Essity AB (publ)

Good morning and welcome to Esri's presentation of the Q2 results. My name is Sandra Åberg, I'm Head of Investor Relations here at Essity. We will begin with a summary of the key business highlights from our CEO Ulrika Karlsrud, followed by the financials and a closer look at the key metrics presented by our CFO Fredrik Rystad. After that, we will have a Q&A session where you will have the possibility to engage directly with us. If you would like to ask a question, you just press star one on your telephone. With that, let me hand over to our CEO. Ulrika, welcome.

Thank you, Sandra. And welcome also from my side to this presentation. We can summarize the quarter with that we delivered a positive organic sales growth and a result of 4.7 billion SEK. And the fact that we have this stable development in a quite challenging market environment is a testament to our resilience and to the strength of our broad portfolio of essential hygiene and health products. The organic sales growth that we delivered was close to 2%, 1.9% to be precise, and primarily driven by a strong pricing performance. We also grew very nicely in our strategic categories and segments, such as feminine care, incontinence care, retail, wound care, lymphology, Torque PeakServe and Torque Skincare. And it's promising and encouraging that the focus and investments that we put behind driving higher yielding segments is paying off. On the other hand, we also in some of our segments and categories experienced a lower demand in the quarter as customers and consumers are constraining their spending following the weak economic climate and the global uncertainty that we see. And that resulted in limited volume growth. Looking at our profit margins, or at our margins first, because we can talk about our gross margin first, that was on a very high level, actually on a record high level. The limited volume growth and the increasing SG&A costs, though, impacted our profit margins. So the 13.7% adjusted EBITDA margin, that is a decline compared to the same quarter last year, but a sequential improvement compared to previous quarter. A highlight of the quarter is the strong output that we had from our innovation pipeline, as you will see now when we move into the different business areas, starting with health and medical. Now, Q2 2025 marks the 17th consecutive quarter of growth for medical solutions. So also this quarter, we were growing medical solutions, not the least in wound care. We also had good growth in our incontinence care business in many markets. There were some markets, though, where we had more challenging market conditions. One example is in the UK, where lower-cost competition gained ground. Another example is in Colombia, where the government has been restricting funding to healthcare. Here it's important to remember though that we have a quite unique advantage that we are present with incontinence care across the different channels. So if a patient does not get a TNR product through healthcare then he or she can actually then purchase the product instead in the retail channel and we pick up some TNR volumes there instead. The underlying market growth or the underlying demand continues to be high in all of our categories across health and medical. And we continue to execute on our strategy, which is to market holistic solutions that are providing good quality care at the lowest possible total cost for our customers, while also making sure that we have offers for those customers who choose to buy the cheapest product per piece. Then we also continuously, of course, upgrade our assortment and make sure that we have products that are relevant for everyone. So in this quarter, we extended our bariatric range in the US with sizes 3XL and 4XL, which demonstrates that we indeed provide products for everybody and everybody. Moving to consumer goods, one of the highlights of the quarter was our good growth in feminine care. We are strengthening positions in many markets, to mention a few, Mexico, UK, Australia. Also here it's important to have products for different income levels and give us the pricing flexibility and so on. So here we introduced a tiering approach in the quarter. And the product body form ultimate is coming on shelf in the UK as we speak. And it's designed for heavy flows and allows us to trade up consumers to higher value products. Another highlight in the quarter in consumer goods was the strong growth we had in incontinence retail, not the least in Tiananmen. This is a very attractive segment for us. One out of four men over 40 experience some kind of urine leakage, and only five to seven percent are using purpose-made products. That's quite a potential. And we are putting ourselves in an even better position to capture that potential by doing a facelift of our Tena Men range that we did in this quarter. So we upgraded the packaging and we also put some even stronger claims on the packaging to make it even more appealing and relevant for this target audience. The low light in the quarter was the continued weak development in baby care. So here we are impacted by the low birth rates that we see, but also by continuous very high competitive pressure and an increasing price sensitivity among the consumers. We are responding by accelerating and gearing up our promotional pressure and also, of course, to upgrade our products. So we are launching in this quarter an upgraded product with softer leg calves. So we are making sure that we are as sensitive as possible to the delicate skin of those little ones. Also, I think interesting news is that we gained another contract with Amazon in the quarter that is kicking in in Q4. In consumer tissue, we experienced good growth in the low-tier, mid-tier segments, and that is again showing that consumers are getting more price sensitive with the inflation and also with the increased cost of living. So important for us in consumer tissue is to make sure that we adapt our assortment to be as relevant as possible and as competitive as possible in all the different tiers along the good, better, best spectrum. If you remember last quarter, we had two launches in the value segment. And this quarter, we are upgrading our premium segment, specifically our Just One product. And we are then extending the Coreless technology to this product. And I must say, this is a personal favorite for me. As a consumer, not to have to deal with any waste when you change bathroom roll, then that is just wonderful, totally hassle-free. Before leaving consumer goods, I do want to share one more achievement, since it's quite new news, and that is that we were recognized by the Cannes Lion International Festival of Creativity, commonly known as the Oscars of the creative industry. We won seven lions for our groundbreaking work on brand building in our feminine care category. And now you might wonder why is that important? Well, it is important because we know that progressive and emotional brand campaigns are impactful and impactful. Brand building is an indicator of future growth. Moving to professional hygiene. Here we experienced a lower demand, especially in the hotel and restaurant sector in North America. So consumers are just restricting their discretionary spending, and we can see that. We follow some indicators here. For example, we can see that the restaurant foot traffic has declined by 3.5% in beginning 2025 compared to last year. We can also see that the hotel occupancy rate is slightly lower than previous years. And those type of indicators is telling us something, and that we also see in our sales. This is mostly in North America, but we can see some tendencies to that also in Southern Europe. That market dynamics, in combination with that we have lost some contracts due to price pressure, led to that we had declining volumes in professional hygiene. However, we were growing strongly in our strategic segments, which is very important. And that we could also see in a favorable mix in the quarter. We also delivered positive organic sales growth here because of that mix, but also because of very good pricing discipline. And going forward, we will continue to be disciplined with pricing. However, we will have to adjust selectively in order to fuel volume growth. We're also working in top-to-top joint business planning with our main distributors to continue to intensify our sales activities. And also here, of course, innovation is an important element to fuel growth. In this quarter, we had some different innovations. The one I want to mention is Torchmatic. That is one sensor dispenser, I should say, for hand towels. Here, we extended the battery lifetime to six years. Previously, it was one year, roughly. And that is setting a new standard in the industry and important for our end customers that then don't have to spend as much time on maintenance. And in fact, the battery lifetime is a barrier for customers to use automatic dispensers. And that is, of course, a barrier that we then remove. Then if we continue with the innovation, also on Torque, we have the Coreless functionality. And you might remember the product that we launched in 24, Torque OptiServe Coreless. And this has been very well received. Now, some customer wins stand out more than others. And we are so proud to now have Torque present at the Yankee Stadium. And speaking about prestigious wins, again this quarter we were recognized for our sustainability performance. For the sixth consecutive year we got awarded by the non-profit organization CDP for our leadership in sustainability, specifically for how we engage and work with our suppliers in our climate action. We were also confirmed as a constituent of the FTSE for good index series. So some strong recognition for our sustainability performance. And with those positive news, I think it's time to hand over to Fredrik so that we can listen to the figures behind this performance. Over to you.

Thank you so much, Ulrika, and I'll be happy to share a little bit of financial information relating to the second quarter. So I'll actually start with our sales and how that's developed in the quarter. And you've touched upon it. We actually did grow organically with just close to 2%. So if you look at this in constant currency, our net sales increased with about 700 million. Now, of course, obviously, S&T, we have most of our net sales and most of our profit, obviously, outside of... of the country of Sweden. And since the Swedish krona has strengthened quite considerably, there is lots of translation impact. So if you look at that in nominal terms, you can see that we had a contraction of our reported net sales of just over 6.5%. Now, if I stay on the organic sales development for a second, and I'll start there with volume. We did have a positive volume growth of 20 basis points, and I'll go through business area by business area, because there were certain differences, actually quite large differences, and starting with health and medical, Ulrika, you mentioned it. We had the 17th consecutive quarter of good growth in medical and especially there on wound care. So really very encouraging development and continuing to be that. That was not the case when it comes to incontinence. Some of you may remember. that in Q1 we also had a low volume development and this was a large largely attributable to pre-buying in Q4 of last year so we were actually counting on that volumes would come back here in Q2 and to a degree that actually also happened but just as you mentioned Ulrika we saw some increased price sensitivity, some increased competition in some of our markets. And clearly this led to a negative volume development for Inco in the quarter. And if we look forward, we'll see, that's at least our estimate, we'll see volumes pick up. But of course, it is for the time being a little bit challenging from a market perspective. So moving on to consumer goods, really strong. And we have seen that now for quite some time, both for incontinence retail and for feminine, a super good growth in terms of volume and also for net sales in total. So all in all, very good. And this is not just isolated to one geography, it's all of our markets. So continuously a very good development. We also did see some volume growth in consumer tissue, mainly in the good and and the low segments, as you alluded to. And of course, as we had also in Q1, our main struggle is related to baby. And we saw another quarter here of quite weak volumes and also weak pricing. So generally speaking, baby is a problem. We have... put in place a number of initiatives and we will take a lot of action here as we go forward. But clearly it was a disappointment with volumes in baby in the quarter. So if I move on then to price and mix, you can see it's really strong. And if you look at the number there, 1.7%, this is all related to price. And we had increases of prices basically in consumer goods, And also professional hygiene, really good development there. And flat also in health and medical. And this is not just isolated temporarily to the full year. We also saw a sequential increase of our prices with roughly 0.3%. So price management continues to work actually really, really well. Now, we will see a little bit of selective price action, as you talked about, Ulrika, in coming quarters. But generally, our price management remains quite strong. So, I'll move on then and talk a little bit about our EBIT margin. a margin and sequentially we did increase our margin from 13.5 to 13.7 but as you can see on this slide if we look at the full year and compare the last year in Q2 we dropped our margin with approximately 1% and you can see that consumer goods increased the margin which was really helpful and we saw a contraction when it comes to professional hygiene and health and medical. What is very, very strong, and this is important to point out, we saw another increase in our gross profit margin with, as you can see here, 20 basis points. And this is despite a very significant increase of COGS. So if you actually look at our COGS number in margin terms, it had a negative impact of roughly about 2%. I'll come back to that in a second. But actually, if you look at that 2%, margin impact, negative margin impact, we compensate it fully, basically all in price. So we have said this many times, we are able to compensate movements or raw material, negative raw material movements, as an example, through our pricing. So our pricing power remains very strong. And so a very good thing with cross-profit margin. Now COGS Those of you that listened to our closing after Q1, you will remember that we guided for sequentially flat cost in terms of COGS. And this was also the case. But if you look at it year on year, you see still a very significant increase. And this is mainly coming from basically raw material. You can say distribution and... And those are the main things, but included in that negative is also tariffs. And we talked a little bit about tariffs, although not quantifying it. And having now seen this for the entire second quarter, we have an impact margin-wise of roughly 0.3%. It's not evenly spread, so it's much more for particularly pre-PH, 0.6%. and health and medical was 0.5, and much less in consumer goods. But overall for the group, 0.3%. So these were the negatives in COGS, raw material distribution and tariffs, and the positive energy and, of course, also savings that we had in the quarter. So if I move on then to A&P, we actually marginally increased our spending in A&P, not a lot, but clearly actually lower than what we saw in organic sales growth. So the margin contribution there, as you can see, was positive. And this was not the case for SG&A. If you look at SG&A in constant currency, and SG&A, what I mean by that is SG&A excluding AMP, you can see an increase of a bit over 7%, so quite considerable. And roughly about two-thirds of that relates to personal cost, and the rest is relating to IT. Now, none of that is unplanned. All of these are things that we have planned, expansion or implementation of our new IT platform, or other sales... supporting activities so it's not unplanned it's just that when we have a low growth and a low volume growth in particular cost absorption becomes much less and therefore the margin impact is not favorable and here of course we will make sure as we go forward that the cost growth is contracted in in future quarters So this is probably a reasonable opportunity to provide you with a little bit of guidance for the coming quarter, so Q3. And as usual, we do this sequentially. So when I mention numbers now, please bear in mind this is Q3 versus Q2. So if I start then with COGS, we expect that to be somewhat lower sequentially, somewhat lower. We expect part of that coming from raw material, a positive raw material impact, and savings picking up a bit. So somewhat lower sequential COGS. And speaking of that savings, we are actually guiding, and you will remember this, 500 to a billion for the full year. We still guide for that range, but... So far this year, savings have been a bit lower and this is due to perhaps a bit lower volumes than expected. So if anything, it's more likely that we'll see cost savings to be COG savings to be in the lower part of that range. But we remain with the estimate of 500 to 1 billion. So if we look at then A&P. We will increase there both in absolute terms and in relation to sales as we go forward. It's not going to be material, but you'll see some increase. And when it comes to SG&A, sequentially, we expect it to be flat. So obviously not increase from the level that you see. So I'll leave EBITDA margin there and I'll move on to cash flow. And here we saw an operating cash flow of 1.5 billion approximately. And this is a bit lower actually than what you would expect from a second quarter. Those of you that know us well, you always know that we are typically relatively weak on cash flow in Q1 and Q2 as we build working capital. So this is not unusual. We do this every every year, but we saw a little bit of increase in accounts receivables and also to a degree in inventory that was a little bit higher than what was usual. When it comes to the working capital buildup, We believe this is temporary. We will adjust our inventory levels. They normally do go up in the second quarter, but they've gone up a little bit too much. So we'll make sure we adjust that in coming quarters. When it comes to accounts receivables, this is more related to phasing. So we will see that picking up also there in coming quarters. When I look at net cash flow, Q2 was much lower than last year. This is technical. This has to do with the fact that in 2025 we paid our dividend in the second quarter, whilst in 2024 we paid our dividend in the first quarter. And we also had much higher share buybacks in the second quarter than we did last year. last year. So with this said, and on the back of this cash flow, we have a slight increase. If you look at the net debt numbers here on this slide, you can see that our net debt is increasing, but we still obviously remain very strong when it comes to financial strength. And with those words, Ulrika, I'll leave back to you.