Essity AB (publ)

Good morning and welcome to ESRI's presentation of the Q1 2024 results. My name is Sandra Åberg, Head of Investor Relations, and joining me today are our CEO, Magnus Groth, and our CFO, Fredrik Rystedt. They will soon present the highlights of the results, and after that, we will open up for questions. With that, I hand over to Magnus. Magnus, please, the floor is yours.

Thank you, Sandra, and good morning, everyone. Welcome to this quarter one report presentation for Essity. And today the folks will be on the report, of course. Just to start briefly, what we're seeing today is the result of a lot of hard work over the last seven years since we created Essity through the split from SCA, where we've been working with the restructuring, acquisitions, divestments, different efficiency programs, but also creating a common culture, common go to market, supply chain and developing the company step by step. And we're at the end of that journey of radical changes and entering a phase with more, of course, continuous improvements, which we'll always do. And what we're seeing today is the result of all that work where some we also had last year primarily in professional hygiene where we did some major restructuring and we're seeing the impact on of that on on the top line but we're now entering a phase where we are focusing on utilizing all these fantastic assets our fantastic people and our organization ways of working to grow volume based on our strong brands and innovative products and So that's just a little starter for the meeting here today. I would also like to draw your attention to the picture here because it's a new innovation. It's a walker. You've seen those before for people coming back from skiing holiday with a foot or... Let's see here. I lost the picture here a little bit. Here we are. I just want to do some advertising, if we can get back to that one. And so this walker, you've seen them before, but this one is more comfortable and it's 20% lighter than the previous edition. So it's more comfortable for the wearer. And of course, from a sustainability perspective, that's also a big improvement. So, and it's under the ActiveMove orthopedic soft goods brand. Okay, let's get into the first quarter, which can be summarized by high profits and strong cash flow. So we saw high profits and improved margins in all our different three business areas. We saw volume growth excluding restructuring in exits. We'll talk more about that through the presentation. We had a very good pricing discipline. Pricing was more or less flat sequentially. And the price declines that we've seen compared to a year ago are based on pricing decisions made last year. A very strong cash flow again, and we finalized the divestment of Vinda in the first quarter. So summarizing then the financials, and these are numbers excluding items affecting comparability. Organic sales growth was minus 4%. Again, volumes excluding restructuring were positive. EBITDA improved 14% to 4.88 billion. And EBITDA margin improved significantly to 14 points. And ROSI for a second consecutive quarter ended up above 17%. As I mentioned, we divested Vinda and we also received the sales proceeds and the sales proceeds were not only 19 billion strengthening the balance sheet, but also a capital gain of 9 billion. So a very, very good and profitable transaction. Moving then over to what our focus is now and what I already mentioned at the beginning of the presentation, Our three attractive business areas that we have created, I think they are now very well organized, structured, strong go-to-market, strong supply chains, and ready to grow. In health and medical, this is especially attractive since we have great underlying growth due to factors that you're well aware of, aging populations, prevalence of chronic conditions, and an area where we have invested very much in innovation over the last couple of years. So really set up for growth. Consumer goods, our biggest business area. Here we are focusing on growing in incontinence care retail and in feminine care. While in consumer tissue, we want to utilize the assets that we have to the maximum to get operating leverage and the same in baby care. And finally, professional hygiene with our global leading brand, TORQ. Now 25% of sales. You can see that Compared to a few years ago, the mix here is somewhat different overall between the business areas and in favor then of the higher yielding, less capital intensive businesses, where we have a fantastic starting point and where we're aiming to exceed market growth going forward, now coming out of the final restructuring that we did first half of last year. With that, I'd like to just give a quick overview of the three different business areas and starting with health and medical, a significant improvement of EBITDA, margin and cash flow. organic sales growth 2.6% and as you can see here we have a growth both in incontinence products healthcare and in medical with big improvements in price and mix volumes were down 1.2 but actually also in incontinence care healthcare we did make some restructuring we stepped out of lower yielding or unprofitable products and that's what's reflected here so underlying we will come out of this situation through the year here. So excluding those exits, we actually had positive volumes also in health and medical. Significance, I would say, an amazing improvement of EBITDA and margin. EBITDA up 66%. And remember, this is the business area where a big part of our business comes from three-year contracts. So what we all said is kind of more sticky, takes longer to completely renew that portfolio, but the team has made a fantastic effort and been able to improve then EBITDA with 66% and the margin with 720 basis points. So a huge improvement year over year and something we're really happy about, of course, the quick recovery here. Moving over to consumer goods, volume growth for all categories and again higher EBITDA and margin. You can see the number here. Organic sales growth was down 4.8%. And a big part of that is from price mix, where the big component is price. And we came into last year with very, very low sales. or very, very high raw materials and energy costs. And then throughout the year, they came down drastically in 2023. And we followed, but with very good disciplines, our margin improved. And that means that we have a negative impact this year from pricing on the top line. But as I stated, and as you can see here, also a very good impact on margins. And of course, We are much more agile today in following in pricing, and now that pulp prices are starting to trend up again, we expect to be able to manage that in the same good way as we did. And volumes were higher for all categories in total, plus 0.6%. And again, higher EBITDA and EBITDA margin for consumer goods. Finally, professional hygiene, strong mix, higher EBITDA and margin. And the reason why we mentioned mix here specifically is that A major reason for us doing restructuring here in the first half of last year in professional hygiene was that we still had some assets and some product areas that had very low or no profitability and they were a drag on our margins and we decided to restructure and to focus then on the very attractive portfolio that we have left with. products like PeakServe that we've spoken about many, many times, and ExpressSnap, for instance, systems where we are growing double-digit year over year over year with very good gross margins and margins. Of course, this restructuring had a major impact on organic sales growth that was down 6.9%, but as you can see, excluding restructuring, volumes were up 0.9%. And again, higher EBITDA and EBITDA margin. So excellent work in this business area. So all three business areas doing really, really well. With that overview, I would like to hand over to you, Fredrik, and to present the financials in a little bit more detail.

Thank you, Magnus. The group as a whole, and of course you've picked up some of these components already from what Magnus has talked about here, but if we look starting with the underlying volume, 0.6%, so quite a reasonable volume, and that is 0.2% in H&M, 0.6% in consumer goods, and then 0.9% in pH. It was slightly lower for pH in the quarter if we compare to the previous couple of quarters, and this was actually partly due to a bit of destocking in the quarter, so more of temporary nature perhaps when it comes to the underlying part. As Magnus has already mentioned, when it comes to the restructuring indexes, minus 2.4%, this is both in professional hygiene that we have talked about a lot, and the impact on pH is quite significant with minus 8.6%. And as you have heard many times, we also did a lot of what we call cure-or-kill activities or exiting from unprofitable contracts in H&M during the first couple of quarters of last year in particular. And that had an impact on the H&M volumes roughly with 1.4%. Now, if you look forward to the next few quarters here, the pH restructuring impact will be there for the entire year, although gradually reducing during the second half. But you'll see a similar impact next quarter and, of course, also in the second half. When it comes to H&M, we'll see some impact also next quarter. but thereafter the impact is going to be relatively immaterial. So basically all of these things have already been done in 2023, but you'll see the impact of it when we compare the numbers. So if we look at price and mix, minus 2.2%, that consists of minus 3% in pricing, and then a positive mix for the rest, so a positive mix of 0.8%. All of that pricing is actually relating or most of it is relating to consumer tissue Europe but it's worth mentioning of course that the margins in consumer tissue Europe remains very attractive so basically the prices come down in line with cost. It's worth mentioning perhaps if you look at the group as a whole, we have a flat sequential pricing. So once again, these are price declines that were made during 2023. Now, if you look at maybe mix then, it was predominantly then as a final component related to pH and also to incontinence healthcare in particular. Turning to the result, you can see that there is a significant increase in gross profit margin. And this is, of course, compared to the first quarter of 2023, but it's also sequentially better. And in fact, if you look at our numbers, you will see that the gross profit sequentially has increased now for six consecutive quarters. So it's a very strong development that has continued in this quarter. Price-cost gap, of course, is the main parameter. And as cost has come down in our books, we have kept a very strong pricing discipline. And of course, that has helped the gross profit margin quite significantly. But we're also really pleased about the development of our efficiency gains in COGS. So obviously, we had almost 430 million in the quarter of savings. So very, very strong. And these savings, they come from everything from negotiations or increased discounts. They also come from material rationalization. We have some gains from the restructuring that we talked about in PH. But to be fair, we've actually had benefits in pretty much all parts of our supply chain. So really good quarter from that perspective. We've given some guidance here previously, about 500 to 1 billion SEK for the year as a whole. With this start of the year, we believe it's likely that we'll end up towards the upper part of that range. So worth mentioning that. If we then come to the AMP part, we've spent roughly about 180 million more in AMP. So a fairly considerable increase compared to last year. And that has an impact on sales with or competitive sales with about 70 basis points. And this is very much in line with our ambition to fuel growth with additional spending in AMP. You can also see here that SG&A has increased quite significantly if you compare it to sales. And there are many reasons for it. Let me just start with the perhaps obvious. As the sales number has actually come down, The base is actually lower. So that's a considerable part why that ratio to sales is increasing. But we also see some fairly high salary increase level. So the inflationary level is coming through here. We've spent and invested more into digitalization in general. And there is a final, which is a bit smaller component, but we've also front loaded our provisioning for bonuses a bit for this year. So all of that sums up to the 190 basis point. Worth mentioning, perhaps, as a final comment on that, we have not really increased headcount in any material way. So headcount increase is not a contribution to this number. Turning to cash flow, we're really happy about, of course, the continuation of the strong cash flow generation. And you can see that that operating cash flow, although a bit lower than Q3 and Q4, is still on a very high level in comparison to history. So Q3 and Q4 last year in 23 was impacted by the fact that we had a fairly you can say low cash flow generation in Q1, Q2. This year is much more normal. So continued strong cash flow, operating cash flow, good control over working capital. And in addition, as you can see on the table to the right, the purchase or the divestment of Vinda, of course, has further contributed. So receiving the proceeds has increased. further contributed to that strong cash flow. And then, of course, as a result of this, clearly the financial situation has very much strengthened. So you can see that we ended up the quarter with 1.32 in net debt to EBITDA, so net debt of 34.3 billion. And that is a consequence of that strong cash flow, but also the fact that we have received the proceeds from Vinda and, of course, the net debt attributed to that. So a strong financial position. And with that, I'll leave over to you, Magnus.