Essity Aktiebolag : Transcript Virtual Press Conference Half-year Report 2021

Essity Aktiebolag (publ)

Half-year Report 2021

Essity Aktiebolag (publ) Half-year Report 2021 July 16, 2021

9:00 a.m. CET

Joséphine Edwall-Bjorklund:

Hello, and welcome to Essity's Half-Year and Second Quarter Report for 2021. I'm Joséphine Edwall, Head of Communications. And on today's call, our CEO and President, Magnus Groth, will go through the highlights in the report, followed by a Q&A session, where our CFO, Fredrik Rystedt, will join.

	So with this, I hand over to you, Magnus.
Slide 1, 2
Magnus Groth:	Thank you, Joséphine, and welcome everyone to this half-year presentation of
	Essity's financial results.
	Finally, we are starting to see the benefits of the vaccination programs, the
	easing of restrictions and lockdowns throughout the world. And during the
	second quarter, we had a gradual improvement of our market climate, and
	especially for those categories, worst affected by the pandemic, Professional
	Hygiene and Medical, but overall, a very good growth throughout the group.
Slide 3	Financials Q2 2021 vs Q2 2020
	So to summarize the financials. Strong organic sales growth, clear
	improvement in Personal Care and Professional Hygiene. Sales increased
	throughout the quarter as market conditions improved. And actually, when it
	comes to Personal Care and Consumer Tissue, sales were even higher than the
	second quarter of 2019. So we have come back to normal, while there's still
	some way to go for Professional Hygiene.

Essity Aktiebolag (publ)

Half-year Report 2021

Slide 4	Adjusted EBITA Margin Q2 2021 vs Q2 2020
	Profitability was negatively impacted by higher cost for raw materials, energy
	and distribution. Adjusted EBITA margin reduced from 13.3 percent to 11.8
	percent, with a negative impact on gross margin of 180 basis points. 190 basis
	points negative came from raw materials and energy. And in addition, also
	distribution costs increased.
	On the positive side, we had very good cost savings, SEK 239 million
	contributing. And as you can see, we continued to invest in advertising and
	promotion, supporting our strong brands, continuing to grow market share in
	more markets and categories than ever before, while SG&A with the growth
	in top line is on a higher level, but a smaller share of overall sales.
Slide 5	Significant Cost Increases
	As you know, I prefer not to talk about raw material costs and cost increases.
	We are focusing on innovation, branding, developing the consumer and
	customer offerings. However, in the current situation, it's necessary to make it
	clear that we are in the middle of a situation with increasing costs across the
	board.
	And here are some examples. Market pulp Europe, so it's both softwood,
	hardwood and pulp, and especially fluff pulp being on a historically high
	level. Also, oil-based materials have increased recently and also throughout
	the second quarter, as well as energy prices, that are also on a very, very high
	level also historically, and transportation.
	Looking forward into the third quarter, we expect all of these cost components
	to continue to increase significantly, both sequentially and quarter over last
	year's quarter, maybe with the exception of recycled fibers. That is only
	growing or increasing to some extent sequentially. So this is what we're
	facing. It's part of our day-to-day business, but the extent is higher than we
	have seen before.
	We have been very successful in increasing prices across the company. The
	benefits of that will be visible in the third quarter, but we are catching up.
	And with these increases, we are currently going out in second and third

Essity Aktiebolag (publ)

Half-year Report 2021

	waves of price increases throughout the company. So it's an important theme
	for the rest of this year.
	Still, we are convinced that by the end of first quarter next year, we will have
	recovered these cost headwinds through price increases and cost savings
	throughout the group. So it's business as usual, but on a significant level
	because it's covering all of the different cost components for the group.
Slide 6	Highlights
	Having said that, there are a lot of positive things going on in the company. I
	already mentioned the price increases that we have pushed through and that
	are also now being implemented and the waves that we are planning for the
	third quarter right now.
	We also started to create a separate division for our private label business in
	Europe, and I'll get back to that. We continue with a strong launch program.
	And we are also improving our external communication to support the
	launches and the innovations, and getting a lot of positive credit for that.
	And of course, the most important result of all those efforts are the market
	shares that continue to increase. And typically, I have been saying over the
	last couple of years that we're growing market shares almost everywhere
	except in incontinence care retail, but actually, in this last quarter, that has
	also turned around and we are gaining market shares also in that category.
	E-commerce continues to increase as a part of sales. That's a very, very
	important channel shift that we think we can benefit from. We have new and
	updated sustainability targets. And during the quarter, we were able to finalize
	the acquisitions of ABIGO and Asaleo. And we are working to finalize also
	the acquisition of the minority in Familia now in the next couple of months.
	So that's progressing according to plan. So a lot of good work ongoing in the
	company.
Slide 7	Private Label Division within Consumer Tissue
	So going back to the private label division within Consumer Tissue within
	Europe. As you can see on the chart to the right, this division will account for
	approximately 13 percent of our complete Consumer Tissue sales, but a bigger

Essity Aktiebolag (publ)

Half-year Report 2021

	portion of our European tissue sales. This process is expected to be finalized
	by the end of this year, but we announced it today because it requires quite a
	lot of work to finalize this process.
	And what we have seen during the last year and especially during the different
	pulp cycles is that there are synergies in Consumer Tissue, of course, and also
	with Professional Hygiene when it comes to purchasing, production to some
	extent. But there are also quite a big difference in how we approach the
	markets, how we work with the different customers. And by making this split,
	we aim to provide even better services to our different types of customers.
Slide 8	Consumer Tissue Private Label Europe
	And going then to Consumer Tissue Private Label Europe will include
	approximately 1,700 employees, seven sites and sales in four or five countries.
	Net sales are approximately pro forma SEK 6.7 billion. And what we have
	seen is, with these private label contracts, we are producing to specifications
	provided by the customer. And we're doing this with high-quality, high-
	service levels, of course. And it's important for us to be very agile, service-
	oriented, short lead times, effective and competitive.
	We are not typically that involved in category management, taking the
	category to the next level through innovation and other ways of developing
	also the go-to-market, the different channels and so on. So it's a good
	business that will be even more efficient and that we will develop in a separate
	division.
Slide 9	Consumer Tissue Branded
	The consumer tissue branded part of Consumer Tissue, which then also
	includes our businesses in China and in Latin America, employs
	approximately 19,200 people, with sales of over SEK 43 billion. This is
	characterized by strong brands, where we work very much with achieving
	leading market positions. We also work with a small number of partners to
	develop their retail brands, typically not only in tissue, but also in other
	categories. So it's a completely different way of approaching our customers in
	this way, and this will also be an opportunity to become even better in this
	type of business.

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Half-year Report 2021

Slide 10	Innovations Q2 2021
	With that, I move over to the innovations slide that I'm typically very proud
	of, and I think this really shows the pace of innovation that we have been able
	to continue to keep during the pandemic. And just as an example, we are
	seeing now digital solutions with a very, very high customer/consumer
	benefits in all our categories.
	And one example in Medical Solutions is the Cutimed Wound Navigator that
	we have developed in a very agile and record time.
Slide 11	Cutimed® Wound Navigator
	So this is an application where you take a picture of a typical wound on a
	patient, and you immediately get a recommendation on access to a product
	catalog, recommendation on the size of the wound and the placement of the
	wound. And it's also possible to order samples. And it's also a very good way
	to document and follow the wound development. And we have passed early
	trials. We are launching this. And the reception from practitioners is
	incredibly positive. It's a big help in making their work easier and in
	improving the overall cost for treating wounds. So just an example of another
	digital initiative in a category where there are many, many opportunities going
	forward.
Slide 12	Record Year for Essity Cannes Lions Festival
	I spoke about marketing. And we have become a little bit used to winning
	Lions in Cannes for our marketing efforts, our campaigns this year more than
	ever. Why is this important? Because there's a clear connection between
	winning these awards and purchase intent. And that's, I think, a big part of the
	explanation why we have been gaining market shares in feminine care, in
	tissue now for a long time because we have excellent marketing proven here
	and with a clear link to purchase intent from consumers.
Slide 13	New and Updated Sustainability Targets
	Today, we announced new and updated sustainability targets. And it almost
	seems as if this coincides with the European Union's announcement of new
	targets, but it is a coincidence. We were very early in signing up to the
	science-based target initiative at the time when ambitions levels were slightly
	lower than they've come to be today. We have had good progress in reducing