Essity AB (publ)

Good morning and very welcome to Essity's audio presentation of second quarter 2024 results. My name is Sandra Åberg, Head of Investor Relations, and joining today are our CEO, Magnus Groth, and our CFO, Fredrik Rystedt. Magnus and Fredrik will take us through the results. After that, you are very welcome with your questions. Now, I leave the line over to you, Magnus, please.

Thank you, Sandra, and welcome everyone to our quarter two interim report 2024. And as a summary, SOP had a strong performance in the second quarter with high underlying volume growth, our highest EBITDA operating result to date with higher margins in all three business areas. We continue to show a solid cash flow. And not to forget, during the quarter, we announced a share buyback program and new ambitious financial targets. So, summing up the numbers, organic sales growth was slightly down, minus 0.9%. Underlying, as I mentioned, we had the volume growth of 0.4%, but with taking into account the restructuring that we had done in primarily professional hygiene and to some extent in health and medical, underlying volume growth was actually 2.9%. EBITDA, excluding IAC, as I said, is the highest so far, close to 3.4 billion and increased with 17%, and our EBITDA margin ended at 14.7%. I'd like to draw your attention to our return on capital employed development, which is not any more one of our financial targets. But if you remember, our previous financial target was to achieve a return on capital employed above 17% in 2025. And this was including Vinda and excluding Vinda. We said that that should be then above 18% because Vinda was a drag on return on capital employed. And we actually hit that 18 number and even 18.5 already in this quarter. So the target that we actually had for next year. Since we're now buying back shares, it could be interesting to look at earnings per share growth, even though, of course, the impact from the share buyback program is very, very small so far. And as you can see, there's an increase year over year of 37%. Looking at the development then over the last number of quarters, It's clear to the left there, the sales and organic sales growth numbers, how we come out of a very inflationary environment and then a period of, to some extent, lower costs. And now in the quarter, close to zero growth again. So a big pickup from Q1. And going forward, our ambition is to continue to grow. volumes market rise with good margins, of course, we are aiming for continuing a positive growth trajectory. EBITDA and EBITDA margin, I think that picture to the right there, graph, it talks for itself, 14.7%, but actually good margins overall in the last number of quarters. So a strong development over a number of quarters. And current market situation, just to put things in perspective here, of course, we have inflationary environment, we have the costs, and then last year when costs were coming down and so on. Currently, I would say that market conditions are quite stable. There's nothing specific. We have seen a subdued consumer, consumers who are down trading and to some extent, looking for savings. We see raw materials, energy and so on moving up and down a little bit. It doesn't impact us as much as it did before, and nothing really dramatic. So it's a business environment that's quite stable currently, and in those conditions we are delivering these results. Just to remind also about the new financial targets since they were launched in the quarter. annual organic sales growth of above 3%, and the day margin excluding IEC above 15%, which we believe are very value-creating targets and that we're aiming to achieve in the mid-term. Also in the quarter, we announced a shared buyback program to allocate our strong operating cash flow, and we saw that also in the second quarter. just underlining that the private program amounted to $3 billion until next year's AGM. We need a new AGM approval every year. Having said that, our ambition is to use share buyback as a recurring part of our capital allocation. And that's, of course, something that we've never done before and which is now part of our capital allocation going forward. So that's overall from a group level. I would like to quickly talk about the three business areas, starting with health and medical that had strong developmental volumes, but also fantastic, I would say, EDTA and EDTA margin. So organic sales growth was overall 4.5%, coming both from volumes and higher prices than mixed, so across the line. And as you can see in continents, product health category 3.8% and medical solution 5.5%. very good momentum here, and a sharp improvement of E2A and E2A margin compared to a year ago. I would like to say a few words about this nice blue pack there on the picture to the right, because this is a product launch where we have seen some very, very positive initial reactions from customers and consumers. It's Tema ProSkin 2, so it's a new Pant Launch, where we have very, very strong claims. It absorbs two times faster than our previous products, and it also stays drier for the skin for longer, which is very, very important, especially for people with fragile skin. So very strong claims, a clear upgrade, a new pack, and something that we believe will be very competitive going forward. Because, of course, Pant is the biggest, it's not the biggest, but it's the fastest most attractive part of the incontinence healthcare business. Moving over to consumer goods, higher volumes in all categories, higher EBITDA and margins. Organic sales growth was slightly down, minus 1.3%, even though we saw higher volumes in all categories, up 3.2%, while price makes was negative 4.5%, and this is more or less all related to price concessions that we did in consumer tissue last year in 2023, when pulp prices came down dramatically. Since then, they have moved up again. But this is related to historic movements in our pricing. Looking at where the organic sales growth comes from, we are really happy to see that the incompetence products retail is increasing 9.7%. We have great momentum, but we also have a great go-to-market, good, successful product launches, innovation. So we're very, very competitive now in co-retail. Also in feminine care, continuing to see growth as well as in baby care, which just to mention, it's now very valuable, creating also the baby category that we have, where we have a very strong position in Europe. while consumer tissue was negative 4.7 on organic cells, so again related to price. Higher EBITDA and EBITDA margin nonetheless, EBITDA up 1% and EBITDA margin ending on 12.4%. Another innovation there to the right, this is again TENA, and it's again PAN, also improved performance in many ways, but here we have completely other claims. that appeal and attract consumers, close body fit, comfort, and a more discreet design. So it's a very good upgrade of our silhouette pants range, which is, again, an important part of our retail business. Before moving on to professional hygiene, I'd just like to say something about market shares. There was a period when we were very much focused on margin enhancement, to some extent, to the detriment of market shares. But with our focus that we had now over the last year on regaining growth, volume growth, profitable growth, we are also starting to see a good improvement when it comes to market shares. We have been having 90% of our business now in the consumer goods category, so in the retail, baby, feminine, and consumer tissue. we have been able to retain number one and number two positions in 90% of our sales. This has been the case over many years now, but what's really improved is the increasing shares, which is now almost half of the business. And actually, it's mostly related to the family care, income care, retail, and baby care. And if you include Also, stable shares still increasing. We are achieving 70%, which is a good improvement over a year ago or two years ago. It's showing that all our efforts and investments are really paying off in market share growth in the key categories where we want to grow. Finally, professional hygiene. Again, good volume growth, higher EBITDA margin. Organic sales growth was done with 3.9. Price mix was up 3%. And volumes were down, as you know, because of the restructuring that we did a year ago. So a tough comparison here. Excluding the restructuring, we actually had positive volumes of 1.4%. This means that the overall volume impact from restructuring in the quarter was a bit over 8%. Going forward, we will continue to see a negative impact from special hygiene, but in the third quarter, it will be around 6% instead of at the low rate. And then, again, somewhat lower in the fourth quarter before then lapping that impact. Higher every day, 18% increase with a margin that's also on very, very attractive levels, 19.2% and a good improvement over the last year. Again, talking about the innovations, we continue to build on our unique compression technology, which has great benefits for everyone handling our tissue products. This is a compressed multi-fold hand towel. It increases the capacity in the dispensers. It reduces logistics costs, transport costs, takes less space. So a very straightforward value trading example of an innovation that we have. where we continue to launch broader and broader assortment. With that, I'd like to hand over to Fredrik to dig into the numbers in more detail. Over to you, Fredrik.

Thank you, Magnus, and I will... Perhaps sum up a bit what you have been mentioning, looking at the group in total. And as you've said, Magnus, we had a very strong growth of 2.9% underlying. And of course, especially so in health and medical with 4.4% and consumer goods with 3.2%. But growth in pretty much all the categories, or actually all of them, and good volume growth, and of course, not least in incontinence healthcare and retail, and also medical, so quite proud of that. You mentioned, if you look at the total, you can see it on the slide, that restructuring and exits in professional hygiene and incontinence had an impact of a negative 2.5%, which is basically similar to that of... of the impact we also had in Q1. This is mainly professional hygiene, and looking at the professional hygiene business area, as you said, Magnus, a negative of 8.3%, and for health and medical, 1.2%. If we look forward to Q3, the incontinence impact will basically be gone. So there will be no such impact looking at Q3 and onwards. But pH will remain at roughly about 6% for the business area in Q3 and even lower than in Q4. And looking at Q3 for the group, That 6% in professional hygiene has a group impact in Q3 of roughly about a negative of 1.6%. Price mix minus 1.3. And this is relating to price. And as Magnus already alluded to, this is mainly related to the price concessions we did in consumer tissue in 2023 on the back of falling prices. input cost at the time. Sequentially, we actually have an increase in price. And that amounted sequentially to 0.4%. So the current momentum in pricing is actually positive. And the positive mix component is primarily driven by professional hygiene, but we do have a positive mix development in pretty much all of our different categories and looking at the EBIT A margin bridge obviously we saw a very strong improvement in gross profit versus the same period in 2023 and if we look at it sequentially we remained on the same gross profit level as we had in Q1 so despite increasing input cost between the quarters we remain at the same Gross profit margins. The price cost gap, obviously a big part of that was favorable for all business areas. And we had a good pricing discipline throughout all of our different areas. We had another quarter of good efficiency gains in cost of goods sold. And this is coming from pretty much all areas. It's procurement discounts, changing suppliers or better negotiations. Material rationalization is a big part. We still have, of course, obviously, the restructuring gains in professional hygiene. And there is a general improvement in the efficiency in our manufacturing and warehouses. We've previously mentioned that we expect, and we did that in Q1, we expect a COGS savings for the full year of pretty close to one billion. Now, obviously, as you can see, the performance has been very strong in the first couple of quarters. So it's quite clear that we will deliver more than a billion. However, just worth mentioning that we expect the pace to slow down here in June. third and the fourth quarter of this year. But once again, clearly a very positive picture. We continue, and this is very much in line with our previous statements in previous quarters, we continue to invest more in AMP. And this is very much in line with our ambition to fuel that profitable growth. And of course, as you can see, that had an impact on on margin of 70 basis points, and we now have approximately about 5.5% of net sales in AMP spending. If you look at SG&A excluding AMP, that increased 110 basis points. It's a lower impact than what you saw in Q1. But still, it is a high impact on the back of the inflationary environment that we saw previously more. So this is gradually coming down a bit. But we also continue to spend quite a lot primarily in digitalization of the group. It's not a matter of number of people. In fact, if you look at the number of employees compared to one year ago, we're actually slightly fewer employees. Turning to cash flow, it's a very good development, as you can see on the slide. Normally Q2 is quite negative, and this is due to a negative development of working capital. But this is not something unusual. This relates to the fact that we in Q2 always pay the bonuses for the previous year. So most of the working capital development is related to that. And the rest is a bit higher inventory value because we see higher input cost and therefore the value of the inventory increases. So if you look at it in terms of cover days, we're pretty much in very good shape and similar to that of Q1. CAPEX remains on similar levels as we've seen before, but we'll see a gradual increase now in Q3 and Q4. And if we look at the full year, we expect the full year CAPEX number to be in the range of 7 to 8%. somewhere in that ballpark. And finally, then, we have, despite, you can say, that working capital impact that I showed you on the previous page, we have continued to deleverage and further lowered our net debt position. The share buyback was, of course, launched very late in the quarter, so we have purchased shares to or where our agent has purchased shares to a value a bit over 100 million. So it has had a marginal impact. But despite all of that, we have continued to deleverage and, of course, also reached a lower net debt to EBITDA. It's actually slightly below 1.3 that you see on this slide. And with those words, I'll leave over to you, Magnus.