Transcript telephone and web presentation Interim Report Q3 2021

Essity Aktiebolag (publ)

Interim Report Q3 2021

Essity Aktiebolag (publ)

Interim Report Q3 2021

October 22, 2021

9:00 a.m. CET

Joséphine Edwall-Bjorklund:

	Hello and welcome to the conference for Essity's Interim Report for the Third
	Quarter 2021. I'm Josephine Edwall, Head of Communications for Essity.
	And today, our President and CEO, Magnus Groth, together with our CFO,
	Fredrik Rystedt, go through the highlights in the report followed by a Q&A
	session.
	So with this, I hand over to you, Magnus.
Slide 1, 2
Magnus Groth:	Thank you, Josephine.
Slide 3	Key Achievements, Q3 2021
	So in the third quarter, Essity continued with a high pace of innovations and a
	number of important product launches. And this, together with the increasing
	sales in e-commerce, resulted in the highest-ever market shares in our branded
	retail business. We are now gaining market share in over 70 percent of our
	sales in this area.
	Another highlight of the quarter is the continued momentum in Medical. It's
	now the fifth quarter in a row when Medical Solutions is growing and in the
	quarter with over 9.7 percent compared to a year ago.
	We are continuing with our price increase programs across the business in all
	our categories. We have started the integration of Familia and Asaleo that we
	acquired earlier in the year, but we also concluded the deals and took over the
	ownership during the third quarter.

Essity Aktiebolag (publ)

Interim Report Q3 2021

	We started up tissue production based on alternative fiber, which we believe
	can be a significant step in our efforts to reduce our dependency on fresh
	wood pulp going forward. And we have continued to work with creating the
	Private Label Consumer Tissue division.
Slide 4	Financials Q3 2021 vs 3 2020
	And moving over to an overview of the numbers. We have a couple of
	different sales growth numbers this quarter. Organic sales growth that we are
	typically presenting was 7.4 percent. So another strong - our second solid
	growth quarter in a row after the pandemic. But here, we also show actually
	that for the first quarter, we are also growing as the group - as a whole
	compared to 2019. So we're starting to leave the impacts of the pandemic
	behind us that, for Essity's categories, was mostly negative from a top line
	perspective.
	We also added another growth number, which is the sales growth, combining
	organic and acquisition growth, which was 9.7 percent, and this is primarily
	due to the fact that we now include Asaleo or Essity AustralAsia, as we call it,
	in these growth numbers.
	Adjusted EBITA margin was down, and I will soon show a bridge explaining
	that, while operating cash flow was very, very strong. We're happy about the
	development there, and it's a combination of a very good reduction of working
	capital, lower stock levels and also higher payables as we continue to grow.
	And adjusted ROCE is very much impacted, of course, by the margin
	development.
	We were compensating significantly higher cost for raw materials, energy and
	distribution by higher volumes, higher prices and better mix in nearly all our
	businesses and continued also to achieve savings in cost of goods sold on a
	high level and we are now year-to-date at SEK 470m. And as you know, our
	target range for the year is to be between SEK 500m and SEK 1bn. So
	already after three quarters, we're very close to get into that range.

Essity Aktiebolag (publ)

Interim Report Q3 2021

Slide 5	Adjusted EBITA Margin - Q3 2021-Q3 2020
	So then looking at the EBITA margin bridge. There's a significant negative
	impact here of 370 basis points. But as you can see, the raw materials, energy
	and distribution together accounted for 670 basis points. So very good
	performance in terms of higher volumes, higher prices, better mix and cost of
	goods savings and, in addition also, positive contribution from A&P and
	SG&A. So this is something where I'm very proud about the achievements.
	Looking forward, we see continued significantly higher prices or costs in all
	the areas I just mentioned but also a very good momentum in our efforts to
	continue to mitigate and compensate.

Slide 6	Continuing Our Transformation - New Business Areas
	With that, I'd like to move over to a couple of news that we have announced
	today in the Q3 report and then we'll talk more about on the Capital Markets
	Day that's coming up on the 3rd of November.
	And one important change is in how we account and present our business
	areas. We're moving away from a more product-oriented business area
	definition to a definition that's based on our consumers, our customers, our
	competitive environment and the rapidly changing channel shift that we see in
	all our different categories and businesses.
	So our new three segments or business areas are Health & Medical that
	includes what used to be our medical business, wound care, compression
	therapy and orthopedics but also our significant presence in incontinence care
	health care. And of course, there are significant synergies in this business,
	and this is something that we've spoken about many times. And we see that
	those synergies are just growing stronger over the years and also resulting in
	the strong performance that you're seeing in the medical business, but also in
	the incontinence care health care business.
	Secondly, Consumer Goods. I think it's clearly defined by the name here.
	Incontinence Products Retail and Feminine Care, which are coming closer and
	closer together into an Intimate Care category. We'll talk more about this on
	the Capital Markets Day. Baby Care and Consumer Tissue, branded and retail
	brand. And in this business area, we also report the new division that we're
	creating for our Consumer Tissue Private Label Europe.

Essity Aktiebolag (publ)

Interim Report Q3 2021

	And finally, Professional Hygiene that you recognized from before but, of
	course, emphasizing the increased focus that we're putting on not only tissue
	products but also solutions, skin care, cleaning and wiping.
	So it's a significant step that we believe also underpins the new growth target
	that we have announced today.
Slide 7	Financial Targets and Policies - New Sales Growth Targets
	And the new growth target is to achieve sales growth over 5 percent. Our
	previous target was organic sales growth over 3 percent, which came from the
	notion that we have very good underlying growth in the markets where we are
	present. And in addition, we aim to grow market share. And what we're
	adding now is that based on our strong M&A agenda, we believe that we can
	add up to overall sales growth number of over 5 percent in the long term, of
	course with variations between the different years.
	The other financial targets remain unchanged, the adjusted ROCE target of
	over 17 percent and the policies that we have for capital structure and
	dividend.
Slide 8	Consumer Tissue Private Label Europe Division
	An update on the Consumer Tissue Private Label Europe division. The work
	is ongoing. We are slightly increasing the scope of the division, and we are
	still focused on having this division developed and ready and split from the
	rest of the Consumer Goods business area by the end of this year.
Slide 9	Sustainability Journey - Supporting Net Zero
	We've also taken not just one but a number of steps when it comes to our
	sustainability journey, not least, of course, our target to achieve net-zero
	emissions by 2050. And here are some examples. I already mentioned, and
	you can see in the picture there, our new facility to use alternative fiber, which
	has a significantly lower carbon footprint than using fresh wood pulp. We've
	also decided to invest in a paper machine that will be fully supplied with its
	steam from geothermal steam in New Zealand. It will be a world's first paper
	machine of that kind. And we're also increasing our efforts of recycling
	different types of paper products in order to increase the sourcing then of non-

Essity Aktiebolag (publ)

Interim Report Q3 2021

	fresh fiber materials and of course, again, to reduce our dependency on fresh
	wood pulp supplies.
Slide 10	Innovations with Well-being and Sustainability in Focus - Q3 2021
	Innovations, always a big topic. And I think here we have a very, very strong
	line up for this quarter, starting with we have also now launched a washable
	underwear not only for women in TENA and in different Fem Care brands but
	also now for men as one example.
Slide 11	Innovations with Well-being and Sustainability in Focus - Q3 2021
	We're also continuing to grow our brands with adjacent products. And in the
	middle here, you see one example with Tempo, which is, of course, a very
	famous tissue brand in Asia. And in Central Europe, we're now also adding
	some skin care products.
Slide 12	Innovations with Well-being and Sustainability in Focus - Q3 2021
	And finally and a very important launch for us, a new cleaning cloth range for
	the industrial sector, where we have been underrepresented and undertrading
	historically and where we are now making an effort to grow our presence.
	And this product that you see here has 27 percent lower carbon emissions
	compared to the product that it replaces.
	With that, I'd like to invite Fredrik to talk about the financials for the different
	business areas. Welcome.
Fredrik Rystedt: Thank you, Magnus.
Slide 13	Personal Care - Q3 2021 vs Q3 2020
	And I'll start with Personal Care. And it was a good quarter with strong
	organic sales and market share development in the quarter, and this was
	driven both by good volume growth and also price/mix in that combination. It
	was not only good in comparison to 2020 but also versus the same period of
	2019. So we grew by close to 7 percent also in comparison to 2019.

Our medical business, for the fourth consecutive quarter, strengthened considerably, and all therapy areas continued to grow at a good pace and