Essity AB (publ)

Good morning. Welcome to Esri's presentation of the Q3 results. We will start with an overview of the financial highlights and the business highlights and Ulrika will present the business highlights. Following that, we will have a session with our CFO who will take us through the financials. Ulrika will then present the initiatives that we announced this morning. Initiatives launched to accelerate Esri's profitable growth. We will as usual end today with a Q&A session where you have the possibility to engage directly with us. To ask a question, you just press star one on your phone. With that, let's dive into the quarterly performance. Ulrika, over to you.

Thank you, Sandra. And welcome also from my side to this presentation of Essity's Q3 results. And to summarize the quarter, we continue to deliver positive organic sales growth. We also strengthened our profit margins. We delivered a strong cash flow and a result above 5 billion SEK. Price, volume and mix all contributed to the 0.9% organic sales growth, with price being the most significant contributor. And we had organic sales growth in all our three business areas. Once again, we delivered record high gross profit margins. And this quarter, it flowed through down to the bottom line. So the call to action that we had in July to pull the brakes on our SG&A cost development really made a difference. And we ended up at a profit margin of 14.6%. Setting aside the quarterly results now for a moment, this quarter has also been about how to set ourselves up for future success. As I shared in the Q2 webcast during my first months in this new role, I have done an extensive review of the business and then together with the leadership team worked on what to change, what to improve, what to prioritize in order to accelerate our progress towards our financial targets and towards our vision. As a result of that, I'm today launching two initiatives that will improve our performance. The first one is a reorganization designed to sharpen our focus, to become more fast and also more agile. And related to that, the second one, a cost-saving program that will reduce our organizational cost. More about that later, but let's now dive into the Q3 results. And we start with health and medical. Q3 now for 25 marks the 18th consecutive quarter of growth for our medical solutions business. We are growing across the three therapy areas, so wound care, compression therapy and orthopedics. And what is very important for future growth and profitable growth in the medical categories is innovation that plays a key role. There are still so many unmet needs, both for health care as well as for patients and consumers to innovate on. One example is for people with wrist fractures. Today, it's difficult for them to keep up with hygiene and keep up with the daily activities of lives with the wrist braces that exist commonly in the marketplace. And with the launch of ActiveMove Manus Air, we are solving that problem. This wrist brace that you see now on the page here has a lot of advantages. It's water resistant so that you can wash your hands. It's food grade resistant so that you can cook and keep up hygiene. It doesn't restrain the movements of the fingers and the hands so you can keep on working if you work by the computer. Also it has an open design so if you're a healthcare professional you can inspect the wound and change wound dressings with the brace on. And all of this while providing that stabilization that is needed in order to heal in a fast way. So certainly this innovation is a very good addition to our offer in orthopedics. Then if we move to incontinence care in healthcare, also in incontinence care, we were growing sales and volumes in the quarter. You might remember last quarter, then I talked about the challenging market conditions that we had in some markets, and that is still the case. However, we have very strong underlying growth in many other markets that is compensating for this. And in times where healthcare funding is under pressure, it's even more relevant to have products and solutions that are saving time for caregivers. And with the launch that we had this quarter with Tena, a new product concept, we are addressing exactly that. The Tena Pro Skin Stretch Day and Night is a unique product concept that we have put to market now that makes it easier to put on and take off the product. When it's in a closed fashion then it is just as a Tena pant. You can pull it up and down just like normal underwear, making it easy for the wearer to use the product. The challenge with the panto is that it's not so easy for a caregiver to apply the product. And this one is reopenable. You can open and close it. And that means that the caregiver can also very easily apply the incontinence protection. And that saves time for the caregiver. Now, this is not the only impactful innovation that we are launching in the quarter. We're also launching a new product in the lighter range of our assortment, and that is the TENA Discrete Ultra. It's a very discreet product, super discreet to wear, yet it does not compromise on the superior TENA protection. And why is it then important to have a superior product in this part of the assortment? Well, this is where we attract consumers, where we bring consumers into the category. And we, of course, want the women to experience the first little leaks, to choose purpose-made products and to choose Tena as their purpose-made products. And many consumers do that. They choose Tena. And we see that because our incontinence sales in retail is continuing to grow at a very good rate. This is especially true for the US. And if you might remember that in US, we are investing to grow. And those investments are paying off. So in the quarter, we could enjoy a 21% growth of incontinence in US retail. In feminine care, we're also continuing to grow in a very good way with high growth rates. Here, Mexico is an important market for us. We are clear market leaders and we will continue to strengthen our position in Mexico by launching a new night product, Saba Noches. And also here, it's a very important segment to be superior in because not only do we provide a good night's sleep for the wearer, but also it's a quality stamp for the brand. So as you can hear, we are continuing to grow strongly in the two higher yielding categories in consumer goods. So feminine care and incontinence care. On the other hand, in consumer tissue and in baby, we are declining. In consumer tissue, we are suffering in the branded sales from the weaker consumer sentiment. And also we see a price competitiveness increasing across the consumer tissue business. The good news is that if we look at Mexico, we are growing very well in our Reggio brand during the quarter. And also now we are really gearing up for the sneezing season, making sure that we have the right hankies in the shelf to be ready for the sales boost that will come during the next quarter. And also we continue with our efforts to have a high promotional pressure and to focus a lot on the value segment so that we can fuel growth in consumer tissue. Then what about baby? Well, you all know that we have had a period where we have had declining volumes on the back of lower birth rates and also very intense competition. We're still declining in baby, but we have improved. In the quarter, we turned around Libro in the Nordics big time. We had the actions of higher frequency rate of promotions, of... Limited edition, I was going to say, that is called wildlife, that you see on the picture here, and also stronger marketing campaigns. And all of that paid off. So the Libro consumers have found their way back to their brand. Another category where we can report a big improvement is in professional hygiene. Also here, we continue to see a challenging market situation, not the least in the US, in the Eureka channel. However, we are improving volumes sequentially in professional hygiene, and that is thanks to the activities that we have done with selective price adjustments and also more focus on the value segment that we talked about last time. What's also very good to see is that we continue to grow our premium products, so our strategic segments, as we did also previous quarter. This is, of course, very important for us short term, but it's also important to fuel future profitable growth. And speaking about that, what's super important to fuel future profitable growth is that we really have strong relationships with our customers. What's happening right now in the customer landscape in professional hygiene is that a lot of our distributors are consolidating. And then it's even more important than ever to be the preferred supplier. And therefore, it's so nice to see that one of our customers, Impax, have this quarter named us the best supplier. And with that positive news, I hand over to our CFO, Fredrik Rystedt.

Thank you so much Ulrika and I will give a little bit of numbers background to what Ulrika just mentioned here so I'll start with our sales and as you've already heard we are continuing to grow organically with 0.9 percent so just under one percent now if you look at the absolute sales number it is down by 4.5 percent but of course this is just due to the fact that the Swedish Krona is strengthening. So if you actually look at our sales in constant currency, then we actually grew with a bit over 300 million. So it's basically a currency impact. So turning a bit back to the organic sales growth of 1%, as you see the volume increasing. Growth was 0.2%. And this is exactly what it was also in Q2 and similar to what it was also in Q1. So we've had this volume growth level now for a few quarters. It is, however, a bit different. And so you remember perhaps that we have struggled a bit with... professional hygiene with baby and to a degree also with IncoHealthcare. And those have all three improved this quarter. But on the other hand, that improvement has been partly offset by a lower volume development in consumer tissue. So it is a bit different. We are happy to see the improvement in those areas that I mentioned. So to give a little bit more flavor, if we start with health and medical, Generally speaking, volumes picked up, actually. So it is still challenging when it comes to IncoHealthcare markets in general. But despite that fact, a bit as we expected, we have picked up volumes and it looks clearly a bit better at this point of time. Medical continues to grow, especially in the wound care. And we've seen that growth for so many quarters now. So it is a It's a very, very good and continuous development for medical in general. It's wound care, as I said, but it's also this quarter actually a lot in compression. So good development overall in the volume sense. Now, if I go then to consumer goods, geographically, we are growing everywhere when it comes to incontinence and feminine. It continues with strong growth in both of those areas. Ulrika mentioned earlier that baby is looking a bit better. And of course, this is due to a much better performance in our Nordic region. a branded area with libero so we've taken market shares there it's still challenging on the european market for the retailer branded european market for baby and that will also remain for for a few quarters to come most likely but it's looking a lot better so you may remember that we had a volume decline of about four and a half or or in that vicinity volume decline in baby in q2 and a similar decline also in in Q1. And this quarter, it's been about 1% decline. So it looks clearly better. On the other hand, as we have already talked about here, consumer tissue is a bit more down, negative growth. And this is because we have prioritized margin rather than growth in volume. And we do continue to see actually a a down trading in that in that market so volumes not so good in in consumer tissue finally professional hygiene looking a lot better and the volume decline is still there is minus one percent roughly and and of course that's a lot better than what we saw in q1 and q2 so clearly looking better as before it is a base assortment that is declining and the premium products or strategic products as we sometimes call them dispenser base is continuing to do quite well in terms of growth so overall mix is actually continuing to behave very very well in professional Hygiene. So turning a bit to price and mix, as you see, 0.7%. This is basically most of it actually related to price. And you can see from the slide here that consumer goods and professional hygiene both performing well in terms of price performance and health and medical is slightly down. This is all actually in-co. So this is selective price declines that we have seen. that we have done we did talk and rika mentioned it earlier that we also have sequentially a little bit lower prices in professional hygiene this is deliberate we wanted to on top of expanding our value offering in professional hygiene we also wanted to grow more generally by by selective price decreases so if you look at just sequential price decreases we also see a little bit of that in professional hygiene deliberate So that's pretty much it on the volume and organic sales size. So turning to our margin, that is improving both sequentially and year on year. So if we look at decomposed year on year improvement, you can see that a lot of it is coming, of course, from the gross profit margin. And most of it, as we've already talked about, relating to obviously price, to a smaller degree on mix and volume, but a lot of it is price. We also actually have a positive development in our cogs, and this is no surprise. Raw material is performing better and so is energy. But we also have other cost items there. One thing that we have talked about a lot is, of course, the savings that we do. In this particular quarter, we had about 115 or so in savings, which we were happy about. Generally speaking, it has been a tough year when it comes to saving in COGS. And we still aspire to reach our annual target range of about 50 to 100 million euros. We're not there. We aspire to get into that range for the full year. But it is challenging. And this is, of course, due to the relatively low volume development that we have in our production. So that makes it a bit more challenging to get to our target range. AMP, not surprising, we've increased the absolute spending level and also as percentage of sales, and this is a profitable proposition. We know that the return of AMP spend is attractive, so this is why we do that. We talked a lot about SG&A previously, and we've also announced measures to actually you know to to make the growth rate to become much lower and there has been a lot of success there so clearly when you look at our stna development is much better now than we've seen in the previous quarters the the growth in particularly it and personnel cost is lower now let me just point out though that there is a portion a smaller portion i should say of the improvement that relates to lower bonus provisions so the improvement is not As strong as you see here, there is a smaller portion that is due to that. But I'll come back to the future in a second. But generally speaking, if you disregard that, underlying performance of SG&A is much lower than the inflation rate. So the measures we've taken has clearly paid off. Now, finally, there's a bit of other here. This is just a one-off in last year, actually. We had an insurance payments last year. And we didn't have it this year, so that's the final part. So overall, a very, very good quarter, I should say, for the group in terms of margin. And basically, you can see year on year that health and medical and professional hygiene are still slightly down and consumer goods up. But if you look at it sequentially, which we're happy about, both health and medical and professional hygiene have turned a little bit and actually now improved. So all in all, a good margin development. Turning to cash flow, just some short comments. Generally speaking, quite a good quarter, both in terms of underlying cash generation, but also in terms of working capital. We were not so happy about working capital in the second quarter. Much better looking this quarter. So when you look at accounts receivables or accounts payables in working capital the days are roughly about the same it's still a bit too high when it comes to inventory we are working our way down to that so hopefully we'll see a good development in working capital also as as we go as we go forward and finally the balance sheet as a consequence of that strong strong cash flow generation we have been able to in comparison to the six months balance sheet we have been able to reduce our our net debt with about three billion or so and of course our net debt ebta ratio is now down to 1.2 I think this is a good, perhaps, opportunity to give you a little bit about the flavor for what we expect for Q4. I mean, again, we don't give that much of a forecast, but let me just give you a little bit. Starting with COGS, perhaps, we expect that COGS will actually, from a year-on-year, compared to Q4 of 2020, we expect COGS to be lower this quarter coming up in 2025. And the reason is mainly driven by input cost and particularly so pub cost. So we expect COGS to be lower. When it comes to AMP, We expect it to be flat to higher compared to last year, so Q4 versus Q4. We expect to spend more in AMP. As I said, this is a good return on those investments. And finally, when it comes to SG&A, this is worth mentioning that we... will have also in comparison q4 q4 a fairly low growth rate so clearly we will retain that lower growth rate than we've had in the previous year but just worth noting that from a sequential standpoint q4 q sgna excluding amp is always much higher so sequentially you should expect higher cost but year on year and quite a low growth rate so finally i guess just a reminder perhaps we have our financial targets they remain intact so more than three percent in organic sales growth and more than 15 percent in any bit margin excluding items affecting comparability as you know as you've seen here in q3 we're close to our margin target and of course we got some work to do when it comes to our annual organic sales growth and that to rika i guess you will talk more about