Essity Aktiebolag : Transcript Virtual Press Conference Interim Report Q1 2021

Essity Aktiebolag (publ)

Interim Report Q1 2021

Essity Aktiebolag (publ) Interim Report Q1 2021 April 23, 2021

9:00 a.m. CET

Slide 1

Magnus Groth: Good morning, and welcome to this webcast of Essity's Q1 financials. And during this meeting, I will also give more information on the Manufacturing Roadmap, and I will be joined by my colleague, Pablo Fuentes, to give more information on the strategic acquisition of Familia in Latin America.

Slide 2

Slide 3Positioning Essity for Profitable Growth

So with that, I think to start to say that we have spent this quarter positioning Essity for profitable growth. It's been a quarter where we had maybe a quarter ago expected a quicker opening up of markets and improving market conditions. And instead, we saw, especially in Europe, tougher restrictions and tougher lockdowns that continued for longer than we had anticipated.

Even so, we also see where things have started opening up, not least in China where we see business volumes that are not only much higher than last year but also even higher than in 2019. So business returning very much to normal. And we've also noted now at the beginning of the second quarter an improving market condition, especially in the United States. And we expect that with the now accelerating vaccine programs in most of our important markets, we will see a gradual improvement also step-by-step in Europe.

But we have not spent this time waiting for market conditioning to improve. We've been very busy increasing our ownership in Familia, concluding - or signing an agreement to acquire Asaleo Care. We have been growing market shares in more categories and markets than ever before. So making sure that we are prepared for the gradual improvement in market conditions.

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Interim Report Q1 2021

	E-commerce continues to become a bigger part of our business also in the first
	quarter, and as we get back to Manufacturing Roadmap, puts us on a path to
	continue to generate efficiency improvements but also a better service level
	and higher-quality products for the future.
Slide 4	Essity to Increase Ownership in Familia
Slide 5	Familia Strategic Acquisition
	So starting then with the increased ownership in Familia. So Familia is a
	partner with Essity since 1985. It's a highly innovative and very consumer-
	oriented company. And actually, we have learned a lot from this joint venture
	over the years. But now is the time to take full ownership, and we believe that
	doing this, we can become the fastest-growing hygiene and health company in
	Latin America going forward. And as you can see here on the map, it's a very,
	very complementary acquisition from a geographic perspective.
Slide 6	Transaction
	The transaction - before the transaction, Essity owns 50 percent, but actually
	consolidate both sales and earnings fully to 100 percent. So the impact on our
	financials is on earnings per share, which will be accretive already this year.
	However, the bigger benefit comes from the synergies by combining the joint
	venture business with our existing Latin American business. And we see that
	this will give good opportunities going forward that Pablo will talk more
	about.
	You can see some of the numbers here and worth noting is that Familia has a
	very, very attractive EBITA margin, partly because of their mix, but also
	because of their very strong brands, and also a good growth even last year
	when many of Familia's markets were very severely restricted by lockdowns.
	So with that, I would like to hand over to the President of business unit Latin
	America, Pablo Fuentes, to describe the transaction. Over to you, Pablo.
Slide 7	Familia Net Sales Split
Pablo Fuentes:	Thank you, Magnus. As you can see on this slide, Familia represents 6 percent
	of Essity global sales, and Colombia and Ecuador are the two most important
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Interim Report Q1 2021

	markets with 71 percent of the sales. But Familia also has presence in many
	other countries in South America.
	From a category perspective, as we were saying, more than 60 percent of the
	sales are in what we call Personal Care, which is Feminine Care, Incontinence
	Products and Baby Care. And Familia also has sales, 31 percent, in Consumer
	Tissue and 7 percent in Professional Hygiene.
Slide 8	Leading Market Positions
	When it comes to market positions, Familia has very strong market positions
	in the markets where it's present. In Feminine Care in Colombia, market share
	is 68 percent. In Consumer Tissue, market share is 48 percent with the Familia
	brand. And in Incontinence Products with the TENA brand in Colombia,
	market share is close to 90 percent. So really very strong market positions
	where Familia is present.
Slide 9	Product Offerings
	Familia has a quite broad range of products in the different categories. In the
	case of Feminine Care with the brand Nosotras, it has a portfolio focused on
	menstruation towels but also on daily intimate care products with liners,
	washes, washable absorbent underwear and wipes. In Consumer Tissue, it also
	covers very different segments, including a very successful premium
	assortment. In the case of Baby Care, it has open diapers and pants covering
	different assortments, including successfully the premium positioning. In the
	case of Incontinence Products, it follows the successful global leading TENA
	brand positioning. And in the case of Professional Hygiene, it is a
	combination of Tork global products but also very successful local products
	and adjacencies, including skin care.
Slide 10	Latin America Hygiene and Health Market
	Through the ownership in Familia, Essity will have access and will serve
	more than 600 million people in Latin America in markets where consumption
	per capita is still low. And we expect as middle-class grows and consumption
	and income per capita increases, these markets will continue to grow. It's
	mainly a branded region and the go-to-market is split evenly between modern
	trade and traditional trade. In Latin America, we have been very successful in
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	traditional trade where we have very strong distribution in the millions of
	mom-and-pop stores with our very strong brands. We also see a changing
	retail landscape with emergence of e-commerce, and we are very proactively
	leading into e-commerce with our digital transformation programs.
Slide 11	Building the Fastest Growing Hygiene and Health Company in Latin America
	As we are building a more integrated region in Latin America, our aspiration
	is to be the fastest-growing hygiene and health company. We will do this with
	a faster execution across Latin America, now with the ownership of Familia,
	leveraging innovation capabilities, strong brand equity and entrepreneurship,
	accelerating on the digital transformation and increasing constantly our e-
	commerce sales, optimizing efficiency across the value chain and, very
	importantly, geographical expansion and cross-selling synergy opportunities
	with our Medical Solutions business.
	Back to you, Magnus.
Slide 12	Financials - Q1 2021 vs Q1 2020
Magnus Groth:	Thanks. And to give you a compliment, Pablo, already the business that you
	are running through Familia but also the fully owned business in Mexico and
	Brazil and other major geographies is developing extremely well with leading
	market positions and a very strong development. So thank you for that, and
	we're really excited about the next steps in Latin America going forward.
	With that, we move over to the financials. And as I mentioned at the
	beginning of the presentation, this quarter has been very much impacted by
	lockdowns and restrictions, especially in Europe, while I always want to also
	emphasize that we see how quickly the markets can recover when they open
	up again. Vinda that also announced their results today is a good example of
	that. And we also see gradually improving market conditions, for instance, in
	Professional Hygiene in North America in the beginning of April.
	But for the first quarter, organic net sales were down close to 10 percent, and
	approximately half of that decline is due to the tough market conditions in the
	first quarter and approximately half comes from very tough comps with the
	first quarter last year. As you remember, this was a very high sales quarter for
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	us due to stockpiling, panic buying in anticipation of the pandemic rolling out
	across the world.
	Adjusted EBITA margin, very much following then lower production
	volumes. It was down 270 basis points to 13.1 percent. And adjusted return on
	capital employed was down to 13.5 percent, so very much impacted there by
	the margin decline.
	Again, we see some bright spots in all of this. Emerging markets continue to
	grow. And we see that the vaccination programs are now rolling out at an
	accelerating pace in most of our main markets and that this should lead to
	gradual reopening of markets here in the next quarters.
Slide 13	Adjusted EBITA Margin - Q1 2021 vs Q1 2020
	The adjusted EBITA margin, when it comes to gross profit margin, was
	primarily impacted by lower production volumes, of course, impacting fixed
	cost absorption, but also higher distribution costs.
	A&P was higher, both as a percentage of sales but also actually in actual
	terms. We continue to accelerate through the curve here. We want to position
	ourselves for the reopenings. We continue to invest by strong innovation, and
	I have some really good examples on the next couple of slides here coming
	up.
	And SG&A was lower. Of course, we are, as always, being very prudent
	about our costs and trying to save costs wherever. So this was lower in total
	but higher as a percentage of sales as sales came down.
Slide 14	Innovations with Strong Sustainability Profile - Q1 2021
	Talking about innovation. It's a very strong quarter. And to highlight one thing
	here, to the left on this slide, we now have 3 categories where we have
	launched reusable products. So the first example is the Tork microfiber
	cleaning cloth, so reusable product. We're also launching the washable,
	reusable absorbent underwear that we mentioned in the last quarter, not only
	in Fem Care but also in Incontinence Care. And we're also launching
	menstrual cups under the Libresse brand in the Nordics. And we will see more
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