Essity 1H 2021 Results: Adjusted EBITA Down 23 Percent From Year Ago to SEK 7.0 Billion

Organic net sales declined 1.0 percent and were negatively impacted by the COVID-19 pandemic and related restrictions and lockdowns. Net sales declined 9.1 percent to SEK 56,496m (62,119). Sales growth was strong for the second quarter of 2021 and organic net sales increased by 9.5 percent compared with the second quarter of 2020.
Market shares increased for more than 60 percent of branded sales in the retail trade for the most recent 12-month period
E-commerce sales increased organically by 13.7 percent to approximately 14 percent of net sales, corresponding to approximately SEK 8bn.
In emerging markets, which accounted for 38 percent of net sales, organic net sales increased 6.6 percent.
Operating profit before amortization of acquisition-related intangible assets (EBITA) decreased 24 percent to SEK 6,937m (9,159)
Adjusted EBITA decreased 23 percent to SEK 7,017m (9,115)
Adjusted EBITA margin decreased 2.3 percentage points to 12.4 percent (14.7)
Adjusted return on capital employed decreased 1.5 percentage points to 14.1 percent (15.6)
Profit for the period was SEK 4,627m (6,118)
Earnings per share were SEK 5.56 (7.58) and adjusted earnings per share were SEK 6.03 (7.95)
Cash flow from current operations was SEK 1,741m (6,361)
Entered into agreement to acquire approximately 44 percent of the Colombian hygiene company Productos Familia S.A.
Started process to create a private label division in the Consumer Tissue business area
After the end of the first half-year:
Acquisition of the Australian hygiene company Asaleo Care finalized
New and updated sustainability targets including the commitment to reach net-zero greenhouse gas emissions by 2050 at the latest.

SUMMARY OF SECOND QUARTER OF 2021

Sales growth was strong in the second quarter and organic net sales rose 9.5 percent compared with the corresponding period a year ago, of which volume accounted for 9.9 percent and price/mix for -0.4 percent. There was a gradual increase in sales during the quarter as a result of more favorable market conditions and the continued growing awareness of the importance of hygiene and health. Organic net sales in mature markets increased 9.0 percent. In emerging markets, which accounted for 38 percent of net sales, organic net sales increased 9.1 percent.

Personal Care and Professional Hygiene noted highly favorable organic sales growth during the second quarter of 2021 compared with the second quarter of 2020. In Personal Care and Consumer Tissue, sales were at a higher level than in the second quarter of 2019. Medical Solutions demonstrated strong organic sales growth compared with the second quarter of 2020, and sales were also higher than in the second quarter of 2019 as a result of the positive performance in Wound Care.

During the second quarter Essity has:

Launched innovations in all business areas under strong brands such as TENA, Tork, Leukoplast, Jobst, Libresse, Tempo and Regio increased market shares for more than 60 percent of branded sales in the retail trade for the most recent 12-month period through successful product launches, award-winning marketing campaigns and a strengthened presence in digital sales channels.
Increased e-commerce sales organically by 13.3 percent to about 14 percent of net sales, corresponding to approximately SEK 4bn.
Announced price increases in Consumer Tissue as a result of higher costs for raw materials, energy and distribution. A certain effect of the price increases was seen at the end of the second quarter of 2021 but the majority will be realized in the second half of 2021. Essity has also implemented and is preparing price increases in other product categories affected by higher costs.
Achieved continuous costs savings for the second quarter of SEK 239m. The Manufacturing Roadmap program extends until 2025 and is expected to contribute to Essity’s total annual cost savings of SEK 500-1,000m.
Entered into an agreement to acquire approximately 44 percent of the Colombian hygiene company Productos Familia S.A. After closing of the transaction, Essity’s ownership in Familia will amount to at least 94 percent. Furthermore, an acquisition was made of the remaining 25 percent of the shares in the medical solutions company ABIGO Medical AB.
Started process to create the Consumer Tissue Private Label Europe division in the Consumer Tissue business area. Proforma 2020 net sales of the division was approximately SEK 6.7bn. About 1,700 employees and seven production facilities in Belgium, France, Germany and Italy are in scope. The work with creating the division is expected to be finalized by year end 2021.

After the end of the second quarter:

Finalized the acquisition of the Australian hygiene company Asaleo Care
Commitment to reach net-zero greenhouse gas emissions by 2050 at the latest. This includes raising the ambition level of Essity’s current Science Based Targets. Other updated targets include sustainable innovations, occupational safety and responsible sourcing.

The group’s adjusted gross margin for the second quarter of 2021 decreased by 1.8 percentage points year on year to 30.4 percent. The gross margin was positively impacted by higher volumes, an improved mix and cost savings. Higher raw material and energy costs reduced the margin by 1.9 percentage points. The gross margin was also negatively impacted by higher distribution costs and lower prices in Consumer Tissue. The lower prices were primarily the result of higher campaign activity compared with a low level in the preceding year as well as price adjustments in Europe in the second half of 2020. Announced and agreed price increases in Consumer Tissue in Europe had a certain effect at the end of the second quarter but the majority will be realized in the second half of 2021. The Group’s adjusted EBITA margin decreased 1.5 percentage points to 11.8 percent. Sales costs increased in absolute terms but decreased as a share of net sales. Investments in growth increased marketing costs in absolute terms and as a percentage of net sales. Adjusted EBITA, excluding exchange rate effects, decreased 2 percent. Adjusted return on capital employed amounted to 12.4 percent and earnings per share were SEK 2.52.

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