Essity AB (publ)

And welcome to SCT's press conference about our year-end report 2022. I'm Josefin Edvall, Senior Vice President Communications, and here with us today, we have Magnus Grupp, our President and CEO, and he will join us from our office in Eastman in Germany. And in Stockholm, our Executive Vice President and CFO Fredrik Rystedt will also join. And in the end, as usual, we will have a Q&A session. So with this, I hand over to you, Magnus.

Thank you, Josefin. And good morning, everyone, to this Q4 full year report, but also with a focus on the fourth quarter, of course. And to summarize the fourth quarter, we saw record high sales growth both in growth and sales in total. Our adjusted EBITDA was in line with 2021, despite significant cost inflation. Of course, the massive price increases that we put through played an important role here, but also efficiency improvements and higher volumes. So we were able to combine throughout the year price increases with the continued volume growth. We did three acquisitions during the year, so we'll talk a little bit more about them, and a very high pace of innovation, higher than in the years before. E-commerce grew with 20% to 15% of sales. So the financials for the full year, net sales increased with nearly 30%, and the organic sales growth, including M&A, was 17.7%, of which acquisitions amounted to 2%. Adjusted EBITDA, as I mentioned, almost in line with the year before, thanks to the top line growth in combination with the efficiency improvements. Adjusted EBITDA margin 8.4% and ROSI at 9.7%. With all of this combined, the board suggests to the annual shareholders meeting an increase in the dividend from 7 kronors per share to 7.25%. which means that we continue on a nice gradual increase here in the dividends provided an increase if that is approved by the annual shareholders meeting by 4% compared to the year before. I mentioned three acquisitions. Legacy Converting, which strengthens our offering in North America in wiping and cleaning. And Nixon Modibodi that we've spoken about before, that saw significant growth here in the fourth quarter, giving us a leading position in leak-proof apparel in the world. Very exciting, very sustainable, very much in line with what our consumers and customers are looking for. I mentioned that our pace of innovation was higher than in previous years. We have launched over 30 new products and some of them you can see here behind me, which is 20-30% more than the year before. So in spite of the difficult and challenging market conditions, this is important to us and we can continue to invest here. E-commerce, 23 billion of e-commerce sales, a growth with 20%. And this is in a year when many e-commerce sites or e-commerce businesses have been struggling coming out of the pandemic. So we still grow slightly faster in e-commerce than we do as a whole. And you can see the split here. And what we expect going forward is that direct-to-consumer, which is currently 2% of sales, will be gradually a higher share going forward with the acquisitions of Nix and Modibodi, but also with other initiatives that we are doing in the company. Something that's really, really key to us is to remain in the lead in sustainability. And we saw a lot of progress also in 2022. We were able to continue our path to achieving a reduction of our Scope 1 and 2 emissions to 2030 by 35%. We're now at minus 18%. And today, I only present Scope 1 and 2, Scope 3. We're still waiting for those numbers. It takes some more time, but we expect to see good progress in that area as well. And then you can see a list of awards and recognitions there from very reputable institutions. So this is something that's so appreciated by our customers, our consumers, our employees and other stakeholders. Moving over then to the fourth quarter of this year, which might be the part that's of most interest. Again, very strong sales growth, net sales 28%. and a sales growth in the quarter organically with acquisitions of 16% and as an adjusted EBITDA that grew over the same quarter of last year with 33% and you might wonder of course how can this be when the margin is only up 30 basis points from 9 to 9.3% but this is of course due to the huge growth in top line. So overall, if margin is increasing slightly, which we're very happy about, we're even more happy about the fact that overall the EBITDA profit is growing by 33%. And adjusted ROSI improves with 130 basis points and earnings per share by 20%. So a very strong development in the fourth quarter. The adjusted EBITDA bridge, where we saw a support from uh gross profit margin of 70 basis points in in q4 and this was in spite of headwinds from raw materials energy and distributions of 950 basis points so we are now through our price increases and other initiatives over compensating for that for the first time so we are really moving here uh amp in line with uh with ebitda growth which means that amp is increasing but not as percentage of sales while sdna which is lower as percentage of sales for the year increased in the fourth quarter and this is a combination of salary inflation higher payout on incentive programs in 2022 travel costs so it's more of normalization effects than but also some salary inflation rather than and that we're taking on actively more cost which we are not so that's the the overall bridge and another way of looking at presenting that was uh much discussed in the last quarter is this input cost increases versus implemented price increases and after the third quarter we presented that uh that we were catching up with the cost inflation in energy, raw materials and distribution. And we were less than two quarters behind. So I'm really happy to announce that we have now caught up with these costs after having a sequential price increase from Q3 to Q4 of 6%. So as you can see, a really steep uptick there in the curve when it comes to price increases. Now, looking forward, even though we see stabilizing input costs in these areas, we expect to continue to have salary inflation and an inflation environment in maintenance, in our SG&A costs, sales administration, which is particularly, when it comes to sales force, important for health and medical. And this is something that we will have to continue to to compensate with price increases. So price increases is still high on the agenda, even though we have caught up in this area. So with that, I will hand over to you, Fredrik, to talk about our three business areas, which have all of them grown through the year. So over to you, Fredrik.

Thank you, Magnus. And I will start with health and medical. And we achieved a good growth, organic sales growth in Q4 with 4.6%. And all of our business areas are affected by lower activity in Russia, including health and medical. And as you know, we are in the process of... exiting our Russian business. If you exclude that for health and medical, organic growth amounted to approximately 5.1%. And this is mainly driven by pricing. You all know that pricing, in comparison to our other business areas, is a bit of a slower process. Reimbursement systems, tender business and inco are the main factors. explanations to that but despite that q4022 in comparison to q4021 we increase prices with over 7% and sequentially just from Q3 with 1.7%. So really, really good progress there on the pricing side. You can see that volume was slightly negative, and this is predominantly driven by the fact that we abandoned a few loss-making or non-profitable contracts in incontinence healthcare. So, cost inflation continued to be very severe. And if you look at the margin impact, just in comparison to the same quarter of 2021, the margin impact was 6.6 percentage points, 660 basis points. The main drivers there being super absorbance, fluff, and actually negative currency transaction impact. Now, we expect as we go forward that input costs for health and medical will largely stabilize. But, and I think you mentioned that previously, Magnus, if you look at indirect cost, inflation is quite significant. And not least for medical, this is a major factor. So, of course, we will need to continue to increase prices as we progress in future. incoming coming quarters of course to compensate for that but also to the restore the margins of of the business area now just a final couple of comments on on the acquisitions that we've made so hydrofera aquacast and the sports tapes business with several brand names they all have been well integrated now into the rest of our business strengthening our offening all performing very well and just take that as an example of hydrophera in q4 with a growth of 11.4 so really a good progress on on the acquisitions now turning to consumer goods really excellent growth as you can see nearly 16 percent here organic And, of course, the same as for health and medical has also been impacted by the lower activity in Russia. And here also the exit of the baby diaper business in Colombia. And if we kind of adjust for those two, growth was actually roughly about 17.5%, so really strong. And same here, the main driver was actually pricing. So we achieved a kind of year on year in Q4 of roughly about 20% and sequentially a bit over 6%. So very, very strong progress. And we had that pricing increase in all our categories and all our geographies. And of course, as we have seen also before here, consumer tissue was the main driver. You can see here that volume actually was down. And this is new because we have seen volumes previously in Europe. during 2022 actually being positive. Here, the main drivers, and if you disregard here, Russia and baby, approximately 3% down in volume. The main drivers being consumer tissue and baby. And if you take consumer tissue as a start, then, of course, this was impacted by the very significant price increase, but actually to an extent also that price negotiations We're ongoing during the fourth quarter impacting that. It's our actual belief here that it's absolutely our belief that as competitors catch up in the balance between input cost and pricing, volumes will pick up in the coming quarters. And of course, when it comes to baby, the impact was there beyond LATAM, also the fact that we also in this area left an unprofitable retailer contract. So this was the main explanation. So if you look at the input cost, starting with energy, it was actually much lower in the quarter than we anticipated. And this had to do with a couple of different things. So first of all, generally, pricing levels in the spot part of our energy consumption was lower. And secondly, we had subsidies in the European system, and also a couple of one-offs, so in terms of the energy price, it was much lower. But you can still see that the input cost, the impact from that was very severe, with 1,130 basis points, so really very significant. and as exactly the same as for health and medical we see inflation in indirect costs so so basically in coming quarters we'll see input costs actually stabilize with the exception of one thing and that is the energy that will significantly increase a couple of reasons for it the prices in in our hedging contract will be significantly higher and the one offs and the subsidies that i will men that i mentioned earlier will not be there in Q1. So we will see that increasing. And the same goes for indirect costs that will increase. So overall, of course, we will continue to work extensively with price management. And then finally, a couple of... comments on the acquisitions of Modibodi it's early days there but it's a good progress and progressing in line with our plans and as an example Nix had a growth in the fourth quarter of 28% so we were really happy with that and it was specifically in the United States that was the main driver so very much in line with our with our hopes for the company, so performing well. Turning to professional hygiene, we've been really pleased with the performance of professional hygiene throughout this year, and Q4 was really no exception. So if you exclude Russia here, the organic growth was pretty close to 20%. And pH or professional hygiene is the area where prices have increased the most. So Q4 versus Q4 of 21 was increasing with about 23%. And sequentially, we increased prices with approximately 8.5% between Q3 and Q4. Now, volumes were negatively impacted, as you can see here, and the price increases played a part of that. I mentioned Russia earlier, and we also had a quite challenging market in Asia, and you can actually see this very clearly from this slide when you compare the organic sales growth in mature versus emerging markets. Now, also, and pretty much the same story in terms of professional hygiene, input cost inflation was very severe and input cost increased or had a margin impact of roughly about 690 basis points. So very, very severe. But as you see, and this was also the same for consumer goods, that overall EBITDA is much higher. And here we also see, and it was slightly so also in consumer goods, but here a very, very significant margin increase. improvement so we are quite happy with the performance as as you can see here from professional hygiene now the cost outlook remains pretty similar to the other energy will increase significantly indirect costs so all the margins have picked up here here it is definitely our view that prices need to stay and potentially even increase further now just as a Final comment, also in this area, we made an acquisition at the early part of 2022 with legacy converting, really strengthening our offering in the wiping segment in North America. And also legacy has performed well in the fourth quarter with strengthening margin and growth, good growth. And if you look at the total wiping and cleaning business in Q4, it actually increased with a bit over 12%. So, Good progress in general for professional hygiene. And with those words, Magnus, over to you.