Essity AB (publ)

Hello and welcome to Asciti's press conference about our third quarter interim report 2022. I'm Josefin Edvall, head of communication, and today our president and CEO, Magnus Groth, together with our CFO, Fredrik Rystedt, will go through the highlights of the report. And of course, we'll have a Q&A in the end. So, Magnus, with this, I hand over to you.

Thank you very much. Good morning, everybody. To summarize the third quarter, we saw sales growth of 17.3% with strong contribution from price, 14.5%. But also, and very importantly, volume growth in all our three business segments and a positive mix. So a combination of all these three parts of the overall growth. And to that, in addition, 1% of growth coming from acquisitions. Adjusted EBITDA was close to 3 billion and the EBITDA margin 7.5%. We continue to see significant cost inflation in the third quarter, especially on energy, but also on distribution and raw materials. Having said that, we continue to focus on all the great things that is making SCTS successful and the leading company in health and hygiene. That's innovations and brand building, continued focus on efficiencies. And we see benefits coming from in cost of goods sold in the short term offset by inflation, but still very good savings. And longer term, our efforts in digitalization and sustainability are paying off. And I'll talk more about that in a minute. In the quarter, we also closed the acquisitions of Nix and Modibodi, two leaders in leak-proof apparel. So taking a closer look at the adjusted EBITDA margin, which was down 400 basis points compared to a year ago to 7.5%. with a big negative impact on gross margin, offsetting the higher prices and volumes I just referred to. Romter's energy and distribution had a negative impact of 1,270 basis points in the quarter, so quite significant, and we saw an increase in all these three cost items in the third quarter. AMP and SG&A contributed positively to the margin. AMP was slightly lower compared to a year ago, while SG&A was slightly higher. So even though margin was down, the offset of the headwinds was very, very successful. I'm very proud of the achievements done throughout the organization. We talk a lot about costs, costs, costs and how we are able to compensate when it comes to pricing. And we've been clear over the last seven quarters since uh costs started rising in a way that we've never seen before that we will fully compensate uh the cost inflation from raw materials from energy and from distribution with pricing and this graph shows how we're doing in that respect so each of the bars is the quarterly cost increase compared to the fourth quarter of 2020. So we're not looking sequentially or year over year. So it takes a while getting used to this graph. But for instance, in the third quarter of 2022, the quarter we're in now, we had 6.4 billion higher costs compared to the fourth quarter of 2020. And as you can see, every quarter it's been increasing compared to the previous quarter, this difference to Q4 2020. And as you can see, so has our pricing and actually at an accelerating level, but there's still a lag. And we have analyzed this in detail and see some very positive developments. And if we take the price increase line that you saw in the previous graph, it's here also in magenta, and just move it horizontally two quarters to the left, you can see that we are compensating for cost increases in energy, raw materials and distribution with a little bit less than two quarters. So much, much faster than we ever did before. And this is an achievement that we've never seen in the organization before. There's a difference. We compensate quicker in the tissue categories. It takes a bit longer in health and medical. But overall, this proves that we are catching up with the significant cost increases with pricing and doing that while still having positive volumes and mix. Now, the big question is, of course, what will this look like going forward? And we will not give any estimates about margin development in the coming quarters. But when it comes to costs, it's clear that distribution costs sequentially, we expect to be quite similar to the third quarter. Energy costs, impossible to predict in Europe. These times, 70% of our energy costs are hedged. Those hedges are significantly more costly in the fourth quarter than in the third quarter, so we'll see sequentially higher costs there. However, the 30% that are not hedged are very difficult to predict, but looking into October so far, any costs have been quite low but there's still two months to go in this quarter so very very difficult to to predict and finally raw materials where we expect in the fourth quarter to see higher raw material costs and this is what we will see in our books and it's a consequence of changes in in currencies in combination with some raw material price increases that we saw in the third quarter that rolls over into the fourth quarter. And I'm underlining that since many of you are seeing that from a global market perspective, a number of raw materials are now flattening out. But in our books in the fourth quarter, we'll still see higher raw material costs. That's the near-term outlook when it comes to costs and when it comes to pricing. As we mentioned, after the second quarter, we expect to see good pricing also, momentum also in the fourth quarter. From a percentage perspective, in line, maybe as third quarter, but from an overall perspective, higher price impact, positive price impact in the fourth quarter than in the third quarter. I mentioned to say something more about innovation and digitalization. We continue to focus very much on innovation based on sustainability. I have some examples. We have more sustainable packaging for all our baby diapers in the Nordics. We've also launched a really exciting innovation with a very positive impact. It's the LibroTouch Hybrid Diaper, which is a textile pant, which includes an insert, an absorbing insert that is then disposed of, reducing the CO2 footprint significantly. Very exciting, something that we're just launching as we speak. Getting back to e-commerce as well now accounts for 14% of net sales in the third quarter. That amounts to 5.4 billion. So we're a big player in e-commerce by any measure. And those 5.7 billion are split quite evenly between pure players and multichannels. And the growth compared to the third quarter of last year was 20%. So good progress here. It's important for us. This is where, I mean, we know that after the pandemic, this channel has grown somewhat slower, but in the longer term, we're absolutely convinced that this is where we need to be to grow in the growing and winning channels. With that, I'd like to invite Fredrik, our CFO, to give some more detail on our three business areas. Welcome, Fredrik.

Thank you, Magnus. I will do exactly that. So starting with health and medical, we continue to do quite well in terms of organic sales growth with strong contribution, both from price mix and also from good volume development. And growth was particularly strong in Latin America and Eastern Europe. We talked about medical continuing to grow and especially their wound care did really well in the quarter. So the cost headwinds, we talked about that and Magnus alluded to that earlier. have been very significant in the quarter. So as you can see on the slide here, 980 basis point margin impact. And to a large extent, we compensate with price. But as we have reported many times, the structure of this market makes it more time-consuming to fully compensate in terms of price. And if you look at that and decompose that slightly more, roughly about 40% of the business relates to tenders. And tenders will have a kind of an average length of about three years. So you can pretty much reset about a third of that every year. So that makes it time consuming to actually adjust the pricing. If you take the rest, about 40%, relates to reimbursement business. And, of course, price increases there are subject to government decisions or indexation and other things. And, of course, that's also quite timely. It takes a very long time. But it does happen. And within this quarter, although not affecting us quite yet, we saw an example of where such indexation has actually moved in the Netherlands, where the index increased with 9.5%. So price increases... happens also in that part. And the remaining about 30 or a bit less than 30% is more self-pay or e-commerce where the flexibility is higher. So if you take this composition, needless to say, it takes time. And we are quite pleased given that structure with the development when it comes to pricing. But bearing in mind the kind of time lag, Magnus talked about the group before with a bit less than two quarters. Here it's much longer. So, of course, obviously, we will need to continue to increase prices as we progress now in coming quarters. So turning to consumer goods. a really strong organic sales growth. You can see here that the organic growth was just under 18 or 17.6 and a bit more if we include the acquisitions that we've had. And once again here, Good contribution from particularly price, but also mix and volume. It looks fairly low if you look at the volume there with 1.3, but here we're quite impacted by our Russian business being much, much lower now. So excluding that, volumes actually increased with about 2.5% or in that ballpark. And you can see that all categories continue to increase with the exception of baby here with being flat, as you can see. But this is largely due to the exit or the closure of our diapers business in Latin America, as we have reported a couple of quarters ago. And if you exclude that deliberate exit of the market, organic sales growth in baby was roughly about 7%. So generally, the demand was actually quite good all over for us, and particularly so as an example in the personal care categories in Latin America. And we continue to expand the e-commerce business pretty much everywhere. And as an example, once again, perhaps using Latin America, we're now market leaders in all categories in Latin America. in that area so a quite a strong development down trading has been a discussion and although in the context of things really not very material for us we don't see that much of signs from from down trading anywhere in our business but there are signs in particular markets so Once again, Latin America, there is some down trading with the premium segment being slightly lower now or a bit lower than we've seen, for example, last year. We see bits and pieces elsewhere, like the UK, where there is a bit of down trading. But so far, no kind of material impact in our books. So input cost headwinds, as we talk about for all the business areas, 1,450. So just very material. And of course, obviously a lot of that in consumer tissue. And of course we compensated here in all geographies, in all categories with price. So to an average of about 16%, so quite significant price increases in everywhere. Needless to say, and that's of course not a surprise, the biggest price increases have happened within the consumer tissue area. And of course, that's also because that's where we are most affected by input costs and, of course, not least energy. So as we look forward, Magnus, you alluded to it, sequential costs will continue to increase, partly due to just adverse currency movements and lag impacts. So we'll see higher costs also sequentially and in the fourth quarter and we will continue obviously to to raise to raise our prices everywhere so turning now to professional hygiene it's actually the area where the organic sales growth has been the strongest and and here a bit different you can see that mature markets is actually growing faster than than emerging markets although growth is strong in in both areas, so to say. There are a couple of explanations to the emerging market numbers there. First of all, once again, Russia. So if you just exclude Russia from the equation, the 2.6 there you see in volume would have been four. And the other main factor is China, where COVID restrictions are clearly still impacting quite significantly the volume growth. So generally, the markets continue to recover from COVID. So it's pretty good in most places. And just as an example, we can see that our hotels and restaurants and catering business have benefited from a strong tourist season in Europe as an example. So generally quite good markets. Now, also for pH, input costs have been very significant, and you can see here 1,000 basis points impact. There is also, as for the other areas, increases in SG&A, and we managed to compensate here a significant part through price increases, so very, very, very strong in the quarter. And in fact, pH is the area where we've been the fastest in raising our prices. And if you look at the EBITDA and you compare it to last year, it's actually higher now. Margin is still lower on the back of raw material and just a higher sales number. But the EBITDA is now higher in Q3. So we're quite happy with that. And also here, obviously, input costs will sequentially continue to increase. So we'll see more price increases as we progress in coming quarters. And with that, Magnus.

Thanks, Fredrik. So to sum up, before doing that, actually a good thing you mentioned Russia because the impact on overall group sales is close to 1%. And I think that's important to note. It's a declining business that is up for sale and we are in that process and will give more information as that divestment process progresses. But in the meantime, sales are down considerably compared to a year ago. Priorities, very clear, we continue with very, very disciplined and very successful price execution and doing all the things that are so important for our competitiveness and success in the long term, creating fantastic brands for our customers and consumers through innovation and brand building, efficiency improvements, with an even stronger focus on energy efficiency, which has been prioritized for us for many years. But now, of course, also seeing a way of combining efficiencies with sustainability improvements, reducing our carbon footprint in our in our global plant structure. Digitalization, we can see how that's helping our e-commerce as one example, and sustainability throughout the organization from the supply chain to the products that we are launching to our customers and consumers. So thank you for listening. With that, we open up for Q&A. But before, I would like to... market an upcoming event that's very exciting it's actually three events our web presentations of our business areas and these three business areas we introduced at the beginning of the year since then we have also announced an organizational change that aligns our organization with these business areas and we would like to give some deeper insights now that we're soon one year into this new way of of both presenting ourselves and more and more organizing ourselves. So as you can see there, there will be one hour presentations on three consecutive days, one for each business area. So put that in your calendars. Very welcome. Look forward to seeing you then. And with that, we open up for questions.

If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally as you will be advised when to ask your question. And the first question comes from the line of Nicholas Ekman from Carnegie. Please go ahead.

Thank you. Yes, a couple of questions from my end. Firstly, on the margin outlook, and I recognize here that you said that you don't want to really comment on the margin outlook for Q4, but I assume this is given the input cost volatility, but based on where we are now, would you say that we are kind of past the trough in terms of margins, all else equal, and assuming that input costs would stay at this level? Is that anything you could elaborate a little bit on that would be helpful?

Not really. It's so volatile and unpredictable that I think I elaborated both on cost assumptions to the extent it's possible to predict for the fourth quarter and on our pricing initiatives. So that's my elaboration.

Okay, fair enough. Can you say anything about energy hedges here? Obviously, the energy prices have come down quite a bit from the peak levels in late August. Where are your energy hedges here on average? Would you say that they're still below the current levels or would you be above the current price levels with your hedges?

Niklas, we don't comment on it. We're hedged to roughly about 70% in gas. We're hedged to about, you can say, including regulated markets when it comes to electricity of about the same, so 70%. And as Magnus alluded to, energy hedge prices are up actually quite significantly. But for commercial reasons, we cannot just comment on the levels, as I'm sure you will appreciate. They're up, so it's going to be a higher energy cost. But exactly where the market is and how that will develop, we cannot give you that information.

Okay, fair enough. And your comment here about prices and how you mitigate within two quarters, and that's obviously a lot faster than usual. That kind of seems to suggest that your margins could be restored already sometime in early 2023, all else equal. Is that a fair assumption, or are you merely just stating what's happening in the past quarters?

Again, we're not making any further comments on the coming quarters, the outlook. So I can't provide any more information there. We will have to see. We have good pricing momentums over the last number of quarters and expect good momentum also now in the fourth quarter.

Okay, fair enough. Last question just on a margin volatility within consumer tissue. Is there a material difference between your private label Europe business versus the core in consumer tissue? And obviously, the raw material exposure is greater, but I assume you're also doing a lot more price hikes in private label. Can you elaborate a little bit on the margin volatility, whether that differs a lot between the private label business or not?

Yeah, Niklas, I can do that. The short answer is yes, it's a higher volatility. And it's quite simple because raw material content is quite much bigger portion of net sales, if you get what I mean there. So by definition, as you have volatility in the input cost, including energy, needless to say, then you automatically get higher volatility. As you actually said yourself, price increases have been very material in this field, actually higher than for all other parts of our group. So I think we're doing a very good job in compensating and kind of raising prices there. But by definition, this business is more volatile from a margin perspective.

Okay, super. Thanks for taking my question.

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

Thanks very much. A couple of questions from me, please. Your margins have been a fair bit more resilient than perhaps we would have expected a month or so ago, and congratulations on that. I think at some conferences in September, you were perhaps a little bit more apprehensive about the Q3 margin outlook. I just wondered if you could perhaps provide some color on how you've managed to show such resilience this quarter. Was it helped by energy prices declining in the last few weeks of the quarter or pricing coming through a bit sooner than you expected? Or any color you can give there would be very helpful. Secondly, I just wondered if you could remind us of the moving parts issue. in other costs in the Q3 and whether there were any sort of particularly sizable items that you call out as it's a reasonably big number, 18% impact on EBITDA in the Q3. in the nine months and 36% in the Q3. And then just finally, if I may, given where we are from a rate and a currency perspective, could you just remind us of what proportion of your debt is fixed versus floating and whether the debt currency is aligned to earnings currency or whether there are any material mismatches you'd call out? Thank you so much.

Okay, so I can start with the first question and leave the second to you, Fredrik. So both of your statements are true, Ian. So energy towards the end of the quarter, came out lower than the first two and a half months. And pricing came in quite strong towards the end of the quarter. So both of those helped overall for the full quarter development. And then when it comes to the other line, Fredrik.

Yeah, so good question there, Ian. And... You're absolutely right, it's quite material, and distribution cost is a very significant portion. We also have negative, it sounds like a bit strange to say negative savings, but it actually is productivity lost due to inflation in our production setup. And then SG&A is considerably higher, and there are basically three components. It's basically salary inflation, which is not that far off the normal, you can say. We have actually more travel as COVID was impacting last year quite significantly. We're back to, I should say, not full levels like we were in 2019, but considerably higher than 20 and 21. So, That's another part. And last year, we were quite affected, if you recall, in Q3 and Q4, when it comes to bonuses, that we had nothing in the group for no one. And this year, we have a more, you can say, normalized situation when it comes to bonuses. So it's basically those components, you can say, that makes up that other. And it will be there, of course, also in coming quarters. I think your question last was when it comes to the average maturity, I think it was also the interest rate.

And the currency impact also.

Yeah, and so if I start with the first two there, so we got an average maturity in our gross debt of, Approximately about four years, roughly, in that order of magnitude. And our policy, when it comes to interest rate fixed or floating, we are pretty much in the middle of that policy. So we're currently, I think it's 14 months, roughly. That's the average interest rate fixed period. I think the third, when it comes to currency, as you probably know, we are fairly matched in the currency exposure in general because we produce largely where we sell with a couple of big deviations. So obviously, we've already talked about the dollar exposure that we have when we buy, for instance, raw materials. So it's mainly pulp, but it's also in other types of raw material where we're impacted. And if you just take this quarter, that impact had a very, very significantly negative impact. So, yeah, roughly about 730 or so million SEC was actually pure currency movements in this quarter. And if you decompose that a bit, about 75 million or so for health and medical, about the same for professional hygiene and everything else in consumer, basically in consumer goods.

Thank you very much. Just very quickly on your debt, what proportion of your debt is outright floating rates? So if interest rates go up, we see it in your cost of debt immediately. Could you just remind us of that number, please?

Yeah, I mean, as I said, it's an average 14 months, so it's pretty significant. What we do is we borrow long-term debt. We just did one, and we did one previously this year and last year, you know, the bond issues that we do, and we typically swap them to six months floating, so three or six months floating. So that's pretty much the exposure. And then we have a portion of our long-term debt that's also fixed. And all in all, if you sum that up, that makes 14 months. So you will see, if you take the finance net, it has increased quite a lot, as you can see, from Q2 to Q3. And we'll see even higher in Q4 as the average interest rates are actually adapted. So 14 months in is the full kind of period there. Thank you very much. Thank you.

The next question comes from the line of Linus Larsen from SEB. Please go ahead.

Thank you very much. Maybe starting off with volumes which indeed grew across your business areas, but at a somewhat slower rate than previously. And obviously your growth has benefited from the post-COVID situation. But nevertheless, I'd like to just check whether you were running full in the quarter. We know that some of your competitors were not running full. And are you planning to run full in the fourth quarter, please?

I don't have all that information, Linus. Again, remember the impact from Russia and in baby also, the impact from leaving the baby diaper sales in Latin America that actually negatively impacted volumes quite significantly. Russia was about 1% impact on volumes. Typically, we have high capacity utilization in all our in all our plants. Some of this because of a need to rebuild stocks and in many places because we have high demand, especially on the tissue side. So overall, quite positive in this area. Still struggling with some supply chain issues, but gradually getting better, getting out of that situation as well.

That's helpful. Thank you very much. And overall, or even specifically, are you taking market share? Any color you can share on that?

In the quarter, we had a bigger portion than in previous quarter where we were not gaining market share. And this is in line with our strategy, especially in consumer tissue. where we had a negative impact on market shares in the quarter because of our continued pricing efforts. We're not concerned about that at this point in time. We have really strong brands, excellent products and good market position. So we're convinced that we will build back those market shares as we are getting to the end of compensating with pricing.

That's great. That makes sense. Thank you. And then just finally, on an overall level, when it comes to pricing already, when you reported the second quarter, you talked about a react acceleration or like a higher price impact in the fourth rather than the third quarter. And since then, you've obviously initiated further pricing initiatives. So could you... share some more color on that. I mean, are we seeing a bit of a step up in year-on-year price mix improvement in the fourth quarter? There you have some visibility now, one-third through the quarter, obviously.

It's still difficult to say, actually, and I'll let Fredrik continue here. We're really happy about the pricing in the third quarter, and our best estimate is that we would have a similar positive pricing impact in the fourth quarter. I think our pricing increased by 3.5% approximately in the third quarter compared to the second quarter. That would be a bigger positive impact then from an overall perspective since the same percentage on higher sales of course leads to an overall bigger effect. Fredrik, would you?

No, I think you said it. So, Linus, we did say exactly what you referred to there, but you also have noted the press release that we sent out that obviously, and that was very clear in July and August, the costs were a lot higher, not least for energy, to some degree also currency. So, So in the end, of course, we push price a lot. And so we've been very happy with the absolutely necessary price increases that have been executed here in Q3. And of course, given forecast for exactly what is going to happen in coming quarters, it's really difficult to do. So as Magnus said, roughly in the same kind of range as we have seen now in Q3 would be our best estimate. But time will tell.

No, that's fantastic. Thanks for sharing that with us.

The next question comes from the line of Oscar Lindstrom from Danske Bank. Please go ahead.

Yes, good morning. Two questions for me. First one is, did you build any stocks ahead of winter and possible impacts from energy shortages on your production ability this winter or take any other preemptive action to you know I had a winter season here and did that cause any extra costs in Q3 or how should we see on that topic so that was my first question and the second one is on the separation of the European private label consumer tissue business Sorry, I missed the first part of your presentation this morning, so maybe you talked about it then, and if so, please disregard it.

Okay, yes, so we are making big efforts to make sure that we can continue producing throughout the winter, even if there would be gas shortages or gas rationing. And we're primarily doing that by focusing on the plants most exposed to make sure that they can be supplied with energy in other ways. It could be oil, it could be liquid natural gas. There could be other alternatives. This mostly applies to Europe, and since we have such a strong supply chain footprint in Europe, we also see opportunities to supply different markets from adjoining countries so that we could... putting backups in place. It's difficult to build stocks in anticipation. We haven't done that because we can only keep stocks for a very short time period because our products take so much room in our warehouses. So that's quite difficult for us. But preparing definitely for whatever can happen during the winter. When it comes to the separation of the private label division, that's progressing really well. The organization has been up and running now the entire year. They're doing a great job working with our customers, making sure that they have high service levels and what they need while raising prices. And we are finalizing the legal work and see that this will be a fully independent unit by mid next year. So that project, which is quite substantial, is progressing according to plan.

Thank you. If I may, just a final question. What's your feeling on the pulp market? I mean, we've seen some small, small decreases in price here in Europe. What's your feeling for the outlook here for the rest of the year and maybe into next year as well?

Yeah, Oskar, we stopped giving our own view because it doesn't help. Actually, it's not helpful. We can only see that for this quarter we're in now, Q4, prices have mostly stabilized, but we will still in our books have a negative impact from currency and from some smaller price increases we saw in the third quarter. And we can't, there's no use. My view is as good as anyone else's.

Thank you. Those were my questions.

The next question comes from the line of from Credit Suisse. Please go ahead.

Morning, guys. Thank you for the questions. I have three quick ones, please. Firstly, on price mix in Q3, could you help us maybe differentiate price from mix? in Q3, as well as maybe providing color on the price mix component within consumer tissue, just to understand whether volumes remain positive or turned negative in consumer tissue Q3. The second question also on pricing. It seems that from your commentary, you're slightly less optimistic about the sequential acceleration and price mix in Q4. And I guess, to your point, energy costs are likely to be less of a headwind than maybe what you expected a couple of months ago. But I wanted to understand whether... any of the energy surcharges you've passed are being reversed, whether the sort of more favorable energy environment is resulting in competitive activity and supply coming back on market that was curtailed for periods over the summer, that is pushing, that is putting some pressure on further price increases. And the third question, just to go back on finance cost, I hear you on the 14-month sort of lag before interest costs begin to fully impact your P&L, but interest costs were almost up two and a half times in Q3 compared to... even Q2, if I'm not mistaken, or twice anyway. That's pretty material. Is there anything going on there in terms of FX fluctuations or derivatives that we need to be careful about? Or is it solely down to the step-up in interest costs, which would have impacted your P&L within three months?

Thank you. Okay, I'll start with the second question. No, we're not slightly less optimistic. As I said, I'm very proud about the achievements by our organization and we continue to see good momentum on price increases throughout the group and also in consumer tissue and also in Europe. So there's no change there. We had a little more pricing than expected towards the end of the third quarter. And that's why we're balancing now with the fourth quarter, but expect to see good pricing also in the fourth quarter. So not less optimistic. And we don't see energy surcharges being challenged or competitors behaving differently to the extent we know. I mean, typically, We don't have that outlook. There's still good momentum in this area. No change from when we last gave an update here after the second quarter. Price mix, Fredrik?

Yes. Faham, did I understand your question as to what was the mix impact for the business areas? Was that the question? Yeah, so if you take consumer goods, it was 0.2 to be very exact. H&M was largely flat. If you take professional hygiene, 0.8. So that was the number. And if you take the corresponding price of consumer goods, as I've already alluded to, 16%. A bit over six for H&M professional hygiene, 16 and a half. And for the group as a whole, 14 and a half. So those are the numbers. I think the third question was on the finance net. You're absolutely right. So the interest movement was the most significant part. But we always have within our financial net revaluation impact. And this quarter was impacted by by several of those. So it was a bit higher than what would be kind of explained just by interest rates. So if you take the average interest rate in Q3, so this year, it was 2.2%. If you take the corresponding period of last year, it was 1.2%. But we also, of course, obviously have higher debt. So that makes up the math. and there was some revaluation impact.

And, Pedro, just quickly on consumer tissue. Were volumes positive in Q3 in consumer tissue? Yes. Yes, okay. Thank you.

The next question comes from the line of Fulvio Cazal from Barenburg. Please go ahead.

Yes, good morning, and thank you for taking my two questions. I've got two, please. Sorry if I missed this. There's a lot going on this morning. But on private label, I was just wondering if you can just highlight across your key categories and markets how trends in Q3 compared to Q2. Have you seen any acceleration anywhere from private label? And then my second question is on net debt to EBITDA, which on the release says it's at 3.4 times. I realize that there are no debt covenants, but I was wondering if you're comfortable with this level of debt and or whether this might change your M&A strategy in the short term until that comes down a little bit. Thank you.

Okay, starting with the second question, net debt 3.4 somewhere in that vicinity. We expect to deleverage throughout the first half of the coming quarters throughout the first half of next year, which I believe coincides quite well with ongoing integration of the acquisitions we've done over the last two years and also with what we expect to be a slow market when it comes to acquisitions and divestments due to general market uncertainty. So you're right, there will be less acquisition activities from our point before we have deleveraged over the next couple of quarters. But we're not concerned about the current level, that's for sure.

And just to add, you had a specific question on covenants and the answer is no.

And private label, as mentioned during the presentation, we don't see very much down trading in our categories. We see some in private label. In Latin America, in tissue, I think that's where we have the biggest impact. Of course, we are well positioned to pick up those volumes as well. It's in consumer tissue and in baby where we have a sizeable private label business, otherwise we're more or less fully branded. And we're also seeing, as Fredrik mentioned, significant pricing in private labels. So we feel that we're well-positioned to manage whatever might come. Historically, when it comes to down trading in our categories, it's typically been something that's been going on for a couple of quarters. And then consumers have traded up as they go back to the brands they prefer and back to they realize that actually these very, very important essential health and hygiene articles are a very small part of disposable income. So it's not anything that's concerning us at this point in time. We think we're well positioned here.

Great. Thank you for that.

The next question comes from the line of Victoria Nice from Society General. Please go ahead.

Hi there. Good morning, everyone. Just wanted to follow up with your line of business. questions about the market share deterioration in consumer tissue. Should we think about this coming from others not really taking pricing as quickly and also the private label increase as well that you were just talking about? And could you sort of indicate where this is being seen the most? Should we expect it's in Latin America? And then with the further pricing initiatives, you talk about good momentum so far. Just wondered whether you might be able to indicate if you've seen any slight increase in the pushback from retailers at this point, particularly in Europe. Is it getting a little bit more difficult, even if it's just slightly, with some raw materials even just elsewhere? And are the sort of next rounds of negotiations taking place now and into Q1 as normal? And then, sorry, my final question. which was also lower again this quarter, you said in previous quarters these were due to one-offs, but they seem to be still occurring. Just wondered if you might be able to indicate when these might run out or no longer impact, shall we say? Thank you.

Sorry, Victoria, we didn't hear your last question, if you could repeat that.

Sorry about that. It was just on the tax rate, which I think was lower again this quarter, and you said in previous quarters it was due to one-offs. but these still seem to be occurring. So I just wondered if you could please indicate when these might run out.

Okay, starting with the market shares, we're quite hard on ourselves when it comes to measuring market shares. So if we have a slight decline in market share, for instance, in China, in consumer tissue, it has a huge impact on our overall numbers. uh again i'm not concerned about that we have strong brands strong market positions and and it's not really down to to down trading either it's it has to do with with the fact that when we're in the middle of price negotiations there's there's less interest in discussing discussing promotions launching new exciting innovation Everything tends to get focused on pricing. And this is something that we've seen in the last few quarters and that would eventually subside as the pricing negotiations become less important. No, we don't see a change in overall prices. momentum or when it comes to pushback of pricing. And I think you meant specifically Europe, actually, partly because of the supply-demand situation. So there are a number of smaller players who are struggling with the service levels and This, of course, makes it more crucial for retailers and customers just to be able to stock the shelves. And this also contributes to the momentum in the pricing discussions.

Victoria, thanks for the question on the tax rate. It is actually one-offs also this quarter, so it's not recurring. If you look at our structural rate, it's approximately about... 24 to 25 so it's actually come down a bit and the structural rate is partly due to how the distributed profits will will where they where they're located so to speak in different tax rates so so if anything the structural tax rate has come down but it's more towards the kind of 24 range or 24 25 range And the other things that has affected, and if, of course, you look at the tax rate for the first nine months in this year, it was roughly about 21 or 20.6 to be specific. And that is actually relating to various gains that we have had. And that's also the case here for Q3. So you should basically calculate with an interest rate or tax rates of roughly 24, 25, but occasionally we'll have different numbers.

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So thank you for a good discussion. We have presented the results for the third quarter, seeing very strong growth coming from strong pricing momentum, but also positive volumes and mix. And we will continue to focus on pricing efficiencies and all the longer term efforts we're making to create very, very attractive products and services for our customers and consumers going forward. Thank you for calling in. Thank you for listening. Talk to you in a quarter if we don't meet at the webcast in early December.