Essity AB (publ)

Hello and welcome to Esri's presentation of the results for the first quarter 2025. My name is Sandra Åberg, Head of Investor Relations. Today, our CEO Magnus Kroth and our CFO Fredrik Rystedt will guide us through the essentials of the Q1 report. We will also share some assessments on the tariff situation and why we expect the current tariffs to have a limited impact on Esri's business. After that, we have set aside time to answer any questions that you might have. After the webcast today, we will be road showing in Stockholm and next week we will be in London. So if you would like to meet, please reach out to me. With that, a solid start to the 2025. Magnus, could you please elaborate?

Thank you very much, Sandra, and good morning, everyone. And thanks for listening in and watching our Q1 report today. So, as a summary, a solid performance with higher sales and a strong cash flow. All business areas continued to the strong growth and we saw higher volumes, mix and price in two out of the three business areas in health and medical and professional hygiene, and we saw a positive price in professional hygiene, but lower volumes, overall stable volumes. We saw strong growth in our high margin categories, which is, of course, where we prioritize, and this was partly offset then by higher COGS and higher SG&A. The way to work with this is, of course, that we are always incredibly cost-conscious COGS is mainly attributed to raw materials and distribution, SG&A to inflation and investments in growing our business. And the way to grow this to achieve our long-term margin and growth targets is to continue to focus on solid volume growth. So that will be a theme today and also a theme for the coming quarters. And as I mentioned, strong cash flow and a solid balance sheet. Yesterday, so after the quarter and after a board meeting, we announced a new share buyback program, again, 3 billion SEK. This is to allocate our strong operating cash flow. It begins today and extends until the AGM next year at the latest. It will be Safe Harbor compliant, and very important, our ambition is to use this as a recurring way of allocating capital. So, as you know, our number one priority is, of course, to invest in our value-creating growth of the business, so organic growth. Secondly, then, to have stable and rising dividends. Thirdly, to be able to continue to deleverage our balance sheet, which is already very solid. And then as a way of further increasing our capital efficiency, a recurring share buyback program. And we still have room for acquisitions with all this combined. Over to product launches. So important. We know that our products, our solutions are loved by consumers and customers all over the world in the 150 countries where we are present. And here are some great examples from the first quarter. To the left, the Cuddly Koala, Kenny, that here presents a new and very soft and value-related consumer tissue product in the UK. and to the right further launches in a fast-growing part of feminine care and incontinence care with absorbent underwear where we are continuing to to develop and grow a big launch for us is with the tenna pro skin pro skin slip this is uh one of our biggest products in Tenna and as you know in incontinence care we are the global number one and this is a product that's used both in healthcare and in retail and that's very very important for our continued growth and success in in this area that's so important for Essity and to the right maybe more as a fun fact but showing how strong we are in different parts of our medical businesses this relates to our casting business where we are the global number one and actually an adjacent product that cast saw that helps remove casting in in a very safe and and good and quick way so so maybe not a huge product but still showing that we are developing and launching innovations in all our different categories And this results in our product superiority rising to a new level that we've never seen before, over 70%, 71%. We keep raising the bar. This is something we spoke about during the Capital Markets Day that we would expect to see big improvements here in this year. And this means that 71% of our branded sales is perceived to be superior when you combine price mix and product attributes and features by customers and consumers. So a clear customer preference, which of course drives buying and purchase intent. a very important measure for us, and we expect this to improve even further during the year with the innovations that we have ahead of us. And here's an example also on the baby side with Libro Touch that we launched last year and that we believe will ensure that we also continue to grow our baby business, which was somewhat soft in the first quarter, but where we have strong plans for the remainder of the year. With that, I thought that we might as well talk about tariffs, because I'm sure you will have questions here. Overall, the message from ESSID is that we see a very limited impact from tariffs. And the reason is, as we've spoken about before, that we have a global business and that we typically produce where we sell our products. And that's also where we source our raw materials. And as you can see, specifically in North America, we have 17% of sales. Together with Canada, that's 25% of our sales. And those are the countries mostly then affected by the tariff situation as it is evolving. And of course, this could change and is changing more or less day by day. If we then look at our global footprint, we have 70 production facilities, and this is just to show that it really proves the point that we're typically producing our products and sourcing our raw materials where we are also selling the products, which is a very good hedge against tariffs. Zooming in then on North America specifically and the different business areas, professional hygiene, over 90% of what we sell under the TORQ brand in North America is actually produced in North America. The raw material is mostly recycled fiber, which we also source in North America, which actually gives us a competitive advantage to several of our competitors in the country. We have some imports to Canada from the US that are subject to tariffs currently, and we're managing that with adjusting the assortment and also pricing. In incontinence products, healthcare and retail, we are producing in the US, we're also producing products in Canada that are being exported to the US. These trade flows are right now exempted from tariffs due to the USMCA agreement, the trade agreement between Mexico, Canada and the US. And in medical solutions, we have some imports to the US from Mexico, a plant in Reynosa, Mexico. So, conclusion as it comes to tariffs. A majority of our products are produced locally in the US, more than 80%. Imports and exports between the US and China, which I didn't mention, are very limited. And a majority of the flows that we have between the US and the neighboring countries are exempt from tariffs due to the US MCA. For parts that are impacted, we are working with various measures to minimize the impact. We can do it by optimizing trade flows, we can do it with pricing, adjusting the assortment and so on, to further mitigate. So, summary is limited impact on S&T from tariffs. With that, I'd like to hand over to a more detailed overview of the business from Fredrik. Over to you.

Thank you, Magnus. I will... provide a bit of comments on our three attractive business areas health and medical consumer goods and professional hygiene and then I will conclude by providing you with some some insight relating to the group as as a whole and I'll start with with health and medical and as you can see on the slide we grew with 1.7 percent organically and this is coming mainly from volume and to a degree from price and price and mix. And as in previous quarters, we continue to do super well in our medical part with good growth in all therapy areas, particularly so in wound care, but actually all three of them grew. And we also saw a positive development in in all regions and this is both volume but also actually price when it comes to incontinence products as you can see we had a more or less flat development and this was actually not something that we are concerned with you may remember from our q4 presentation that we had a very strong growth in in incontinence healthcare due to upstocking from some of our customers in the quarter. And as a consequence of that, the sales in the first quarter of incontinence healthcare was slightly lower. We expect that to pick up and normalize as we go forward in the year. So basically a reasonable start to the year, a good start to the year for health and medical in terms of sales. The EBITDA margin fell, as you can see, and this was a result of actually falling margins for incontinence healthcare as a result of basically COGS coming up and a bit of slightly less absorption due to that low volume development. When it comes to medical, margins actually picked up in comparison to the same period of last year. all in all a good start to health and medical turning to consumer goods growth there was slightly stronger so almost three percent as you can see and a very very strong price and mix component and if i start with price and mix actually all of that is relating to price so mix continues to be quite low and this is a consequence of something we've talked about many quarters the fact that growth is mainly coming in the good or lower segments of the market. So, premiumization is still not kind of the name of the game, and this is particularly so for consumer Volume was very strong in incontinence products for the retail market, as it was also in feminine. And both of them have continued to grow for quite some time, both in terms of volume, and we also had a positive price and mix contribution. When it comes to consumer tissue, most of that growth you see of 2.7% is actually related to price, although volume was actually... also marginally positive. When it comes to baby, here we had a bit of a disappointing quarter in our view with a decline of 6.5%. And this came from basically lower demand, but also quite fierce competition with big or high price promotions in the quarter. Here we're working with our product assortment and we expect to have a better development as we go forward. But it was a challenging quarter when it comes to sales for baby care. Looking at the margin then for consumer goods, as you can see, it was actually down by 50 basis points. And this is all mainly attributable to predominantly consumer tissue and to a degree also baby. And when it comes to consumer tissue, we have increased prices quite considerably, but not enough to cover the additional costs. cost of goods sold so slightly down but worth remembering here that if you look at the margin sequentially as expected it did pick up quite significantly with 170 basis points so overall a good good development you can say good direction for for consumer goods and consumer tissue finally then professional hygiene with a marginal growth of 0.7 we remain with a very strong pricing discipline so if you look at price and mix at 4.3 percent a large part of that was related to price so we continue to be robust in in our in our pricing discipline and also as we saw continued growth in our strategic or premium product as as we say we also had a positive mix. But as you can see, the overall volume is down by 3.6%, so the base assortment, the development there was less favorable. And this was to a very large extent attributable to the North American market. and particularly so in the food service space. So it was a bit challenging. Also here, we expect development to improve, and we're working with many tactical things to make sure that volumes actually do pick up as we go forward. In this business area, margin was stronger than the corresponding... quarter of last year so plus 80 basis points and this is of course very much a consequence of of the pricing discipline that i mentioned earlier so if i sum all of this up to for the group as a whole you can basically see that volume was flat and this was as i've already said a result of very strong development medical feminine incontinence retail and of course weaker when it comes to particularly professional hygiene and baby. But all in all, flat volumes. Pricing was very strong here, plus 2.1%. This is basically all of it relating to price. And it was particularly strong professional hygiene and consumer tissue, but actually all three business areas had a positive pricing or price mix. So all in all, a good development in that space. And then we have the translation coming from a stronger Swedish krona and bringing the total growth then to 0.4%. If I then go to the EBIT margin for the group as a whole, I've already mentioned this, that we've had higher COGS, quite considerably higher COGS, and this is pretty much all of it coming from higher raw material, and mainly pulp, but not only, so higher raw material is actually bringing that higher COGS and we managed to compensate quite significant part of that headwind with higher sales prices I've mentioned and of course it also helps that we are growing in our high yielding segments like medical, like feminine, like incontinence but it was all in all not sufficient to fully cover the headwind that we saw in terms of raw material. When it comes to A&P, we have in absolute terms a bit lower spending and also in relation to sales. You should not look at this as a lower ambition or a lower goal. uh permanent spend spend level this is more a facing issue so as we have reported earlier we expect amp for the year as a whole to actually be higher and we stand by that that forecast and finally sgna is increasing here and as in previous quarters very much related to salary increases and higher spend for for for our it structure and of course this is a consequence then of Also, when you look at the impact on margin, the fact that sales is not growing as much as SG&A is increasing. Just final few couple of words on our balance sheet and cash flow. And if you look at this, we continue to have a very strong cash flow. So normally we consume working capital in the first couple of quarters in any given year. And we did that as well this year. So in line with our expectations, but generally we remain with a very strong cash flow. And as a consequence, We have continued to reduce our net debt. You can see it's close to 27 billion there, so a quite considerable reduction. And the balance sheet has become even stronger with a net debt to EBTA of roughly about one. And just to remind you what you probably already know, but we, during the quarter, purchased... roughly 775 million sec of our own shares and most of of course that was cancelled or pretty much all of it was those shares were cancelled at the agm so with those words i'll leave back to you magnus thanks frederick so to summarize i think the