Essity AB (publ)

Good morning, everyone, and very welcome to this webcast. I'm Johan Carlsson. I'm the head of investor relations here at Essity. And together with me here today, I have our president and CEO, Magnus Groth, and also our CFO and executive vice president, Fredrik Rystedt. So today we will first talk about yesterday's announcement, and after that we will present the Q1 results. And after the presentation, we will open up for a Q&A session. And in order for everyone to be able to ask a question during the Q&A session, we would like to ask you to limit yourself to one question each. With that, I would like now to hand over to you, Magnus. So, Magnus, please go ahead.

Thank you, Johan, and welcome everybody to this very busy presentation. We will start talking about the strategic reviews that we initiated, but I also look very much forward to talking about the strong start of the year that we've had. We have good momentum throughout the company. But starting with a strategic review of ownership in Vinda and in our European private label tissue division. This is a strategic review that we're starting now with the aim of reducing our share of consumer tissue sales in the business. Consumer tissue, as you know, is our most capital intensive business and also the business that is most dependent on fluctuating pulp prices and energy prices. The review only covers these areas. We also have a substantial consumer tissue business with our branded products and also with our retail brand partners, which is very much our core business and where we continue to develop the business for the long term. We're looking at different options. We're early on in this process, so no decisions have been taken. We are not in a hurry. We are aiming to maximize value. So this is something we're doing step by step. And as you can see, this includes approximately 22% of Essity's sales that's subject to this review. Looking then to... Vinda listed on the Stockholm Stock Exchange market capitalization, around 34 billion Swedish kronors. We own close to 52% in S&E and net sales last year was around 25 billion. And the reason for including Vinda in this strategic review is the fact that 83% of sales is consumer tissue. This is a fantastic company, well-managed, strong brands, strong market positions, an attractive market. But this dependence on consumer tissue is the reason why we're including it in this review. We are working closely with the board of Vinda. Great relations since many years with the board and the management team. And again, we are in no hurry and we are aiming to maximize value when we pursue this strategic review. Moving over then to the private label division. The consumer tissue private label division that has sales of close to 10 billion last year. Seven production facilities, around 1900 employees. We are finalizing the carve out that we started two years ago. It's been a quite complex process, but we're at the end of that. So it's a good timing. It's also a good timing for the entire strategic review that we're performing now that the private label division is back on track after the pandemic and performing well. And I'm convinced that Vinda will have a strong second half of the year as raw material prices are expected to decrease in in China and in Southeast Asia throughout the year. So good timing. We're starting this review now. No hurry. We're aiming to maximize value here. So over to the interim report and a very strong start to the year. I think that sums it up pretty much. Price mix 18.6%, of which mix was 1.2%. We had positive mix in all parts of our business in spite of continuing to work very much with price increases. Shows the strength of our brands, our market positions. And as you can see there to the right, A very strong improvement compared to the same quarter a year ago in all areas. Sales growth up 17.2%. This includes the acquisition of Nix, for instance. The acquisitions account for approximately 1.2% of the sales growth. Nix is performing really well, growing over 20% in line with our business plan. Adjusted EBITDA more than doubled and the adjusted margin improved 200 basis points from 8.2 to 10.2. I'm going through all these different numbers now because of the huge improvement. So it's a good slide to talk to. And of course, return on capital employed in the quarter up 370 basis points to 12.7%. So very, very strong start of the year. Looking at the EBITDA margin bridge, a good gross margin contribution. gross margin is so important for us. That's what we need in order to be able to invest in advertising and promotion, in our brands, in innovation, up 160 basis points. And this is in spite of continued headwinds from raw materials, energy and transports compared to a year ago of 880 basis points. So for anyone questioning if we were able to compensate for the cost increases, through pricing, through cost savings, through mix improvements. I think this shows that that's been possible and, of course, something we will continue to work with in the quarters to come. AMP doesn't impact the margin development. Growing in absolute terms, about 5.1% of sales. We expect to have higher AMP this year. Because we have a lot of good innovation coming, so looking forward to launching that in a proper way. And SG&A contributed positively as percent of sales. It's an EBITDA, it's lower, even though it's higher in absolute terms due to inflation, of course. Ending at an adjusted EBITDA margin of 10.2% in the first quarter. This slide shows the quarterly development and I think what's the takeaway here from the sales growth is this is now the fifth consecutive quarter of very, very good growth. And in most quarters, a combination of price, volume and mix. And of course, very much price throughout the last year, but also the other components. We also see a pickup now in the adjusted EBITDA margin with an exception in the third quarter of last year when we of course had the huge energy spike in Europe that impacted the margin quite significantly. a nice trajectory here when it comes to the adjusted EBITDA margin development. Something that is becoming an opportunity for us is to continue to work with efficiency. You recognize these areas. These are areas we've been focusing on improving year over year over year with good But of course, it was more challenging during the pandemic and also during the supply chain disruptions last year. So we're really looking forward now to be able to focus more clearly again on energy savings, material, rationalization, sourcing savings, waste reduction, all the good things that's good for the environment and good for our business. We will also talk during the year about further footprint optimizations, cure or kill efforts. We are talking about one of those efforts in professional hygiene in this quarter, where we will take out some underperforming assets, which will have an EBITDA margin improvement in the short to medium term, associated with some restructuring costs. uh longer term opportunities for improved performance and efficiency is definitely the integrated supply chain to improve our supply and demand planning the snmp process and so on through digitalization and of course with inflation that we've seen been seeing now over the last year an increased focus on SG&A costs going forward so now that we are out of the turbulent times of the last couple of years we are increasing focus on these specific areas and see new opportunities also as a consequence of our new organization that we put in place at the beginning of the year. We always have a slide about innovation. The first quarter is typically not our strongest quarter. Still, we have some important innovation here. Maybe to focus on one, the torque hand towel that you see there in the middle, it's quite gray or brown. And this is because 30 to 50 percent of the ingoing material is carton board. So it's a new source of fiber for us that's been difficult to convert to carton. soft and absorbing hand towels before, but where we are now launching a new grade here that of course has a strong sustainability profile and also expands our fiber sourcing opportunities. Finally, before handing over to Fredrik to go through the three different business areas, we continue with our initiatives and our progress in sustainability and also a number of awards and recognitions as we're used to, which remains, of course, a core pillar of our strategy. Welcome, Fredrik.

Thanks, Magnus. Thank you. And I will just take you through some of the details around our three business areas. And starting with health and medical, we've had a good start to the year with growth of 10.5%, and growth was strong in all regions of the business area. And you will hear this some more, but we've had an impact from much lower levels volumes in our Russian business and of course also here for health and medical we were impacted so if you take out Russia it's about a percent or so higher like for like sales so roughly about eleven and a half percent now As you will hear from me also in the other business areas, price and mix was generally strong. And starting with price, we had an increase this quarter in comparison to the same period last year of roughly about 10%. And also sequentially, just comparing to Q4, the increase was 1%. So we continue with a good price momentum. And as Magnus, you said it, the mix was positive, so close to a percent for health and medical. So we continue to benefit from our innovation that we put on the market. As you can see from the slide, volumes were stable. It's a bit different in different areas. So we had a minor decline in the INCO business, where we left some low-end or, I should say, low-profitability contracts, but we had a corresponding or balancing growth in our medical business, and that growth volume-wise came from all three therapeutic areas. And so we're quite happy with the development in that area. Now, as you can see here, we had a very significant cost increase if we compare to last year. So in this case, the impact from an EBITDA margin perspective was 560 basis points. And we also did see an increase in interest. in SG&A coming from inflation. So from that perspective, the environment looks kind of similar as you saw before. I'll come back a bit later to what we see for the immediate future. I'll do that at the end. So turning to consumer goods, we deliver a really, really strong growth, as you can see. So if you include the acquisition, 17.6%. And the acquisitions that are included here, as Magnus alluded to, Nix and Modibodi. And we are very, very happy with the performance, not least in... in index with over 20%. And it's the same thing here that we are impacted by the lower volumes in Russia, but here we're also impacted by the fact that we left our diaper business in Colombia, as we have reported on before. So if you exclude these two unusual items, if I put it that way, the growth was a bit above 19%. So really, really strong growth. And the main driver, of course, positive mix here, but the main driver was negative. was pricing. So if you compare Q1 versus the same period last year, roughly about 18.5% or thereabout in just pure pricing. And also here, sequentially, we achieved another 1.3% of additional pricing. So it continues to be a good pricing market for us. Now you can see here that volumes are down. with 3.1%. And if you exclude the Russian business and the diaper business in Colombia, the reduction is roughly about 1.7%. And this is a reflection of a couple of different things. First of all, not least in consumer tissue, we continue to prioritize margin over growth. And we also have done the same for baby, where we have exited one contract with much too low profitability, as we've also reported on. So this is where the volume declines mainly come from, where we do just the opposite for Inco and Feminine, and we grow volumes there. And we are really pleased with the development in both, and not least in Feminine, actually, where we continue to take Market share in Latin America, just as a perhaps curiosity, we reached our highest market share ever in Mexico during the quarter, as an example. So here, I mean, obviously, the cost inflation is the highest. This is, of course, driven to a large degree. large extent by our consumer tissue business so pulp and energy and the margin impact here was 1050 basis points so a considerable increase and we also have although of course much smaller an impact from inflation in in sgna So turning to our third business area, professional hygiene, this is actually where we've seen the strongest or highest organic sales growth. And if we exclude Russia here, the growth was roughly about 22%. This is driven by a fantastic price performance of 21%. Here, actually, prices were relatively flat sequentially, but year-on-year upped by 21%. And the mix was actually 3% in this area, so really, really strong. You can see volumes are down. This is partly, again, repeating what I've already said here a couple of times due to Russia, but it's also... as we are going out of very low profitability business it's impacted by by that it's not everywhere it's mainly in mature markets where volumes have come down a little bit we can also see that emerging markets are continuing to do well not least in latin although we are of course much smaller there but generally very good good performance Input cost, the same here, 630 basis points if you compare Q1 of 2023 versus last year, same period. So pulp and energy, as is the case also for consumer goods, they are the main driving factors. And indirect cost obviously impacted by inflation. So I'll touch upon the last point a bit. So, of course, as you already know, as part of our strategy, we continue to premiumize our offering with more innovative and value-creating products. And we will, as part of this general strategy, take some steps in our professional hygiene business. So what we are doing, we are planning to close some capacity used for lower value-creating products. for our lower value creating and less innovative range. And as Magnus said, this will trigger some cost restructuring charges, approximately in total 410 million SEK. And out of that 340 million we will take as items affecting comparability in in the second quarter. Now, this will have some impact on growth also going forward. It's partly actually had a bit of an impact also in Q1, but we will see low single-digit impact throughout this year and the early part of next. But it will be very much margin accretive, so this is a... a project that we are planning that will yield some some very good result and over time obviously saying that we will replace these volumes that we are now taking out or plan to take out with more value creating sales so i'll end with a couple of statements normally If we just give a bit of an outlook, it's always uncertain, but when it comes to our cost structure, so three items there, starting with raw material, energy, and distribution, generally we see now that sequentially, and I'll only comment on this sequentially, so what we will see now in Q2 for all three items, business areas we will see lower cost sequentially in terms of raw material. It will be more so for consumer goods but all three will be impacted positively. When it comes to energy We see also there lower cost, and this is due to a couple of things. If you look at our hedging positions when it comes to gas and electricity, it's roughly about 60% for Q2. And prices, if you compare to Q1, they're actually roughly on the same level within the hedging contracts, but we also estimate lower market prices. So this is the reason why we also see lower energy costs. And then we also see lower distribution costs. So generally the cost picture on the input side is positive. And of course, that's also generally seems to be the trend for the year as a whole. When we look at other costs, you will see in our report that we've had some negative impact from that. It's mainly inflationary driven and it's also driven by distribution and other things. And we don't expect that if you look at it from a sequential basis, to deteriorate further. So this is much more something that has happened, and we are expecting that to be more stable. And then finally, SG&A, so a bit less positive picture there. We're not adding resources when it comes to SG&A excluding AMP. It's more the inflationary aspect. environment that we live in that will clearly lead to higher costs. So there is a negative thing there coming from SG&A. And as Magnus already said, we expect to have continuously throughout the year higher AMP. So I'll end there, Magnus, please. Thanks. If you could move to the next slide, please.