Essity AB (publ)

Good morning, everyone, and very welcome to SRE's earnings call and webcast for quarter three. My name is Sandra Åberg. I'm the new head of investor relations. And joining me here today are our CEO, Magnus Groth, and our CFO, Fredrik Rystedt. They will soon present the highlights of the report. And after that, we are very much looking forward to your questions. Please try to have just one question per call. And any additional questions, please reach out to me after this. With that, I'm excited to get started. Magnus, please. The stage is all yours.

Thanks, Sandra. Good morning. Welcome everyone to this press conference about Essity's interim report for the third quarter. Essity and our brands take care of the health and hygiene of over a billion people. people in 150 countries for everybody and for every body. And we do this in three very distinct business areas, health and medical, 16% of sales, consumer goods, 60% of sales and professional hygiene with 24% of sales with different customers, different go to market and different business rationale, but also significant synergies that makes all of these businesses value creating and stronger together. Moving over then to the third quarter, we saw strong profitable growth with significant improvement in all our business areas, and we continue to deliver on our key priorities for the year. We're also on path to deliver our financial targets, and our strategic review is developing according to our plan. We announced the strategic review six months ago, so we're still early into this process. So over to the financial summary. Sales growth 4.6%, well above our target for organic growth of 3%, with organic growth being 3.8%. Adjusted EBITDA up 78% to 5.3 billion. It's the second highest adjusted EBITDA that we've had in the group. Margin improved significantly to 12.2% and very, very strong ROSI improvement with 620 basis points to 14.6%. Focusing in on the sales growth, the 4.6% consisted of a volume drop of 3.1%. Price and mix, very strong, 6.1%, of which mix is 1%. And acquisitions, 0.8%, primarily coming from Nix, our leak-proof apparel company in Canada and the US that continues to grow very, very nicely. Looking at the volume specifically development, it's partly due to lower sales and slightly lower price, but two out of the 3% are relating to decisions that we have taken in the group. to prepare ourselves to reach our long-term financial targets. So one-time impacts that will also impact the following few quarters that we have reported in the first and second quarter already relating to professional hygiene very much where we have done restructuring to improve the structural margin by over 2%. but also decisions to step out of unprofitable contracts in health care and in baby care. This is now done. Of course, it will impact the following few quarters, but it puts us in a very good spot to reach our long-term financial targets. And I'll get back to that. Moving over then to the higher adjusted EBITDA margin, which improved by 470 basis points to 12.2%. There's a huge uplift in the gross margin where we see higher prices, better mix, cost savings, which is something that we're very happy about because it's been difficult to work with cost savings in the past couple of years with the pandemic and the ensuing bottlenecks that we had in the supply chain. But we were also helped for the first time by lower raw materials, lower energy and distribution. Lower volumes and salary inflation had a negative impact. AMP slightly up, and this is due to marketing investments continuing to fuel the mixed improvement and the growth, and SG&A higher due to inflationary impacts. Now looking year over year, but on a quarterly sequential basis, net sales has continued to grow also in the fourth quarter. The very high numbers that we've seen over the last three quarters preceding are of course also related to the necessity to increase prices to manage the cost inflation that we've seen over the last one and a half years. And to the right, the result of all the efforts that we've done, not only in price management, but also when it comes to innovation, efficiencies and other areas. The fourth consecutive quarter of stable and rising adjusted EBITDA and EBITDA margin. With that, let's look into the business area. I hand over to you, Fredrik.

Thank you, Magnus. I'll do that with pleasure. I'll start with health and medical. We continue to have a really good quarter for health and medical, strong organic sales growth and a significant margin uplift, as you can see. If you look at the different details, specifically within medical, we could see that wound care and compression were especially outperforming in terms of organic sales growth. And as we have talked about before, the price management is very key within health and medical. And we continue to have a strong development. So if you compare with the same quarter of last year, it's plus 8%. And we also had a sequential uplift in pricing. Mix as well continues to be really healthy. And that's particularly the case for INCOE. We had supporting that mix, both, of course, within this quarter, but also in coming quarters. We had a lot of launches, both under the ActiveMove and Jobs brand name for medical, but also for TNA. So we continue with lots of innovation to support our partners. our mix and margin development. Now, as you can see here, volumes have been negative. You can see it's roughly about a bit over 3%, and that's all attributable to INCO and the deliberate decisions to exit unprofitable positions that we have taken. We have reported about this before. This journey is now over. And of course, we have through all of these actions created a much more sustainably profitable platform, of course, that we will benefit from in the future. But needless to say, as Magnus already alluded to, this will have a negative impact as we proceed. All of this is basically within Inco. And if you look at the kind of volume development without these deliberate exits, it's largely flat, slightly negative, but largely you can say flat. So All in all, a very good development in that sense. And I already mentioned it. My margin is up by 600 basis points. That's high price. That is mixed. That is lower input costs, but also really good cost control within health and medical. And, of course, as I already alluded to, the choices we have made there has clearly contributed to that profit. Now, if we look ahead to Q4, As now margins have improved to the levels we are at this point of time, we will refocus a bit and focus more on volume as we go forward and less on margin. So that's a bit on Q4. And now turning to consumer goods, as you can see, we continue to grow at good levels, less than previous quarters. And this is because of the pricing impact now being a lot less. I'll come back to that in a second. organic sales growth really strong for uh inco retail and and for feminine and especially if you look at these positions just a couple of examples there in latam as a as just one example we continue to grow our feminine position on the nosotras and saba lots of market share gain there and we reach now over 50 so a couple of percent market share growth and just another example we continue to kind of manifest our leadership position in Brazil, reaching close to now 30% in market share, up by about 3%. So it continues to do really well. And just maybe a final example, the acquisition that we did quite recently with our leak-proof apparel, Nix, the company continues to do super well in terms of acquisition. and it's up by roughly about 15%. So lots of good examples on the inco, retail, and feminine side. If you look at the volumes, you can see it's actually negative. And if we take that one level deeper, You can see that Inco, that's not a surprise then, Inco and Feminine keeps on doing really well in terms of growth, whilst we have a decline for consumer tissue and for baby. And starting with baby, you already know the reasons. We've talked about that before. It's mainly related to the retail brand contract that we left some time ago. and a bit of our exit of diapers in Colombia. So that's basically the main reason, and that will sort itself out over time. Consumer tissue has been clearly declining in Europe and Latin America, up in China and through Vinda, but down in Latin America and Europe. And Europe, and of course, we can see actually downtrading there, both in Europe and really across the categories in, well, all categories in Latin America. So if you look at the margin development, all in all, of course, positive. Price and mix supported the development, but we do have a sequential price decline in consumer tissue and baby. But all in all, the margin development on the back of, of course, same as for the others, lower input cost, a good price development, good mix, and of course, also here, lots of efficiency. So all in all, a good development for consumer goods. Now, looking ahead for Q4, we see that we will have lower prices sequentially. And this is, of course, on the back of lower input cost. We also see that we will have higher promotional investments in consumer tissue to support the volume, and that is particularly so for Europe and to some smaller degree also in Latin America. In comparison to Q3, input cost will continue to go down. They'll be slightly lower in comparison to Q3. So if I take the final area, professional hygiene continues to do fantastically well, as you can see, both from an organic growth standpoint and also in terms of margin. And as you can see, the strong price and mix more than compensated for the loss of volume. And as expected, the volume was down, as you can see, minus 5.4%. And this is all of it a consequence of the restructuring activities that Magnus alluded to and that we have reported in Q1 and Q2, so for Europe and North America. all of the decline here is related to those exits. So underlying, it's roughly about flat. And of course, we continue to actually benefit from, how shall I put it, the post-COVID hygiene standards with kind of more wiping, with more cleaning, with more hand wash, soap and tissue, all of those bringing kind of a better mix and a better margin. And as a consequence of all of this, the operating margin increased with 650 basis points, obviously price, mix, input cost and cost efficiency. So once again, for also this business area, what will the future bring in terms of Q4? Well, obviously, the restructuring activities that we've had will continue to have an impact on volume, and that impact will be slightly larger than what we've had in Q3. One perhaps peculiarity in the way we have done these restructurings is that we haven't just exited the volumes, but what we have done is raise prices a lot for those volumes. And that has had a very positive margin impact for those particular volumes. And as those volumes now have been exited in Q3 and they'll be out in Q4, of course, that will have impact. a bit of margin impact also in Q4. But overall, the performance of professional hygiene is really great. And finally, there on the input cost, we expect them to be sequentially stable. And that is it, Magnus.