Looking forward, we continue to invest in our brands, in our market positions. This is what makes it possible for us now to work on improving our profits and our margins. Important also for the future is that online sales increased with 25% in the second quarter to 1%. 15% of sales. And of course, I also want to welcome Joanna to this presentation. It's a very, very significant and strategically important acquisition of Nix as well as Modibodi. And it's not only strategic, it's also very profitable and high-growing business that puts us in the lead in intimate hygiene. And I'll talk more about this in a second. Some financial highlights, the growth over 20% in total and acquisition growth over 2%, which is above our target, I think worth mentioning. And we'll get into the details, but when it comes to the organic 17.5%. 0.8%, 12.5% was purely attributed to price. Looking at cash flow was strong, I would say, and adjusted EBITDA was slightly lower than the same quarter last year, but sequentially an improvement. The EBITDA bridge, as you can see, again, severe cost inflation, 1280 basis points, as you can see there down below the red box. And this is not all of it, because this is the cost inflation that we measure to global indices. And that's obvious kind of in comparison to market prices same quarter a year ago. But in addition to this, we also have inflation on a number of areas. It could be pallets, it could be sea freight, it could be other areas. Salary inflation, of course, also that actually adds to the cost pressure even further. But as mentioned, with significant price increases, better mix and better volumes in more or less all our categories and all our geographies, I'm very, very proud about the achievements of the organization in this quarter. And we have a very strong momentum going forward when it comes to continuing to achieve growth through a combination of price mix and volume. AMP is slightly lower in the quarter compared to a year ago and also contributes to margin, while SG&A is higher but lower in relation to sales. And the reason why it's higher is that we're seeing a normalization compared to previous years dominated by COVID, which means that we are seeing some salary inflation, but also accruals for bonuses that we haven't had in quite some time. And also, for instance, travel increases, but still in relation to sales and in relation then to the EBITDA margin contributing positively here. As always, innovation is what drives this company, and it's another quarter with a number of very, very strong product launches. All of these examples here are in personal care. And maybe worthwhile noting, it's not obvious from the picture, is down in the right-hand corner, our completely new feminine care product platform that will replace our very, very successful secure fit a platform that we've been using for the last 15 years. And as you know, we've been growing market shares and improving our market positions here for years and years and years. And this is an important, not only upgrade, but actually a completely new product platform that we're launching with very positive customer and consumer response. Productivity, as you can see from the numbers, are COGS savings that we normally see as being behind between half to one billion kroners per year we're negative in the quarter this is not because we're saving this actually we're saving more than last year and at a very high frequency but this is offset by inflationary pressure in a number of areas so we are seeing substantial savings in everything from operational efficiency improvements digitalizations very much in the supply chain overall, material rationalization, sourcing savings, and the negative impacts by inflation or inflation in areas, as I mentioned before. I think this is a beautiful picture of... Investments that we're doing, that's not only good for the company and for our long-term return and profitability, but also for the planet. So these are solar panels on our tissue plant in Kostheim in Germany. With that, I would like to hand over to Fredrik. Over to you.

Thanks Magnus and let me just give a few comments relating to the business areas and starting with health and medical as can be seen from this slide we continue to do well in terms of organic growth and that's both for incontinence and for medical and within the medical part especially wound care and orthopedics continue to grow at very very healthy rates. You can see that The emerging market growth was really strong, and this is particularly in Latin America, both for incontinence and medical, and, of course, also Eastern Europe. Now, generally, price and mix was strong in most markets, actually. And if you look at the price mix component here of 4%, as it's stated here, the absolute majority is related to price increases. Now, if you look at health and medical, it's typically the business area with the least affected by raw material. But in essence, if we look at the last couple of quarters, this is actually where prices cost inflation has been the greatest. So quite unusual from that perspective. And it's related to materials such as fluff pulp, it's sap and generally plastic products. And of course, this is mainly within continents, so much less in medical, so mainly in continents. Now, we have compensated quite some with price, as I mentioned, but the contract structure within health and medical is such that pricing changes are much, much slower. So longer contracts, lengths, listings, etc. So therefore, compensation or price increases is a much longer process. So we have ventured into that. We have raised prices quite significantly also sequentially in this quarter, and we will continue to do so going forward. We expect raw material to significantly increase also for Q3 sequentially and versus last year. So turning to consumer goods, this was a quarter with very, very significant increases in all categories and in all geographies. So in average, price increased with nearly 15%. compared to one year ago, and also within this quarter, very significant increases. And together with a good mix, the organic sales growth, as you can see on the slide, was close to 18%. Now, volume is, in the context of the other business areas, slightly lower, and particularly so for babies. So there are basically two reasons for this. One is that we have taken the decision to exit our diaper production in Colombia or diaper business in Colombia. And this has had a negative volume impact. We will see that negative volume impact also going forward as we exit gradually. If one takes away that impact, maybe we would have had roughly about twice the growth of Colombia. of what you see here. So roughly about 4%. And the other reason why volume is slightly lower is due to Russia with much, much lower sales volume in the quarter. So here you can see that the impact from raw material is the highest of our business area. So 14.5% margin impact if you compare to Russia. to one year ago and we will see also here in this area significant cost increases sequentially and compared to last year as we go forward. We have executed on a lot of price increases and we'll see additional benefits from the already agreed price increases as we go forward now into Q3 and we will continue of course the journey on increasing prices as we go forward. And as Magnus also said, of course, obviously cost control, pricing is a very, very, or both very key focuses of the group at this point of time, but we continue to execute on our more long-term agenda, so performance management with the exit of diapers in Colombia, as an example, and of course the acquisitions, which you will hear more about, of Nix and Modibodi. Turning to professional hygiene, really strong growth. And of course, here we're still benefiting, you can say, from the recovery from the COVID restrictions that were present during last year and to a much less extent. This year, so we are having a strong volume development and together with a really good mix and very significant pricing to the extent of a bit over 13% in professional hygiene. Then, of course, organic growth was added. a bit over 26%, as you can see. Now, here is the area where mature markets is actually growing more than emerging markets. And there are basically two areas which is impacting this. The first one is China. You all know that the COVID restrictions in China have not been lifted. So the volume development there is quite weak. And the other area contributing to this, to the relatively weaker growth in emerging markets, is Russia. So we have practically no business left there when it comes to professional hygiene. So no different, of course, to the other business areas. The raw material impact is very significant, 10.6% as a negative margin impact compared to last year. And also here, We have compensated with price and we will continue to do so as we go forward with further price increases in Q3. Thank you.