The two units Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care will be merged into one unit under the name Global Manufacturing, with responsibility for production and technology for all business units except for Medical Solutions. Donato Giorgio, President of Global Hygiene Supply Tissue, is appointed President of Global Manufacturing.
The unit Global Hygiene Category, with responsibility for customer and consumer brands as well as innovation, will also encompass sustainability and public affairs. The unit will be renamed Global Brand, Innovation and Sustainability. Tuomas Yrjölä, Vice President Baby and Feminine in Global Hygiene Category, is appointed President of the unit. Current President Georg Schmundt-Thomas has decided to leave Essity.
A new unit, Global Operational Services, is created to further strengthen the Group’s overall work related to operational and cost efficiency. The unit will encompass sourcing, logistics, business services and digitalization. Robert Sjöström, Senior Vice President
Group Function Strategy and Business Development, Global Business Services and IT, is appointed President Global Operational Services. Group Function Sustainability & Public Affairs is being integrated with Global Brand, Innovation and Sustainability, except for Compliance & Ethics, which integrates with Group Function Legal Affairs. Current Senior Vice President Kersti Strandqvist is appointed to a new role as Vice President Digital Transformation Program. Group Function Strategy & Business Development is being integrated with Group Function Finance. The reorganization entails that the number of staff functions in the Group is being reduced from six to four.
Ulrika Kolsrud, President Global Hygiene Supply Personal Care, is appointed President Health and Medical Solutions. She succeeds Margareta Lehmann who is retiring as previously announced.
“These changes are part of our efforts to improve efficiency and increase the pace of change in the company. We are now taking the next step in building a business for the future,” says Magnus Groth, President and CEO of Essity.
Tuomas Yrjölä will take office on November 15, 2018. All other changes will take effect on December 31, 2018.
“I would like to congratulate Ulrika, Donato, Tuomas, Kersti and Robert on their new roles. I would also like to thank Georg for his contribution to our success over the last two years and wish him all the best in the future,” says Magnus Groth.
Interim Report Q3 2018
JANUARY 1 – SEPTEMBER 30, 2018
(compared with the corresponding period a year ago)
- Net sales increased 8.4% to SEK 87,388m (80,601)
- Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.4%
- Organic net sales increased 2.8%, excluding the lower sales of mother reels due to production closures
- Operating profit before amortization of acquisition-related intangible assets (EBITA) declined 10% to SEK 8,085m (8,953)
- Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 3% to SEK 9,484m (9,786)
- Higher raw material and energy costs had a negative impact of SEK 3,268m on earnings
- Adjusted EBITA margin decreased 1.2 percentage points to 10.9% (12.1)
- Adjusted profit before tax decreased 6% to SEK 8,026m (8,562)
- Profit for the period decreased 14% to SEK 4,935m (5,719)
- Earnings per share decreased 14% to SEK 6.38 (7.44)
- Adjusted earnings per share decreased 5% to SEK 8.35 (8.77)
- Cash flow from current operations decreased 6% to SEK 5,714m (6,055)
- During the third quarter a Group-wide cost-savings program was launched. The expected annual cost savings amount to approximately SEK 900m.
SUMMARY OF THIRD QUARTER OF 2018
The Group’s net sales increased 9.1% for the third quarter of 2018 compared with the corresponding period a year ago and earnings per share amounted to SEK 1.41.
The third quarter of 2018 was challenging as the negative impact from raw material and energy costs has accelerated further. On the whole, these factors negatively impacted our margins in the short term, despite higher selling prices, a better mix and costs savings in all business areas.
To increase profitability, we are implementing measures in several areas:
- We continue to invest in our strong brands and launched 13 innovations during the quarter that strengthened our customer and consumer offering.
- Within Consumer Tissue, we have initiated negotiations regarding further price increases that are primarily expected to impact 2019. For some contracts in Europe, additional price increases have already been implemented with gradual effect in the fourth quarter of 2018. Activities to increase prices are also ongoing in Personal Care and Professional Hygiene.
- We are intensifying our efficiency improvements and restructuring of the business. We have decided on further restructuring measures as part of “Tissue Roadmap” and are continuing our work with “Cure or Kill”.
- During the quarter, we launched a Group-wide cost-savings program that is in addition to the ongoing efficiency activities in the company. As a result of further measures within the scope of this program, the expected annual cost savings are being increased by approximately SEK 100m to approximately SEK 900m, with full effect at the end of 2019. The program includes headcount reductions of approximately 1,000 positions. The restructuring costs are expected to amount to approximately SEK 700m. The costs are expected to impact cash flow and be recognized as an item affecting comparability in 2019.
- To strengthen competitiveness and increase efficiency, we are also making changes to the company’s organizational structure and Executive Management Team. The two units, Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care, will be merged into one unit under the name Global Manufacturing with responsibility for production and technology. A new unit under the name Global Operational Services will be created with the purpose to further strengthen the Group’s overall work related to operational and cost efficiency. The unit will encompass sourcing, logistics, business services and digitalization. The number of corporate functions will be reduced from six to four.
Organic net sales, excluding the lower sales of mother reels, increased 2.5%, of which volume accounted for -0.1% and price/mix for 2.6%. Including the lower sales of mother reels, organic sales increased 1.6%, of which volume accounted for -1.0% and price/mix for 2.6%. Organic net sales was positively impacted by higher prices and a better mix in all business areas. In emerging markets, which accounted for 35% of net sales, organic net sales increased 4.3% while the decrease in mature markets was 0.1%.
The Group’s adjusted EBITA in the third quarter of 2018 declined 12% compared with the corresponding period a year ago. Earnings were positively impacted by higher prices and a better mix in all business areas, higher volumes and cost savings amounting to SEK 180m. Our work to achieve cost savings continued but the high level of cost savings in the year-earlier period impacted the reported increase in the quarter. Higher raw material and energy costs had a negative impact of SEK -1,418m on earnings, which corresponds to a negative impact on the adjusted EBITA margin of -5.1 percentage points. The market price for pulp is about 30% higher compared with the corresponding period a year ago. The market price of oil-based raw materials has also increased significantly. Furthermore, higher distribution costs had a negative impact on earnings. The Group’s adjusted EBITA margin decreased 2.4 percentage points to 10.2%. The adjusted return on capital employed was 11.0%, and adjusted return on equity was 13.7%. Operating cash flow increased 4%.
Essity has been included in the Dow Jones Sustainability Index, one of the world’s most prestigious sustainability indices. Essity has qualified for inclusion in both the Dow Jones Sustainability World Index and the Dow Jones Sustainability Europe Index, and has also been named industry leader in the Household Products sector.
Essity commits to 100% recyclability of plastic packaging
Essity has joined the Ellen MacArthur Foundation’s New Plastic Economy global commitment, “A line in the sand”. Essity is therefore committed to working toward 100% recyclability of the company’s packaging by 2025.
Packaging forms an important part of Essity’s offering of hygienic and safe solutions to customers and consumers. As a leading global hygiene and health company, one of Essity’s objectives is to contribute to a sustainable and circular society, and the company thus works to continuously improve, reduce and recycle plastic packaging.
“We welcome this initiative as the challenge with plastic waste can be solved more effectively through cooperation across the value chain, including companies, governments, international organizations, the recycling industry and consumers,” says Magnus Groth, President and CEO, Essity.
The commitment is aligned with Essity’s overall ambition that new solutions will contribute to reducing the environmental footprint by 33% by 2030.
The Ellen MacArthur Foundation was launched in 2010 to accelerate the transition to a circular economy. The initiative is a collaboration with a broad group of leading companies, cities, philanthropists, policymakers, academics, students, NGOs and citizens.
