Essity

Annual Report • Mar 2, 2021

Annual and Sustainability Report

Essity Aktiebolag (publ)

Welcome to Essity

We are a global hygiene and health company that improves people's well-being through leading hygiene and health solutions.

Essity is listed on Nasdaq Stockholm.

Business areas Contents

Personal Care

Personal Care includes the Incontinence Products, Medical Solutions, Baby Care and Feminine Care product categories. The offering includes incontinence products, baby diapers, pads, panty liners, tampons, wet wipes, skincare products and digital solutions with sensor technology, as well as products and services in wound care, compression therapy and orthopedics.

Consumer Tissue

Consumer Tissue includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes, napkins and face masks.

Professional Hygiene

Professional Hygiene includes complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand sanitizer, dispensers and digital solutions, such as Internet of Things sensor technology that enables datadriven cleaning, as well as face masks.

Introduction

• 1 This is Essity
• 3 2020 in figures
• 4 2020 at a glance
• 6 CEO's message

The Essity share

• 8 The Essity share
• 10 Information to shareholders

Strategy

• 11 Essity's external environment and market
• 14 Strategic framework and business model
• 16 Strategies
• 20 Objectives
• 21 Contribution to the UN Sustainable Development Goals
• 22 Targets and outcomes

Business areas

• 24 Personal Care
• 26 Consumer Tissue
• 28 Professional Hygiene

Group

• 30 Operations and structure
• 31 Acquisitions, investments and divestments and Other Group information
• 33 Net sales and earnings
• 34 Cash flow and financing
• 35 Financial position
• 36 Risks and risk management
• 44 Sustainability governance
• 51 Materiality analysis

Corporate Governance Report

• 52 Corporate governance
• 58 Board of Directors and Auditors
• 60 Executive Management Team

Financial statements including notes

• 62 Contents
• 64 Financial statements, Group
• 70 Financial notes, Group
• 113 Financial statements, Parent company
• 114 Financial notes, Parent company
• 119 Non-financial notes, Group
• 128 Proposed disposition of earnings
• 129 Auditor's report
• 133 Index statutory sustainability report and GRI, TCFD and SASB index
• 135 Auditor's Combined Assurance report
• 136 Remuneration report 2020

Essity data

• 138 Description of costs and Raw materials
• 139 Production facilities
• 140 Financial multi-year summary

The Board of Directors' Report and financial statements

The Annual and Sustainability Report 2020 for Essity Aktiebolag (publ) has been submitted by the Board of Directors and describes the company's overall objectives and strategies and earnings for the year. The aim is to describe the business from an economic, social and environmental perspective. The Board of Directors' Report and financial statements are presented on pages 8–10 and 24–132 and include the auditor's report. Essity's Sustainability Report is prepared in accordance with GRI Reporting Standards: Core, SASB Household & Personal Products Standard and includes disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD); for index refer to pages 133–134. It also constitutes Essity's Communication on Progress (COP) to the UN Global Compact. Pages 36–51 and 119–127 encompass Essity's statutory sustainability report according to the requirements stated in the Annual Accounts Act. The company's business model can be found on page 15.

Essity's strengths Long-term value creation through profitable growth

• Improves well-being through leading hygiene and health solutions
• Favorable market trends
• Increases customer and consumer benefits through successful innovations
• Strong market positions and brands
• Digital transformation and strong growth in e-commerce
• Expansion in emerging markets
• Focus on efficiency improvements and cost savings
• Clear category and portfolio strategy
• Strives toward a sustainable and circular society
• High-performing organization with a winning culture

Adjusted earnings per share3) 15.45 SEK

Organic net sales1) –1.9%

Adjusted EBITA margin2) 14.5%

Earnings per share 14.56 SEK Market capitalization, December 31, 2020

Adjusted return on capital employed2)

15.7%

• North America, 12%
• Other, 2%

0 30,000 60,000 90,000 120,000 150,000 2016 2017 2018 2019 2020 SEKm CAGR5) +4.7%

15,000 20,000 SEKm

The Group's largest markets, % of net sales

2016 2017 2018 2019 2020

1) Net sales excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.

3) Excluding items affecting comparability and amortization of acquisition-related intangible assets. 4) Board of Directors' dividend proposal.

5) Compound Annual Growth Rate.

Earnings trend

2020at a glance Key events

Progress in hygiene and health, innovation, e-commerce, digitalization and sustainability strengthens Essity for the future.

COVID-19 pandemic

The COVID-19 pandemic has had a major impact on people and the global economy. Essity has had three overall priorities during the pandemic: care for our people, contribute to society and secure business success. Essity has worked to promote a better global hygiene and health standard by safeguarding production and deliveries and continuing to develop customer and consumer offerings. For example, we invested in production of face masks and increased hand sanitizer delivery capacity. We support the WHO COVID-19 Solidarity Response Fund and several local initiatives. Our business areas were impacted both negatively and positively. For Professional Hygiene and Personal Care, the lockdowns and restrictions led to a temporary decrease in demand. Demand for Consumer Tissue, however, was positively impacted by the fact that consumers were spending more time at home. Greater awareness of the importance of hygiene and health is positive for Essity.

Higher market shares and increased e-commerce

Essity has gained market shares in many markets due to high delivery reliability and successful product launches, in addition to increased activity and a strengthened presence in digital sales channels. The Group's e-commerce sales increased to approximately SEK 15bn, corresponding to about 13% of net sales.

Innovations for improved quality of life and reduced environmental impact

During the year, Essity launched several innovations that strengthened its customer and consumer offering, improved its product mix and reduced its environmental impact. Examples include the launch of washable absorbent underwear under the SABA and Nosotras brands, TENA SmartCare, which is a digital solution for continence care, and face masks under the Colhogar, Lotus, Tempo, Zewa and Tork brands.

Two acquisitions and one divestment

Essity acquired 75% of the Swedish medical solutions company ABIGO Medical AB. The company develops, manufactures and markets products including the Sorbact® technology for advanced wound care. ABIGO Medical as a whole is valued at SEK 900m on a debt-free basis. We also strengthened our continence care offering through the acquisition of Novioscan, which develops smart ultrasound technology for monitoring the bladder. The purchase price was approximately SEK 70m on a debt-free basis.

Essity divested its 49% stake in the company Sancella Tunisia, which offers a range of Essity's products and brands in Tunisia, Algeria, Morocco and Libya. Essity will retain a presence in these markets through license and distribution agreements.

Raised target for adjusted return on capital employed to above 17% by 2025

The target for adjusted return on capital employed was raised to above 17% by 2025. The previous target was above 15% and was achieved in 2020. The raised target will be achieved through the continued execution of Essity's existing strategy, an accelerated digital transformation and further streamlining of production, logistics and distribution. Other financial targets remain unchanged.

Acceleration of Essity's digital transformation

Essity's digital transformation will accelerate in the years ahead through a new digital platform. This will further strengthen the Group's customer and consumer offerings, generate significant cost savings and reduce the need for working capital. This digital investment is expected to amount to approximately SEK 2.6bn. Of this amount, approximately SEK 1.4bn will comprise costs that will be charged to the 2020–2024 period, and about SEK 1.2bn will comprise capital expenditures. A positive sales and earnings impact is expected gradually from 2022. In the short term, costs are expected to be offset by savings in other areas.

Manufacturing Roadmap launched

The new Manufacturing Roadmap program will optimize and streamline all of Essity's approximately 60 wholly owned facilities for world-class cost efficiency, quality and service levels. The program also encompasses logistics and distribution. Moreover, the program contributes to Essity's sustainability target relating to the reduction of carbon emissions in line with the Science Based Targets initiative.

Inclusion in Dow Jones Sustainability Index and in CDP's A List

Essity was included in the Dow Jones Sustainability Europe Index, one of the world's most prestigious sustainability indexes, in the Household Products category. Furthermore, Essity was recognized for its leadership in corporate sustainability by global environmental non-profit CDP, securing a place on its prestigious 'A List' for the company's action to tackle deforestation and to source more sustainable commodities.

One of the world's most sustainable companies

Essity has been recognized as one of the world's 100 most sustainable companies by Corporate Knights. The list was announced in conjunction with the World Economic Forum Annual Meeting. Corporate Knights has analyzed and compared 8,080 companies with a minimum gross revenue of USD 1bn against global industry peers.

Convening partner to the annual United Nations Foundation's Global Dialogue

In 2020, Essity was once again a convening partner to the United Nations Foundation's annual Global Dialogue on the Sustainable Development Goals (SDGs). In conjunction with the meeting, Essity launched the seventh edition of the Hygiene and Health Report compiled in collaboration with UN body Water Supply and Sanitation Collaborative Council (WSSCC). In addition to a speech from Essity's President, a representative from Essity's Health and Medical Solutions business unit spoke about antimicrobial resistance.

TENA SmartCare – The more we connect, the better we care.

Highest profits ever

During 2020, the COVID-19 pandemic had a major impact on people and the global economy. Essity has had three priorities: care for our people, contribute to society and secure business success. COVID-19 and related lockdowns and restrictions had a negative impact on Essity's sales. Nonetheless, in 2020, Essity achieved its highest operating profit (EBITA) and its highest EBITA margin ever. Vaccinations have started and market conditions will gradually improve. As a company, we are emerging from this stronger. Our vision to improve well-being through leading hygiene and health solutions is more important than ever.

Higher return target and dividend

In 2020, we achieved the target for adjusted return on capital employed and, accordingly, the target was raised to above 17% by 2025. This target will be achieved through continued focus on profitable growth, accelerated digital transformation and further efficiency improvement of sourcing, production, logistics and distribution.

The original dividend proposal for the 2019 fiscal year was withdrawn in the spring of 2020 as a consequence of the major uncertainty surrounding COVID-19. Since Essity displayed continued strong cash flow, a robust balance sheet and financial flexibility in 2020, a resolution was passed at an Extraordinary General Meeting in October to pay a dividend of SEK 6.25 per share. The Board of Directors proposes an 8% increase in the dividend to SEK 6.75 per share for the 2020 fiscal year.

Innovative offerings and medical technology acquisitions

2020 was a strong year of innovation for Essity. We are making use of sensors and new technology to deliver digital solutions that simplify and improve everyday life for customers and consumers. During the year, TENA SmartCare was launched, a reusable sensor that can easily be attached to the outside of a TENA product and notifies the caregiver or family member via an app when the product needs to be changed. COVID-19 has placed higher demands on hygiene and health and we have strengthened our offering to help people to manage the new challenges of everyday life. For example, we broadened our offering to include face masks and increased supply capacity for hand sanitizer.

Acquisitions are one way of further broadening our offering. Through the acquisition of medical solutions company ABIGO Medical AB, Essity owns the unique Sorbact® technology for advanced wound care. We also acquired Novioscan, which is developing a wearable ultrasound sensor for the bladder and provides the user with a discrete notification via an app when it is time to visit the bathroom.

Digitalization and efficiency

We have been investing in digitalization in all areas of the business for several years. From increased automation and robotization of production, logistics and administration to digital offerings and a strong platform for e-commerce. These investments were a major contributing factor to Essity's high level of delivery reliability during the pandemic. We had the infrastructure in place for the rapid shift to a more digital world. We are now increasing our digital initiatives and investing in a new digital platform. This investment is expected to increase our sales through an even better customer and consumer experience in the form of enhanced

flexibility, speed and accessibility. It also enables further efficiency enhancement of sourcing, production, logistics and distribution, which is expected to lead to cost savings and a reduced need for working capital. The initiative goes hand in hand with our new Manufacturing Roadmap program with the aim of optimizing and streamlining all of Essity's approximately 60 wholly owned facilities for world-class cost efficiency, quality and service levels.

Higher market shares and increased e-commerce sales

Through high delivery reliability, successful product launches and strong brands, in addition to increased activity and a strengthened presence in digital sales channels, we have gained market shares for more than 60% of our branded positions in the retail trade. Increasing numbers of people have started to shop online during the pandemic, which has favored Essity's strong brands. The Group's e-commerce sales increased to approximately SEK 15bn, corresponding to approximately 13% of net sales.

Increased sales and profitability in emerging markets

We have a strong presence in China, Southeast Asia, Latin America, Eastern Europe and Russia. In emerging markets, which accounted for 37% of net sales, organic net sales increased by 2.6%. In addition, the adjusted EBITA margin increased 2.7 percentage points to 12.9%. Our ambition is that emerging markets will continue to grow as a share of net sales and earnings.

Highest operating profit and margin ever

In 2020, Essity achieved its highest operating profit (EBITA) and its highest EBITA margin ever. This was the result of successful product launches under our strong brands, higher market shares, improved profitability in emerging markets, lower raw material and energy costs, continued efficiency and digitalization of the business, as well as reduced resource consumption. Continuous cost savings amounted to SEK 1.1bn. Adjusted EBITA increased 11% and amounted to SEK 17,626m, while the adjusted EBITA margin rose 2.2 percentage points to 14.5%. The adjusted return on capital employed rose by 1.9 percentage points to 15.7%. Earnings per share increased 11% to SEK 14.56.

As a result of the COVID-19 pandemic and the related lockdowns and restrictions, Essity's organic net sales declined 1.9% in 2020 and net sales amounted to approximately SEK 122bn. Organic net sales in the retail trade increased 3.4%. For Professional Hygiene and Personal Care, the lockdowns and restrictions led to a temporary decrease in demand. Demand for Consumer Tissue, however, was positively impacted by the fact that consumers were spending more time at home. The requirements for high hygiene standards at home and outside the home have increased, which is positive for the demand for our solutions. During the year, for example, we

Our employees have shown an amazing commitment and ability to quickly adapt to help raise the global hygiene and health standard and position Essity for future growth.

indexes, in the Household Products category and secured a place on the CDP's prestigious 'A List' for the company's action to tackle deforestation and to source more sustainable commodities. Essity has also been recognized as one of the world's 100 most sustainable companies by Corporate Knights.

Essity was a convening partner to the United Nations Foundation's annual Global Dialogue, where we discussed with our customers how we can contribute to the UN Sustainable Development Goals (SDGs). We support the UN Global Compact.

Diversity and cooperation our strength

In 2020, our employees showed an amazing commitment and ability to quickly adapt to deliver our important solutions to customers and consumers and to help raise the global hygiene and health standard and position Essity for future growth. By applying rapid and concrete measures and delegated responsibility, we quickly found a way to protect our employees' health, while also maintaining production. The strong earnings reported for 2020 is confirmation of the competent and professional organization we have. I am proud of the culture we have at Essity, where each individual is important, as is the cooperation between us. We value and work to promote increased diversity and inclusion. It makes us stronger when we are different and contribute our unique expertise, background and experience.

Priorities in 2021

Vaccinations have started and market conditions will gradually improve. In 2021, we will work to accelerate growth in Personal Care and prepare for a strong comeback in Professional Hygiene. Within Consumer Tissue, work is continuing to improve structural profitability. Continued digital transformation, the Manufacturing Roadmap and further acquisition opportunities support our strategy for profitable growth. We will continue to lead in the area of sustainability and contribute to the UN Sustainable Development Goals. Together, we make improvements for people and the environment, and create value for our shareholders, customers, consumers, society and employees.

Magnus Groth

President and CEO

saw higher demand for our offerings of soap, hand sanitizer and dispensers. In Medical Solutions, we improved our underlying growth.

Climate transition

In our efforts to reduce climate impact, Essity strives to raise the share of recycled and renewable materials, increase the recycling of products, and launch more products that can be reused. One example of this is our launch of washable absorbent underwear during the year. Under "Pure Natural", toilet paper, handkerchiefs and facial tissues were launched with an extra soft quality. The tissue is made of certified fiber, of which about 30% is unbleached. The plastic packaging is recyclable and 30% of it is made from recycled plastic.

We are working to achieve a world-class sustainable value chain with three focus areas: reduce the use of fossil fuels and electricity, improve product design and optimize resource utilization. Our targets to reduce carbon emissions are approved by the Science Based Targets initiative and, between 2016 and 2020, we reduced our Scope 1 and 2 carbon emissions by 11%. During 2021, we are starting the production of tissue from wheat straw at our facility in Mannheim, Germany. It is a good example of ground-breaking production that generates a significantly lower climate impact while retaining quality.

Essity is working actively to identify and minimize climaterelated risks. We report our conclusions based on the recommendations in TCFD on pages 42–43. We have also extended our sustainability reporting to comply with the SASB Household & Personal Products Standard.

Sustainability awards and the UN SDGs

In 2020, Essity was included in the Dow Jones Sustainability Europe Index, one of the world's most prestigious sustainability

The Essity share

Essity shares are quoted and traded on Nasdaq Stockholm. Essity's market capitalization was SEK 186bn at December 31, 2020.

Share price performance in 2020

In 2020, the price of Essity's B share declined 12%. During the same period, the OMX Stockholm 30 Index rose 6% and the MSCI Household Products Index rose 11%. The closing price of Essity's B share at year-end was SEK 264.50. The highest closing price for Essity's B share during the year was SEK 321.60, which was noted on January 18 and 20. The lowest closing price was SEK 257.90 on October 30.

The total shareholder return for Essity's B share for the year was –10%. The total shareholder return for the OMX Stockholm 30 Index was +7% and for the MSCI Household Products Index +14%.

Dividend and dividend policy

Essity aims to provide long-term stable and rising dividends to its shareholders. When cash flow from current operations exceeds what the company can invest in profitable expansion over the long term, and under the condition that the capital structure target is met, the surplus shall be distributed to the shareholders.

The original dividend proposal for the 2019 fiscal year was withdrawn in spring 2020 as a consequence of the major uncertainty surrounding COVID-19. On October 28, 2020, Essity resolved on a dividend of SEK 6.25 per share at an Extraordinary General Meeting. The dividend was paid on November 4, 2020.

The Board of Directors proposes an increase in the dividend of 8% to SEK 6.75 (6.25) per share for the 2020 fiscal year. The dividend represents a dividend yield of 2.6%, based on Essity's share price at the end of the year.

Index

On the Nasdaq Stockholm stock exchange, Essity is included in the OMX Stockholm 30 Index, OMX Nordic 40 Index and in the Personal & Household Goods sector within Consumer Goods. In addition to indexes directly linked to Nasdaq Stockholm, Essity is included in other indexes, such as the FTSE All World Index and the MSCI Household Products Index within Consumer Staples. Essity is included in the Dow Jones Sustainability Europe Index, one of the world's most prestigious sustainability indices, in the Household Products category. Essity is also represented in sustainability indexes such as the FTSE4Good and has the highest MSCI ESG rating of AAA.

Shareholder structure

48% of the share capital is owned by investors registered in Sweden and 52% by foreign investors. The US and the UK account for the highest percentage of shareholders registered outside Sweden.

Beta coefficient

The beta coefficient for Essity's B share was 0.46 in 2020. A beta coefficient of less than 1 indicates that the share is less sensitive to market fluctuations than the average.

Liquidity

In 2020, the volume of Essity shares traded on Nasdaq Stockholm was about 463 million, corresponding to a value of approximately SEK 136bn. Average daily trading for Essity on Nasdaq Stockholm amounted to approximately 1.8 million shares, corresponding to a value of approximately SEK 538m. During the year, trading on CBOE had turnover of approximately 572 million Essity shares, Turquoise approximately 32 million and other trading venues approximately 156 million.

Earnings per share, 2020

14.56SEK

Proposed dividend per share, 20201)

6.75 SEK

Earnings, dividend and dividend yield

1) Board of Directors' dividend proposal.

Total shareholder return 2020

Total shareholder return, June 15, 2017 – December 31, 2020

Ownership by country

Source: Euroclear, December 31, 2020

Shareholder structure

Holding	No. of share holders	No. of shares	Capital (%)	Votes (%)
1–1,000	92,514	20,514,487	2.9	3.3
1,001–10,000	14,699	39,647,644	5.7	6.3
10,001–20,000	700	9,908,761	1.4	1.4
20,001–	943	632,271,597	90.0	89.1
Total	108,856	702,342,489	100.0	100.0

Source: Euroclear, December 31, 2020

Share distribution

	Class A	Class B	Total
Number of registered shares	61,735,172	640,607,317	702,342,489
In 2020, 2,199,470 Class A shares were converted to Class B shares at the request of shareholders. The total number of votes in the company subsequently amounted to 1,257,959,037. Source: Euroclear, December 31, 2020

Ticker names

Nasdaq Stockholm	ESSITY A, ESSITY B
Bloomberg	ESSITYA:SS, ESSITYB:SS
REUTERS	ESSITYa.ST, ESSITYb.ST

Essity's largest shareholders

At December 31, 2020, the following companies, foundations and mutual funds were the ten largest registered shareholders based on voting rights:

Shareholders	Votes (%)	Holding (%)
AB Industrivärden	29.3	9.8
AMF Insurance and Funds	7.3	4.4
Norges Bank Investment Management	6.8	4.0
MFS Investment Management	2.7	5.0
Swedbank Robur Funds	2.1	3.7
Skandia	1.8	0.7
SEB Investment Management	1.3	2.4
Handelsbanken Fonder	1.2	2.1
Nordea Investment Funds	1.0	1.8
SCA AB's and Essity Aktiebolag's (publ) Employee foundations	0.8	0.1
Other owners	45.7	66.0
Total	100.0	100.0

Essity Aktiebolag (publ) holds no treasury shares.

Source: Euroclear, December 31, 2020

Data per share

All performance measures include items affecting comparability unless otherwise stated.

SEK per share unless otherwise indicated	2020	2019
Earnings per share before and after dilution	14.56	13.12
Adjusted earnings per share1)	15.45	14.69
Average price during the year	294.35	278.28
Closing price, December 31	264.50	301.80
Cash flow from current operations2)	15.91	18.81
Cash flow from operating activities	25.37	27.55
Dividend	6.753)	6.25
Dividend yield, %	2.6	2.1
P/E ratio4)	18	23
P/E ratio, excluding items affecting comparability4)	17	21
Price/EBITA5)	13	17
Price/EBITA, excluding items affecting comparability5)	13	17
Beta coefficient6)	0.46	0.35
Pay-out ratio, %	46	48
Equity	90	89
Number of registered shares, December 31 (millions)	702.3	702.3

1) Excluding items affecting comparability and amortization of acquisition-related

intangible assets.

2) See definitions of key figures in Note A2, pages 71–76.

3) Board of Directors' dividend proposal.

4) Share price at year-end divided by earnings per share.

5) Market capitalization plus net debt plus non-controlling interests divided by EBITA.

(EBITA = operating profit before amortization of acquisition-related intangible assets). 6) Share price volatility compared with the entire stock exchange.

Share capital development

The table below shows the development of the company's share capital since 2017.

Year	Event	Change in number of Class A shares	Change in number of Class B shares	Total number of Class A shares	Total number of Class B shares	Total number of shares	Change in share capital, SEK	Total share capital, SEK	Quotient value, SEK
2017	Bonus issue1)	64,589,523	637,747,966	64,594,523	637,747,966	702,342,489	2,349,866,980	2,350,366,980	3.35
2017	Conversion	–454,085	454,085	64,140,438	638,202,051	702,342,489	–	2,350,366,980	3.35
2018	Conversion	–147,667	147,667	63,992,771	638,349,718	702,342,489	–	2,350,366,980	3.35
2019	Conversion	–58,129	58,129	63,934,642	638,407,847	702,342,489	–	2,350,366,980	3.35
2020	Conversion	–2,199,470	2,199,470	61,735,172	640,607,317	702,342,489	–	2,350,366,980	3.35

1) At the Annual General Meeting, held on April 5, 2017, shareholders resolved on a bonus issue. The purpose of the bonus issue was to increase the share capital and number of shares so they would correspond to the number of shares in SCA ahead of SCA's distribution of Essity.

Examples of sustainability indexes and awards:

Information to shareholders

Annual General Meeting

Due to the current pandemic, the Annual General Meeting will, in accordance with temporary legislation, be held only by advance voting (postal voting). Hence, shareholders will not be able to physically attend the Meeting in person or by proxy. Instead, Essity welcomes shareholders to exercise their voting rights at the Meeting by advance voting in the manner described below. Information on the resolutions passed at the Meeting will be disclosed on 25 March 2021, as soon as the outcome of the advance voting has been finally confirmed.

Right to participate

A person who wishes to participate in Essity's Annual General Meeting by advance voting must:

• be listed as a shareholder in the presentation of the share register prepared by Euroclear Sweden AB concerning the circumstances on Wednesday, 17 March 2021; and
• give notice of its intention to participate no later than Wednesday, 24 March 2021, by submitting its advance vote in accordance with the instructions under Advance voting below, so that the advance vote is received by Euroclear Sweden AB no later than that day.

Nominee-registered shares

For shareholders who have their shares registered through a bank or other nominee, the following applies in order to be entitled to participate in the Meeting. In addition to giving notice of participation by submitting its advance vote, such shareholder must re-register its shares in its own name so that the shareholder is listed in the presentation of the share register as of the record date Wednesday, 17 March 2021. Such re-registration may be temporary (so-called voting rights registration), and request for such voting rights registration shall be made to the nominee, in accordance with the nominee's routines, at such a time in advance as decided by the nominee. Voting rights registration that has been made by the nominee no later than Friday, 19 March 2021, will be taken into account in the presentation of the share register.

Advance voting, etc.

Shareholders may exercise their voting rights in the Meeting only by voting in advance, so-called postal voting in accordance with Section 22 of the Swedish Act (2020:198) on temporary exceptions to facilitate the execution of general meetings in companies and other associations. A special form for advance voting must be used. The form is available on Essity's website, www.essity.com.

Submission of the form in accordance with the instructions set out below is also considered as notice of participation in the Meeting. The completed form must be received by Euroclear Sweden AB no later than Wednesday, 24 March 2021. The completed form shall be sent to Essity Aktiebolag (publ), "Annual General Meeting", c/o Euroclear Sweden AB, Box 191, SE-101 23 Stockholm, Sweden. A completed form may also be submitted electronically. Electronic submission can be made either through verification with BankID in accordance with instructions at https://anmalan.vpc.se/euroclearproxy, or by sending the completed form by e-mail to GeneralMeetingService@euroclear.com. Shareholders may not provide special instructions or conditions to the advance vote. If so, the entire advance vote is invalid. Further instructions and conditions can be found in the advance voting form.

Questions in writing may be addressed to the Board of Directors and President and must be received by the company no later than Monday, March 15, 2021, in the manner described in the notice.

Proxies

If a shareholder submits its vote through a proxy, a power of attorney shall be enclosed with the form. If the shareholder is a legal entity, a registration certificate or a corresponding document for the legal entity shall be enclosed with the form. Proxy forms are available upon request and on the company's website, www.essity.com.

The notice convening the Annual General Meeting can be found on the company website www.essity.com.

Nomination Committee

• Helena Stjernholm, AB Industrivärden, the Chairman of the Nomination Committee
• Jonas Jølle, Norges Bank Investment Management
• Anders Oscarsson, AMF and AMF Funds
• Marianne Nilsson, Swedbank Robur Fonder
• Pär Boman, Chairman of the Board of Essity

The Nomination Committee prepares, among other things, the proposal for election of Board members. For further information, refer to the Corporate Governance Report on pages 52–61.

Dividend

The Board of Directors proposes a dividend of SEK 6.75 per share and that the record date for the dividend be Monday, March 29, 2021. Payment through Euroclear Sweden AB is expected to be made on Thursday, April 1, 2021.

Financial information 2021–2022

Interim Report	Jan 1–Mar 31, 2021	April 23, 2021
Half-year Report	Jan 1–Jun 30, 2021	July 16, 2021
Interim Report	Jan 1–Sep 30, 2021	October 22, 2021
Year-end Report	2021	January 26, 2022
Annual and Sustainability Report	2021	March 2022

Annual and sustainability reports, year-end reports, half-year reports and interim reports are published in Swedish and English (in the event of differences between the English translation and the Swedish original, the Swedish text shall prevail) and can be downloaded from Essity's website www.essity.com.

Subscriptions

Subscription to Essity's press releases, annual and sustainability reports, year-end reports, half-year reports and interim reports can be done by registering on the Essity website www.essity.com.

Essity's external environment and market Hygiene and health market

Favorable market trends

Essity operates in the growing hygiene and health market. Essity's categories, geographies and distribution channels are subject to several favorable market trends:

During 2020, the COVID-19 pandemic further increased awareness of the importance of hygiene and health. For example, people now have a greater understanding of the importance of washing and drying your hands to avoid diseases and the spread of infection. This is expected to increase demand for several of Essity's product categories.

Demand for hygiene and health solutions is also positively impacted by the gradual reduction in poverty worldwide and as families achieve a higher standard of living and disposable income. When people fulfill the most basic needs for food and shelter, the next priority is hygiene and health. Access to health care is increasing above all in emerging markets in pace with rising prosperity and accelerating urbanization.

The global population is growing and average life expectancy is rising, which means greater demand for hygiene and health solutions and offering growth opportunities for Essity.

An aging population increases demand for such items as incontinence products as the prevalence of incontinence rises with age. A higher age also increases the risk of chronic conditions, which leads to increased demand for medical solutions, for example.

Due to the pandemic, e-commerce and digitalization of production and services as well as remote working have increased sharply. Digitalization offers Essity a variety of opportunities and has led to increased efficiency in the business, higher sales of digital solutions and growth in e-commence sales.

Global awareness of sustainability issues, climate change and resource scarcity is rising. Sustainability work is a way for Essity to increase sales and profitability, but also to reduce the company's risks. The starting point is to reduce the climate footprint of Essity and of customers and consumers. Essity is working proactively to identify, assess and manage climate-related risks.

Source: The information has been compiled by Essity for presentation purposes based on statistics taken from external market sources, including IRI, Fastmarkets RISI, Price Hanna Consultants, SmartTRAK and National Macro Economics.

Global market by region

In 2020, the hygiene and health market in mature markets amounted to approximately SEK 660bn and in emerging markets to approximately SEK 580bn.

Use

Growth potential in different regions

The growth potential is greatest in emerging markets where market penetration of hygiene and health products is significantly lower than in mature markets and where urbanization, infrastructure, retail trade, e-commerce and health care are evolving rapidly. One example of the lower market penetration in emerging markets is that the consumption rates for incontinence products in Asia are only about one-sixth of those in Western Europe. Another example is that tissue consumption in Eastern Europe is only about one-third of that in Western Europe.

As shown on the map on page 11, market growth is expected to be particularly high in Asia and Latin America where Essity has a rapidly expanding business with many leading market positions.

In mature markets, baby care and feminine care have attained high market penetration. However, market penetration for incontinence products is still relatively low for certain product segments, particularly among men, which Essity believes is due to lack of awareness and the stigma associated with incontinence. An aging population is expected to increase demand for incontinence products and medical solutions.

Essity's market positions

	Global	Europe	North America	Latin America	Asia
Incontinence Products	1	1	4	1	3
Professional Hygiene	1	1	2	4	3
Consumer Tissue	2	1	–	3	1
Medical Solutions	4	1	12	3	2
Baby Care	5	2	–	6	6
Feminine Care	5	3	–	1	10

Source: The information has been compiled by Essity for presentation purposes based on statistics taken from external market sources, including IRI, Fastmarkets RISI, Price Hanna Consultants, SmartTRAK and National Macro Economics.

Strategy for profitable growth and long-term value creation

Vision

Dedicated to improving well-being through leading hygiene and health solutions

Mission

To sustainably develop, produce, market and sell value-added products and services within hygiene and health

Objectives Strategies

Clear strategy for increased value creation

Through the vision: Dedicated to improving well-being through leading hygiene and health solutions, Essity strives to achieve long-term value creation for shareholders, customers, consumers, society and employees. Essity's mission is to sustainably develop, produce, market and sell value-added products and services within hygiene and health. Through innovation, digitalization, leading market positions and a greater presence in the

fastest-growing sales channels, as well as world-class service levels, quality and efficiency, Essity creates added value for customers and consumers. Our strategy and operations are based on a sustainable business model aimed at achieving profitable growth and responsible value creation, all of which is centered around our customers and consumers.

Business model

Business model focused on sustainable growth and responsible value creation

Resources

Essity utilizes resources in the form of financial capital, where equity amounted to approximately SEK 63bn and net debt approximately SEK 43bn in 2020. Human capital with approximately 46,000 employees and their expertise, skills and experience. Intellectual capital such as research and development, patents, licenses, innovation, systems and goodwill. Manufactured capital in the form of raw materials, facilities and infrastructure necessary for production. Relationship capital that includes Essity's relationship with internal and external stakeholders with whom we share values, credibility and loyalty. Natural capital used by Essity in its operations, such as forest and water.

Customer and consumer insights

The starting point for Essity's operations is customer and consumer insights. Through knowledge about people's daily needs and challenges, we create an offering that improves quality of life for people every day.

Innovation

Essity has a global unit that works with brands, innovation and sustainability. There are also innovation centers in China, France, Germany, Mexico, Sweden, and the US. Research and development (R&D) costs during the year amounted to SEK 1,559m, corresponding to about 1.3% of consolidated net sales.

Sourcing, production, logistics and distribution

In 2020, Essity purchased raw materials and consumables for approximately SEK 41bn. The main raw materials are pulp, recovered fiber and oil-based materials. Essity has around 90 production facilities worldwide. Cost of goods sold amounted to SEK 82bn, of which transport and distribution costs were SEK 11bn.

Marketing and sales

Essity's marketing costs in 2020 amounted to SEK 6,745m, corresponding to 5.5% of net sales. An increasing share of marketing is conducted through digital channels. We have sales in approximately 150 countries. In 2020, the retail trade accounted for 61% of Essity's net sales, business-to-business for 21% and the healthcare sector for 18%.

Leading hygiene and health solutions

Essity is the global market leader in incontinence products with the TENA brand and in professional hygiene with the Tork brand. Essity also has strong brands in other product categories. Essity holds the number one or number two position within at least one product category in approximately 90 countries and has a well-developed and efficient "go-to-market" model.

Value creation for our stakeholders

Essity generates value to shareholders through returns and dividends. We work to maximize shareholder value while prioritizing environmental and social issues by taking financial, environmental and social parameters into consideration in our business decisions. Customer and consumer value is created through our solutions by increasing well-being and quality of life. Value is also created for employees, suppliers and society through, for example, salaries, revenue, employment and taxes, as well as sustainability activities and community relations.

In Essity's strategy work, the external environment and markets are analyzed as a means of identifying external trends, drivers, opportunities and risks. Part of the basis for Essity's strategy work is a materiality analysis where Essity and the company's stakeholders rank the issues and areas that are perceived as being important for the company. Read more about the results of the 2020 materiality analysis on page 51. The annual strategy process includes an analysis phase and assessment of the risks present in the business units. The company's most material climate-related risks and opportunities have also been identified and assessed.

A description of the risks that impact Essity and related measures are presented on pages 36–43.

Take the lead in every market and channel

Essity aims to hold a number one or number two position in the markets, channels and categories we choose to participate in. We over-invest in the fastest growing customer, category and channel segments to take the lead in attractive markets and generate profitable growth. Essity has sales in approximately 150 countries. In approximately 90 of these, Essity holds the number one or two position in at least one product category.

Leading market positions

Holding a number one or number two position offers economies of scale for example in sourcing, production, distribution and marketing. Moreover, Essity's negotiating position is stronger when we have a brand and product that is demanded by customers and consumers. For some time, Essity has invested in e-commerce with the ambition to have a higher online market share compared with offline. This favored the company in 2020 since more consumers chose e-commerce. E-commerce sales increased from 10% of net sales in 2019 to 13% in 2020. The rise in e-commerce also increased sales of Essity's strong brands as consumers are more likely to choose brands they recognize and trust when buying online.

Attractive emerging markets

Essity has a clear priority for which geographic markets it wants to operate in, and which product categories it will offer in these markets. We aim to increase the emerging markets' share of net sales and earnings, since the potential for growth is higher in emerging markets because of lower market penetration for hygiene and health products compared with mature markets. We are prioritizing growth in selected emerging markets such as China, Southeast Asia, Latin America, Eastern Europe and Russia, where we already have strong market positions. In 2020, the adjusted EBITA margin for emerging markets was 12.9%, which is an improvement of 6.4 percentage points compared with 2015. Emerging markets increased to 37% of net sales in 2020.

Expanding the offering

To grow our product categories and strengthen market positions, we are improving and expanding our offerings through adjacencies. We achieve this organically through innovations and collaborations and through acquisitions of technology and product offerings. Today, Essity's offering includes wet wipes, skincare products and soap in several product categories. Expanding the customer offering is also about providing service and solutions to customers and consumers and developing digital solutions and sustainable business models that increase our customers' efficiency and reduce environmental impact. For example, in 2020 we strengthened our continence care offering through the acquisition of Novioscan, which develops smart ultrasound technology for monitoring the bladder.

Profitable growth

Essity's innovation-driven category and channel strategy with leading brands combined with comprehensive efficiency improvements have contributed to good organic sales growth and a gradual increase in profitability. Net sales increased by SEK 5.6bn annually and adjusted EBITA by SEK 1.4bn annually during the 2014–2020 period. Structural profitability in Consumer Tissue has increased for example due to a higher share of own brands, a focus on growth in segments with high margins, successful innovations and more efficient production. In Baby Care, we exited underperforming positions in North Africa and Russia during the year. Profitability in Baby Care has improved and the ambition is now to grow. The focus in Incontinence Products, Medical Solutions, Feminine Care and Professional Hygiene is on continued growth.

Portfolio strategy

Innovate leading brands

By continuously improving and expanding our solutions for customers and consumers, we help people around the world live a better life at the same time as we are strengthening our brands and gaining market shares. To launch successful innovations, we get to know our customers, consumers, users, resellers and distributors, often through digital interaction. Our innovation work also aims to reduce resource consumption to launch solutions that contribute to a sustainable and circular society.

Importance of hygiene and health

As a consequence of the COVID-19 pandemic, people are more aware of the importance of hygiene and health for well-being and in reducing the risk of disease. To help people cope with the challenges brought about by the pandemic, Essity has for example expanded its offering with face masks for the retail trade and to customers in the Professional Hygiene business area. In the retail trade, the face masks were launched under the consumer brands Tempo, Lotus, Zewa and Colhogar and in Essity's Professional Hygiene business area under the leading global brand Tork. Essity also increased delivery capacity of hand sanitizer under the Tork brand. The launch of the Household Towel Home Collection is another example of how Essity has further developed its offerings during the year to meet needs as people spend more time at home and, in parallel, want to raise hygiene standards with more wiping, cleaning and fewer textiles.

Reducing environmental impact

In order to continue to grow the company's sales while reducing its environmental impact, Essity is striving to develop new solutions, business models and production methods that contribute to a more sustainable society. We strive to offer sustainable products, packaging and services. The aim is for our packaging to be recyclable and comprise renewable and recycled materials. In 2020, Feminine Care introduced packaging for pads and panty liners made from renewable material for its new brand identity V-zone. The plastic packaging for pads is made from 50% renewable material in the form of responsibly grown sugar cane. One step in our commitment is to provide consumers with better solutions that feature a smaller climate footprint.

In Baby Care and with the Libero brand, we have been working for many years to reduce our climate footprint. For example, Libero was first in the Nordic region with Nordic Swan Ecolabel diapers and FSC® certification. In 2020, we launched baby diapers in packaging made from 50% renewable material. The baby diapers are manufactured using 100% renewable electricity.

Examples of awards in 2020

Digitalize

For a number of years, Essity has invested to digitalize sales and distribution to customers and consumers, the supplier and production chain, innovative solutions and internal processes. These investments have benefited Essity, for example, during the COVID-19 pandemic as the infrastructure was already in place to meet the sharp increase in e-commerce, remote working by employees with online meetings and the need for greater digital control of production, distribution and digital services. In 2020, Essity also decided to accelerate digitalization in the company through a new digital platform. This investment will further strengthen the Group's customer and consumer offerings, generate significant cost savings and reduce the need for working capital.

E-commerce

The COVID-19 pandemic has accelerated digitalization and e-commerce has increased sharply. Through its strategy to focus on the fastest growing customer and sales channels, Essity has over-invested in e-commerce over time. Essity therefore has a strong e-commerce platform and during the year it was quick to respond to the retail trade's increased demands for an online presence. During the fourth quarter of 2020, the company's e-commerce sales amounted to approximately 15% of net sales. E-commerce takes place via retailer websites and e-tailers, where our offerings in Consumer Tissue, Incontinence Products, Baby Care and Feminine Care are available. With our leading TENA brand, we have developed our own webshops to help our consumers with information about incontinence and available solutions, and provide an opportunity to order and receive the products delivered home, discretely. In our business-to-business operations of Professional Hygiene, Medical Solutions and parts of Incontinence Products, we were highly active during the year in meeting our customers online, which was appreciated and increased our online sales.

Digital solutions

With the vision: Dedicated to improving well-being through leading hygiene and health solutions, Essity uses new technology and sensors to deliver digital solutions that simplify and improve everyday life for customers and consumers. Incontinence Products has launched "TENA SmartCare Change Indicator". This is a reusable sensor that can easily be attached to the outside of a TENA product and notifies the caregiver via TENA SmartCare Professional Care or the Family Care app when the product needs to be changed. The solution improves and facilitates for users, family and caregivers. For example, it ensures a better night's sleep for the user as the caregiver does not need to unnecessarily check and change an incontinence product. With the acquisition of Novioscan, Essity is further developing the digital innovation SENS-U. This is a wearable ultrasound sensor that measures levels in the bladder and provides the user with a discrete notification when it is time to visit the bathroom. A version is currently

available for children and Essity is working to develop this solution for adults, to simplify and improve life for more people.

Closer to customers and consumers

Our brands' websites, social media channels and search functions provide us with an insight into the questions and problems of current and potential customers and consumers and also what they appreciate. This enables our innovation and marketing teams to develop solutions, campaigns and selling techniques based on a unique knowledge and insight into the needs, challenges and expectations of our customers and consumers. Our digital solutions also provide us with data about use patterns and consumption. Our connected dispensers featuring sensor technology, Tork EasyCube®, show a sharp increase in consumption per person of paper hand towels, soap and hand sanitizer during the COVID-19 pandemic. We use this information together with our customers to optimize future solutions.

We reach most of our customers and consumers through digital media. This allows us to maximize the value of campaigns and ensures that we reach the intended target audience. One example is the "Liberating our Periods" marketing campaign for the relaunch of Libresse in China. It targeted young women at the start of their professional career and aims to break barriers and begin talking openly about menstruation. The campaign was named the 2020 Global SABRE Awards Winner. Other examples of successful multimedia marketing are TENA #Ageless and #WoundWarriors for the brands Cutimed® and Leukomed®.

Automation and advanced analytics

The smart use of digital tools in Essity's production, distribution, logistics and administration leads to increased automation and robotization. Through "Industry 4.0" and the development of smart production facilities, Essity is working to achieve more efficient production, shorter lead times, higher quality and lower environmental impact. Increasing amounts of data available from production enables advanced digital analytics which, for example, improves control of production flows and maintenance planning. Essity is investing in improving the digital knowledge of employees. Our various digitalization teams are coordinated by the company's global experts to implement the best digitalization trends.

New digital platform

Essity is investing in a new digital platform to accelerate its digital transformation and benefit more fully from the digital initiatives taken at the company. The investment will improve Essity's offering and service to customers and consumers and is expected to have a positive impact on sales. The investment will also provide efficiency enhancements, which are expected to generate cost savings.

Drive efficiency

Essity works continuously to improve efficiency by increasing productivity, reducing material, energy and logistics costs and minimizing waste. In parallel, we enable rapid adjustments for innovations, product adaptations and the best service to customers and consumers. This strengthens our competitiveness, enhances our financial performance and reduces our environmental impact. We are working to leverage digitalization, innovation, global economies of scale and knowledge sharing to increase efficiency in the production and supply chain as well as logistics and distribution.

Zero workplace accidents

Health and safety is a top priority at Essity and we are striving for a safe workplace without accidents. In 2014, Essity set the target to reduce the accident frequency rate by 50% by 2020. Solid work has been done that has improved work procedures and machinery safety. In 2020, the accident frequency rate had fallen by 56%.

Production assured during the COVID-19 pandemic

Care for our people is a priority during the COVID-19 pandemic. Our hygiene and health solutions are critical to society and we were successful in assuring both production and logistics in 2020. We quickly established a global emergency response team comprising internal and external experts to guarantee a safe work environment for our employees. Measures were implemented in all parts of the business, including new ways of working, production adaptations and securing transportation.

Cost savings and increased efficiency

During 2020, Essity achieved SEK 1,056m in continuous cost savings. These include savings in sourcing, production and material rationalization. The Manufacturing Roadmap program was launched during the year to achieve world-class cost efficiency, quality and service levels at Essity's approximately 60 wholly

owned facilities. The program also includes logistics and distribution and contributes to Essity's sustainability target relating to the reduction of carbon emissions in line with the Science Based Targets initiative. Digitalization enables more efficient processes in administration as well as sourcing, production and logistics. Digital solutions are implemented in operations, including self-regulating processes, smart sensors, data analyses, robotization and automation.

Sustainable value chain

Essity has three focus areas to achieve a world-class sustainable value chain: reduce the use of fossil fuels and electricity, improve product design and optimize resource utilization. By investing in state-of-the-art technology, process efficiency is improved and carbon emissions are reduced. Essity researches and invests in several ground-breaking ideas in sustainable technology in its manufacturing processes with the aim of reducing the company's environmental footprint and setting new standards for the entire industry. For example, in 2021 Essity will start up an innovative, unique and ground-breaking pulp production from alternative fiber at its facility in Mannheim, Germany. The plant will produce high-quality pulp from wheat straw that will reduce carbon emissions, use less water and energy as well as fewer chemicals.

Objectives

Generate increased shareholder value through profitable growth

Essity focuses on profitable growth in order to generate long-term value for our shareholders. The goal for annual organic sales growth is above 3%. In 2020, the earlier target for adjusted return on capital employed was achieved and the target was raised to above 17% by 2025. In line with Essity's dividend policy, we aim to provide long-term stable and rising dividends to our shareholders. Essity's target is to have an effective capital structure and maintain a solid investment grade rating.

Enable more people every day to enjoy a fuller life

Essity aims to enable more people every day to enjoy a fuller life by raising hygiene and health standards around the world. To succeed, we are constantly striving to further develop and improve our offering and provide more people access to our solutions. We are working intensively to break barriers surrounding hygiene and health that exist in our society. We do this through training courses and collaborations, and through marketing and providing information.

Contribute to a sustainable and circular society

Essity strives to reduce resource consumption and toward efficient recycling or composting of our hygiene and health products. We are working to develop offerings and business models that contribute to a sustainable and circular society, which also creates new business opportunities for Essity. Essity's targets for carbon emission reductions are approved by the Science Based Targets initiative. We are striving for 100% recyclability of our packaging. Our target for sourcing of fresh fiber means all wood-based fresh fiber in our products and packaging is to be FSC® or PEFC™ certified.

Enable our employees to realize their full potential, as part of one winning team

Our employees are our main asset and we strive continuously to develop our corporate culture, expertise and leadership to create the best possible conditions for a successful Essity. All Essity employees are to be treated fairly and respectfully. We value and work to increase diversity. We offer career opportunities in a leading global hygiene and health company that is breaking barriers to well-being in the world.

Contribution to the UN Sustainable Development Goals

As a leading global hygiene and health company, Essity has an important role to play in achieving the UN Sustainable Development Goals. Essity is working to overcome global challenges together with customers, consumers, suppliers, other partners and community representatives. In parallel, the global goals create favorable business opportunities for Essity. In 2020, Essity continued its commitment to break barriers to well-being by being a convening partner to the United Nations Foundation's annual Global Dialogue on the Sustainable Development Goals. We have chosen to specifically focus on goals 3, 5, 6, 12, 13 and 15 where we can make a contribution through Essity's operations, offerings, expertise and experience. We describe our work in 2020 below.

Goal 3: Good health and well-being

Essity has contributed to goal 3 for example through its intensive work toward better global hygiene and health standards. By providing access to our leading solutions, we are contributing to increased quality of life and well-being. During the COVID-19 pandemic, we ensured production and deliveries of our products and further developed our offerings. For example, we invested in production of face masks and expanded hand sanitizer delivery capacity. Essity has been working for many years to raise awareness of the importance of hand hygiene to avoid the spread of disease and our Tork brand promotes good hand hygiene through products such as paper hand towels, soap and hand sanitizer.

Goal 12: Responsible consumption and production

Together with our customers, consumers, suppliers and other business partners, we are working toward a sustainable and circular society. In 2020, 64% of our innovations resulted in social and/ or environmental improvements. We launched our first washable absorbent underwear, increased the proportion of renewable material in our packaging and more customers are using Tork PaperCircle®, the world's first recycling service for paper hand towels. Through our MSAVE and ESAVE programs, we have reduced material and energy consumption in our production.

Goal 5: Gender equality

By pursuing educational initiatives and collaborations to break the silence around issues such as menstruation, incontinence and lymphedema, Essity works for greater gender equality. For example, we collaborate with UNICEF Mexico in "Hygiene is our right", which highlights the rights of children and young people in relation to health, education and gender equality. Our brands' bold initiatives "Liberating our Periods", "Womb Stories" and "TENA #Ageless" break barriers and aim to strengthen the selfesteem of women. Under our Consumer Tissue brand Zewa, we have pursued the successful initiatives "Hygiene has no gender" and "The unfair race", which highlights the importance of sharing household chores. Our "Essentials Talks" podcast focuses on stigmas relating to hygiene and health. In it, we talk to people who have experienced these stigmas and with experts around the world on topics such as incontinence, menstruation and hand hygiene.

Goal 6: Clean water and sanitation

We work to achieve efficient water usage throughout the entire life cycle of our products and to improve water treatment and the quality of the effluent water discharged from our facilities. As part of our work to contribute to good sanitation for everyone, in 2020 we became a strategic partner in the "Global Handwashing Partnership" and together with the WHO and UNICEF are pursuing the "Hand hygiene for all" initiative, which aims to guarantee access to products and services for hand hygiene, particularly in vulnerable areas and countries. The "Ella Handwashing app" is used to educate children and preschool teachers in hand hygiene. Often together with local partners, we work to offer girls and women access to feminine care products, clean water and toilets to enable studies and work even during menstruation.

Goal 13: Climate action

We address the challenges of climate change through investments in innovation and cooperation with others to reduce resource consumption and environmental impact. Essity researches and invests in several ground-breaking ideas in sustainable technology in our manufacturing processes with the aim of reducing the company's environmental footprint and setting new standards for the industry. In 2020, we prepared to start tissue production based on alternative fibers from plant-based agricultural by-products in 2021. This will provide Essity with an additional source of raw material and a production method that requires less water and energy use and fewer chemicals. Our targets to reduce carbon emissions have been approved by the Science Based Targets initiative and between 2016 and 2020 we reduced our Scope 1 and 2 carbon emissions by 11%.

Goal 15: Life on land

As a global purchaser of fresh fiber, we require our fresh fiber suppliers to maintain and safeguard the principles of biodiversity and forest conservation. We prioritize Forest Stewardship Council (FSC®) as a certification system and encourage all suppliers to strive for certification. In 2020, we increased our share of certified fresh fiber and 95% of all purchased fresh fiber was certified. Essity cooperates with various stakeholders to promote sustainable forestry operations, including the protection of conservation values, and contributes to a more circular society. Essity is included on CDP's prestigious 'A List' for our substantial and measurable work to counteract deforestation in the supply chain and for our sustainable raw material sourcing.

Annual organic sales growth1)

Capital Structure Policy

Target Maintain a solid investment grade rating

Outcome 2020 Solid investment grade rating

Adjusted return on capital employed2)

The earlier target of >15% was achieved in 2020 and the target was raised to >17% by 2025

Outcome

Dividend Policy

Target Long-term stable and rising dividends

Outcome 2020 6.75

Packaging

Target 2025

85%

77%

Outcome 2020

Share of packaging manufactured from

renewable or recycled material

Science Based Targets

Target 2030 (compared with 2016) Scope 1 and 2 Scope 3

Scope 1 and 2 Scope 34)

1) Net sales excluding exchange rate effects, acquisitions and divestments.

2) Excluding items affecting comparability.

3) Board of Directors' dividend proposal. 4) Outcome for Scope 3 is for 2019.

Innovation Share of innovations that yielded social and/or environmental improvements Health and safety Decrease in accident frequency rate (compared with 2014) Business ethics and Code of Conduct Share of new employees who received training in the Code of Conduct Water Our tissue sites are to reduce: (compared with 2014) Sourcing From suppliers who comply with Essity's Global Supplier Standard Production waste Subject to material or energy recovery Fresh fiber Share of FSC® or PEFC™ certified fresh fiber Target 2020 Outcome 2020 Levels of suspended solids –10% –27% Water usage –10% –3% Organic waste (BOD) –10% –21% Target >33% Outcome 2018 2019 2020 59% 69% 64% Target 2020 –50% Outcome –39% –47% –56% 2018 2019 2020 Target 100% Outcome 2020 92% Target 2020 100% Outcome 2020 92% Target 2030 100% Outcome 2020 65% Target 100% Outcome 2020 95%

Read more about our sustainability targets and outcomes for 2020, 2019 and 2018 including comments in Sustainability governance, on pages 44–50 and in the Group's non-financial notes on pages 119–127.

Personal Care Business area

Offering

Essity's offering includes Incontinence Products, Medical Solutions, Baby Care and Feminine Care. Products are sold under brands such as TENA, JOBST, Leukoplast, Libero, Libresse, Nosotras and Saba, and as retailer brands.

In Incontinence Products, with the globally leading brand TENA, Essity offers a broad range of incontinence products that also includes skincare products, wet wipes, wash gloves and digital solutions with sensor technology. In Baby Care, Essity offers open baby diapers and pant diapers as well as baby care products such as wet wipes, shampoo, lotion and baby oil. In Europe, Essity offers baby diapers under its own Libero and Lotus brands and as retailer brands. In Feminine Care, Essity offers a broad product portfolio that includes pads, panty liners, tampons, intimate soaps, intimate wipes and washable absorbent underwear. In Medical Solutions, Essity offers products and services in wound care, compression therapy and orthopedics.

Distribution channels are the retail trade, pharmacies, medical device stores, hospitals, distributors and care institutions and e-commerce.

Market positions

Essity is the global market leader in the market for incontinence products with the TENA brand, holding a global market share that is nearly twice the size of the second largest player. Essity is the market leader in Europe, Asia (excluding Japan) and Latin America. Essity is the third largest player in Asia (including Japan) and the fourth largest in North America.

In Baby Care, Essity is the world's fifth largest player and the second largest in Europe. Essity's strongest market is the Nordic region, where the Libero brand is the market leader. Examples of other strong regional brands are Drypers in South East Asia and Pequeñin in South America.

In Feminine Care, Essity is the world's fifth largest player, the third largest in Europe and the market leader in Latin America. Examples of regional brands supported by Essity's global brand platform in Feminine Care include Libresse in the Nordic region, Russia, Eastern Europe, the Netherlands, Malaysia and China, Bodyform in the UK, Nana in France and the Middle East, and Saba and Nosotras in Latin America.

In Medical Solutions, in the product categories in which the company is active, Essity is the world's fourth largest player and the market leader in Europe. Essity is the largest global player in compression therapy and the third largest player in orthopedics. In wound care, which includes acute and advanced wound care, Essity is the fifth largest player. Essity holds the number three position within acute wound care. Examples of strong brands include JOBST, Leukoplast, Cutimed, Delta-Cast and Actimove.

Production facilities

At the end of 2020, Personal Care had production at 35 sites in 25 countries.

Operations in 2020

Net sales declined 4.6% to SEK 46,095m (48,340). Organic net sales were in line with the preceding year, of which volume accounted for –1.4% and price/mix for 1.4%. Organic net sales in mature markets declined 1.7%. In emerging markets, which accounted for 36% of net sales, organic net sales increased 2.7%. Exchange rate effects reduced net sales by 4.6%. The divestment of a partly owned company in Turkey reduced net sales by 0.3%. Acquisitions increased net sales by 0.3% and related mainly to ABIGO Medical AB.

Sales were negatively impacted by the COVID-19 pandemic as demand was temporarily negatively impacted by lockdowns and restrictions as consumption decreased slightly when consumers spent more time in the home. For Incontinence Products, with Essity's globally leading TENA brand, organic net sales increased 2.7%. Growth was related to Europe, North America and emerging markets. In Medical Solutions, organic net sales decreased 8.2%. Sales were negatively impacted by the COVID-19 pandemic and the related lockdowns and restrictions. For Baby Care, organic net sales declined 2.5%, related to Western Europe and emerging markets. For Feminine Care, organic net sales increased 5.0%, related to emerging markets.

The adjusted gross margin increased 2.0 percentage points to 41.4% (39.4). The margin was positively impacted by higher prices, a better mix, lower raw material costs and cost savings. Lower volumes and higher distribution costs had a negative impact on the margin. The adjusted EBITA margin increased by 1.5 percentage points to 15.5% (14.0). Sales and marketing costs increased as a share of net sales.

Adjusted EBITA increased 6% (12% excluding currency translation effects, acquisitions and divestments) to SEK 7,161m (6,746).

Key figures

Net sales

46,095 SEKm

Organic net sales1)

0.0%

Adjusted gross margin2)

41.4%

Adjusted EBITA2)

7,161 SEKm

Adjusted EBITA margin2)

15.5%

Adjusted return on capital employed2)

16.4%

Emerging markets' share of business area's net sales

36%

Organic net sales1) in emerging markets

Earnings trend

Adjusted EBITA2) Adjusted EBITA margin2) Adjusted return on capital employed2)

Net sales by region Europe, 58% Latin America, 17% North America, 11% Asia, 10% 581711104INet sales by product category Incontinence Products, 46% Baby Care, 19% Medical Solutions, 18% Feminine Care, 17% 46191817I

Other, 4%

For Personal Care, 10% of total net sales were related to retailer brands. For Incontinence Products: 1%, Baby Care: 43%, Feminine Care: 6%, Medical Solutions: 0%.

SEKm	2020	2019	%
Net sales	46,095	48,340	–5
Organic net sales1), %	0.0	+3.4
Adjusted gross margin2), %	41.4	39.4
Adjusted EBITA2)	7,161	6,746	+6
Adjusted EBITA margin2), %	15.5	14.0
Adjusted return on capital employed2), %	16.4	15.2
Operating cash flow	7,485	6,495	+15
Investments in non-current assets	–1,658	–1,866	–11
Average number of employees	18,298	17,167	+7

1) Net sales excluding exchange rate effects, acquisitions and divestments.

2) Excluding items affecting comparability.

Essity is a leading global player in personal care

Business area

Consumer Tissue

Offering

Essity's offering includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes, napkins and face masks. Products are sold under brands such as Lotus, Regio, Tempo, Vinda and Zewa. In Europe, Essity also sells products under retailer brands. Distribution channels for the products are the retail trade and e-commerce.

Market positions

Essity is the world's second largest supplier of consumer tissue. Essity's brand portfolio comprises many strong brands.

In Europe, Essity is the market leader and holds a market share that is more than twice the size of the second largest player. Lotus, Tempo and Zewa are the leading brands in, for example, France, Germany and Russia. Cushelle and Plenty are strong brands in the UK and Ireland. Essity is the market leader in China and Asia through its majority shareholding in Vinda. Vinda is the leading brand in China. In Latin America, Essity is the market leader in Colombia and holds the number two position in Mexico. Familia and Regio are leading brands in Colombia and Mexico, respectively.

Production facilities

At the end of 2020, Consumer Tissue had production at 44 sites in 18 countries.

Operations in 2020

Net sales increased 0.6% to SEK 50,221m (49,904). Organic net sales increased 4.1%. Volumes accounted for an increase of 5.7% and the price/mix a decrease of –1.6%. Organic net sales increased 1.7% in mature markets. In emerging markets, which accounted for 47% of net sales, organic net sales increased by 6.9%. Exchange rate effects decreased net sales by 3.5%.

The adjusted gross margin increased 5.5 percentage points to 27.2% (21.7). The gross margin was positively impacted by higher volumes, a better mix, lower raw material and energy costs and cost savings. Higher distribution costs and lower prices had a negative impact on the margin. The adjusted EBITA margin increased by 5.3 percentage points to 16.0% (10.7). Sales and marketing costs increased as a share of net sales.

Adjusted EBITA increased 51% (55% excluding currency translation effects, acquisitions and divestments) to SEK 8,045m (5,321).

Essity is the world's second largest supplier of consumer tissue

Brands

With the launch of "Pure Natural" for the Lotus, Zewa, Tempo and Colhogar brands, Essity offers toilet paper, handkerchiefs and facial tissues with an extra soft quality that are free from allergens1), dyes and added fragrances. The tissue is manufactured from certified fiber, of which about 30% of the fiber is unbleached. The plastic packaging is recyclable and 30% of the plastic is made from recycled plastic.

1) 26 EU regulated allergens.

Key figures

Net sales SEKm

50,221 SEKm

Organic net sales1)

+4.1%

Adjusted gross margin2)

27.2%

Adjusted EBITA2)

8,045 SEKm

Adjusted EBITA margin2)

16.0%

Adjusted return on capital employed2)

17.3%

Emerging markets' share of business area's net sales

47%

Organic net sales1) in emerging markets

Earnings trend

Adjusted EBITA2) Adjusted EBITA margin2)

Adjusted return on capital employed2)

Net sales by region

For Consumer Tissue, 32% of total net sales was related to retailer brands.

SEKm	2020	2019	%
Net sales	50,221	49,904	+1
Organic net sales1), %	+4.1	+6.1
Adjusted gross margin2), %	27.2	21.7
Adjusted EBITA2)	8,045	5,321	+51
Adjusted EBITA margin2), %	16.0	10.7
Adjusted return on capital employed2), %	17.3	11.2
Operating cash flow	6,455	4,870	+33
Investments in non-current assets	–3,191	–2,239	+43
Average number of employees	20,878	21,526	–3

1) Net sales excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.

Business area

Professional Hygiene

Offering

Essity's offering comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand lotion, hand sanitizers, dispensers, cleaning and wiping products, face masks, and service and maintenance. Essity also offers digital solutions, such as Internet of Things sensor technology that enables data-driven cleaning.

Customers consist of companies and office buildings, universities, healthcare facilities, industries, restaurants, hotels, stadiums and other public venues. Distribution channels for the products consist of distributors and e-commerce.

Market positions

Essity is the world's largest supplier of products and services in the market for professional hygiene with the globally leading Tork brand. We are the market leader in Europe and hold a market share that is more than twice the size of the second largest player. Essity is the second largest supplier in North America and holds a particularly strong market position in the food service segment, where we estimate that the company supplies approximately every second napkin. Essity also has strong positions in emerging markets, such as Russia and Colombia, where we are the market leader. Essity is number three in the market in Asia through its majority shareholding in Vinda.

Production facilities

At the end of 2020, Professional Hygiene had production at 43 sites in 20 countries.

Operations in 2020

Net sales declined 17.3% to SEK 25,418m (30,731). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, declined 14.6%. Sales were negatively impacted by the COVID-19 pandemic and the related lockdowns and restrictions. This has mainly had a negative impact on demand in the customer segments of hotel, restaurant, catering, commercial buildings as well as schools and universities. Meanwhile, sales of dispensers have increased as a result of a greater focus on hygiene, with many customers replacing air dryers in favor of offering a more hygienic alternative. Furthermore, sales increased for wiping and cleaning products, as well as soap and hand sanitizer. Volumes declined by 16.7%. The price/mix increased 2.1% as a result of higher prices and a better mix. Organic net sales declined 14.8% in mature markets. In emerging markets, which accounted for 20% of net sales, organic net sales declined by 13.8%. Exchange rate effects reduced net sales by 2.7%.

The adjusted gross margin increased 0.1 of a percentage point to 26.9% (26.8). The gross margin was positively impacted by higher prices, a better mix, lower raw material costs and cost savings. Lower volumes and higher distribution costs had a negative impact on the margin. The adjusted EBITA margin decreased 1.5 percentage points to 13.0% (14.5). Sales and marketing costs increased as a share of net sales.

Adjusted EBITA decreased 26% (23% excluding currency translation effects, acquisitions and divestments) to SEK 3,317m (4,463).

Essity is the leading global player in professional hygiene

Brands

Essity and our Tork brand have worked for many years to raise awareness of the importance of good hand hygiene to avoid the spread of disease using products such as paper hand towels, soap and hand sanitizer. During the COVID-19 pandemic, Essity has worked to ensure a better global hygiene and health standard by safeguarding production and deliveries and continuing to develop customer offerings. For example, we increased delivery capacity of hand sanitizer and launched several new hand sanitizer products to meet the increase in demand.

Key figures

Net sales SEKm

25,418 SEKm

Organic net sales1)

–14.6%

Adjusted gross margin2)

26.9%

Adjusted EBITA2)

3,317 SEKm

Adjusted EBITA margin2)

13.0%

Adjusted return on capital employed2)

14.6%

Emerging markets' share of business area's net sales

20%

Organic net sales1) in emerging markets

–13.8%

Earnings trend

Adjusted EBITA2)

Adjusted EBITA margin2)

Adjusted return on capital employed2)

Net sales by region

SEKm	2020	2019	%
Net sales	25,418	30,731	–17
Organic net sales1), %	–14.6	+3.6
Adjusted gross margin2), %	26.9	26.8
Adjusted EBITA2)	3,317	4,463	–26
Adjusted EBITA margin2), %	13.0	14.5
Adjusted return on capital employed2), %	14.6	18.9
Operating cash flow	3,183	4,938	–36
Investments in non-current assets	–1,135	–1,402	–19
Average number of employees	6,909	7,287	–5

1) Net sales excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.

The Tork PeakServe family is growing and is now available as standard and mini dispensers and as adapters for recessed towel cabinets. This enables customers to increase efficiency by using the same paper hand towel refill across the entire facility.

Group Operations and structure

Essity reports its operations according to three business areas: Personal Care, Consumer Tissue and Professional Hygiene. Personal Care comprises the product categories of Incontinence Products, Medical Solutions, Baby Care and Feminine Care and includes incontinence products, baby diapers, pads, panty liners, tampons, wet wipes, skincare products and digital solutions with sensor technology, as well as products and services in wound care, compression therapy and orthopedics. Consumer Tissue includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes, napkins and face masks. Professional Hygiene includes complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand sanitizer, dispensers and face masks. Essity also offers digital solutions, such as Internet of Things sensor technology that enables data-driven cleaning.

Europe is Essity's largest market. The Group also holds strong positions in North America, Latin America and Asia. Expansion takes place through organic growth and acquisitions.

Organization

Essity has the following four business units:

• Consumer Goods, markets and sells products in the categories of consumer tissue, baby care and feminine care in Europe, the Middle East and Africa.
• Health and Medical Solutions, markets and sells products in the categories of incontinence products in Europe, North America, the Middle East and Africa and produces, markets and sells products in medical solutions in Asia, Europe, North America, the Middle East and Africa.
• Latin America, markets and sells products in the categories of consumer tissue, baby care, incontinence products, medical solutions, feminine care and professional hygiene in Latin America.
• Professional Hygiene, markets and sells complete hygiene solutions to the business area's customer segments in Europe, North America, the Middle East and Africa.

In addition to the business units, Essity has established three global units:

• Global Brand, Innovation and Sustainability has global responsibility for customer and consumer brands, innovation and sustainability and public affairs.
• Global Manufacturing has global responsibility for production and technology concerning all product categories with the exception of Medical Solutions.
• Global Operational Services has global responsibility for sourcing, logistics, business services, IT and digitalization.

The organization has four Group functions:

• Communications
• Finance
• Human Resources
• Legal Affairs

Essity exerts an influence on the Group company Vinda, a listed Asian hygiene company in which Essity is a majority shareholder, through board representation.

Events during the year

The COVID-19 pandemic and related lockdowns and restrictions had a negative effect on Essity's sales, which mainly impacted Professional Hygiene and Medical Solutions. Essity acquired the MedTech companies ABIGO Medical AB and Novioscan. Essity divested its 49% stake in the company Sancella Tunisia. The target for adjusted return on capital employed was raised to above 17% by 2025. Essity decided to invest in a new digital platform to accelerate the company's digital transformation. The "Manufacturing Roadmap" program was launched to optimize and streamline all of Essity's approximately 60 wholly owned facilities.

Acquisitions, investments and divestments

Essity acquires 75% of ABIGO Medical AB

On February 27, 2020, Essity announced that the company had signed an agreement to acquire 75% of the Swedish medical solutions company ABIGO Medical AB. The company as a whole is valued at SEK 900m on a debt-free basis. ABIGO Medical AB develops, manufactures and markets products including the Sorbact® technology, which is a clinically established innovation for advanced wound care. The company has about 170 employees and reported net sales of approximately SEK 403m in 2019. ABIGO Medical AB was a key partner and sub-supplier to Essity. The transaction, which was subject to customary regulatory approvals, was finalized on April 30, 2020.

Essity acquires 100% of Novioscan B.V.

On April 1, 2020, Essity announced that the company is strengthening its offering in incontinence products through the acquisition of the Dutch company Novioscan. The company develops a wearable ultrasound technology that monitors the bladder and enables continence control. The purchase price is approximately SEK 70m on a debt-free basis.

Essity divests partly owned company in Tunisia

On October 21, 2020, Essity announced that the company is divesting its 49% stake in Sancella Tunisia to the other owner Sotupa. Sancella Tunisia offers a range of Essity's products and brands in Tunisia, Algeria, Morocco, and Libya. Essity will retain a presence on these markets through license and distribution agreements. In 2019, Sancella Tunisia reported net sales of SEK 575m. The divestment was completed in December 2020 and gave rise to a gain of SEK 29m, which was recognized as an item affecting comparability in the fourth quarter of 2020.

Investment in digital transformation

Essity's digital transformation will accelerate in the years ahead through a new digital platform. This will further strengthen the Group's customer and consumer offerings, generate significant cost savings and reduce the need for working capital. This digital investment is expected to amount to approximately SEK 2.6bn. Of this amount, approximately SEK 1.4bn will comprise costs that will be charged to the 2020–2024 period, and SEK 1.2bn will comprise capital expenditures. A positive sales and earnings impact is expected gradually from 2022. In the short term, costs are expected to be offset by savings in other areas. The digital platform will enable automation in all parts of the value chain, simplification and economies of scale, and greater visibility and predictability based on high-quality data collection and advanced analytics.

Other Group information

Parent company

The Group's Parent company, Essity Aktiebolag (publ), is a holding company with the main task of owning and managing shares in a number of business group companies and performing Groupwide management and administrative functions. The company's corporate registration number is 556325-5511 and it is domiciled in Stockholm, Sweden. The company's address is PO Box 200, SE-101 23 Stockholm. In 2020, the Parent company recognized operating income of SEK 265m (209) and profit before appropriations and tax of SEK 2,605m (4,098). Investments in property, plant and equipment totaled SEK 1m (14) during the year. Cash and cash equivalents at year-end amounted to SEK 0m (0).

Research and development (R&D)

Research and development (R&D) costs during the year amounted to SEK –1,559m (–1,485), corresponding to about 1.3% of consolidated net sales. R&D is coordinated and conducted from a global perspective. Product development is carried out in close cooperation with the local units, as well as through direct collaboration with customers.

Holdings of treasury shares

Essity Aktiebolag (publ) holds no treasury shares.

Share distribution

In 2020, 2,199,470 Class A shares were converted to Class B shares. The proportion of Class A shares was 8.8% at year-end.

Dividend

The Board of Directors proposes an increase in the dividend of 8% to SEK 6.75 (6.25) per share or SEK 4,741m (4,390). The record date for entitlement to receive dividends is proposed as March 29, 2021. The Board is of the opinion that the company's and the Group's equity after the proposed dividend is sufficiently high in relation to the nature, scope and risks of the operations, solvency requirements, liquidity and financial position and provides scope for the company and the Group to fulfill its obligations and conduct desirable investments.

Sustainability report

Essity's statutory sustainability report, in accordance with the requirements of the Swedish Annual Accounts Act, can be found on pages 36–51 and 120–127 in the Board of Directors' Report. The company's business model can be found on page 15. This sustainability report for Essity Aktiebolag (publ) encompasses the entire Group. More information on non-financial accounting principles can be found in Note H1, page 119.

Guidelines for remuneration of senior executives

Guidelines agreed by the most recent Annual General Meeting (AGM) can be found in Note C2 on pages 87–89. The company's application of the guidelines can be found in the remuneration report on pages 136–137 and in Note C2.

The Board has decided to propose the following new guidelines to the 2021 AGM concerning remuneration of senior executives in the Essity Group:

These guidelines shall govern remuneration to directors, the President, vice presidents and other senior executives. The guidelines do not include remuneration decided upon by the General Meeting.

Remuneration principles

Successful implementation of the company's business strategy and the fostering of the company's long-term interests, including its sustainability, require that the company is able, through competitive remuneration on market terms, to recruit, incentivise and retain skilled employees. The total remuneration package must therefore be on market terms and competitive on the executive's field of profession, and must be related to the executive's responsibilities, powers and performance. The remuneration may comprise fixed salary, variable remuneration, other benefits and pension. The company's business strategy is presented in the company's Annual and Sustainability Report.

Variable remuneration

Variable remuneration shall be based on results relative to established short-term (one year) and long-term financial targets, targets which contribute thereto or to the performance of the company's share. Remuneration shall be aimed at promoting the company's business strategy and long-term interests, including its sustainability. Furthermore, variable remuneration shall be paid as cash remuneration and shall not be included in the basis for pension computation. The short-term element shall not exceed 100 per cent of annual fixed salary and the long-term element shall not exceed 50 per cent of annual fixed salary.

Short-term performance targets shall include organic growth, product development, earnings, cash flow, capital efficiency, sustainability, return, individual targets or a combination thereof.

Long-term performance targets shall be linked to the performance of the company, measured as TSR value (TSR, Total Shareholder Return: the value shall be the composed of the total dividend and other returns as well as the share performance) over a three-year period. This value shall, for the same period, be compared with the MSCI Household products Index, Consumer Staples, which is a weighted index of competing companies and consumer companies' corresponding TSR value. A maximum outcome requires that the performance of the Essity share exceeds the benchmark index by more than 5 per cent over the multi-year period. Payment of cash remuneration for achieved long-term performance targets shall also be subject to a requirement that one-half of such paid remuneration after tax shall be used for investment by the recipient in Essity shares. Such shares may not be divested during a period of three years from the date of purchase; among other things, to create a common ownership interest between the participants in the program and the shareholders.

The company shall have the possibility to withhold payment of variable remuneration where necessary and possible according to law, provided there are special reasons for so doing and such a measure is necessary to meet the company's long-term interests, including its sustainability. Furthermore, the company shall have the possibility provided by law to demand repayment of any variable remuneration paid based on erroneous grounds.

Pension and other benefits

Pension benefits shall be contribution-defined, and the annual premium shall not exceed 40 per cent of the fixed annual salary. The retirement age shall normally be 65.

Other, lesser benefits may include medical insurance, company car, fitness allowance as well as membership and service fees, training/education and other support.

A notice of termination period of not more than two years shall apply upon termination of the employment relationship where the termination is initiated by the company, and of not more than one year where the termination is initiated by the executive. There shall be no severance pay.

Decision-making process and reporting

Matters relating to remuneration to senior executives shall be addressed by the Board's Remuneration Committee and, with respect to the President, decided upon by the Board. The duties of the Remuneration Committee shall also include preparing board decisions regarding proposals for guidelines for remuneration to senior executives, performing oversight as well as monitoring and assessing the application thereof. When the Board or the Remuneration Committee addresses and decides on remuneration-related matters, senior executives may not be present insofar as the matter relates to them and, with respect to the calculation of variable remuneration, an audit certificate must be obtained before any decision is taken regarding payment. In the preparation of the remuneration guidelines, consideration has been given to salary and employment conditions for the company's other employees, such as information regarding total remuneration, components of the remuneration as well as the increase in remuneration and the rate of increase over time, and the company's equality of opportunity policy.

The Board shall prepare a remuneration report.

Application of, and deviation from, the guidelines The Board may decide to temporarily deviate from the guidelines, wholly or in part, if there are special reasons for doing so in an individual case and deviation is necessary to satisfy the company's long-term interests, including its sustainability. The duties of the Remuneration Committee include preparing board decisions on remuneration issues, including decisions regarding deviations from the guidelines. With respect to employment relationships governed by rules other than Swedish rules, appropriate adjustments shall take place with respect to pension benefits and other benefits to ensure compliance with such rules or local practice, whereupon the overarching purpose of these guidelines shall be attained as far as possible.

The guidelines shall not take precedence over mandatory terms of employment law legislation or collective agreements. Nor shall they apply to already executed agreements.

These guidelines shall apply commencing the 2021 Annual General Meeting until further notice.

For information on the company's calculated expenses for remuneration of senior executives, see Note C2 on page 87.

Net sales and earnings

Net sales

Essity's net sales in 2020 declined 5.6% compared with the corresponding period a year ago to SEK 121,752m (128,975). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, declined 1.9%, of which volume accounted for –2.3% and price/mix for 0.4%. Sales were negatively impacted by the COVID-19 pandemic and the related lockdowns and restrictions. Organic net sales declined 4.5% in mature markets and increased 2.6% in emerging markets. Emerging markets accounted for 37% of net sales. Exchange rate effects reduced net sales by 3.7%. Acquisitions increased net sales by 0.1% and were largely attributable to the acquisition of the medical solutions company ABIGO Medical AB. Divestment of a partly owned company in Turkey reduced net sales by 0.1%.

Earnings

The Group's adjusted gross margin increased 3.0 percentage points to 32.5% (29.5) compared with the corresponding period a year ago. The gross margin was positively impacted by a better mix in all business areas, lower raw material and energy costs and cost savings. Continuous cost savings amounted to SEK 1,056m. The Group's adjusted EBITA margin rose 2.2 percentage points to 14.5% (12.3). Sales and marketing costs increased as a share of net sales.

Essity's adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA)1) increased 11% (16% excluding currency translation effects, acquisitions and divestments) in 2020 to SEK 17,626m (15,840).

Items affecting comparability amounted to SEK –59m (–713) and were impacted positively as a result of the Dutch pension plan being reclassified from a defined benefit to a defined contribution scheme during the second quarter of 2020 due to a contract renegotiation. Restructuring costs and impairments had a negative impact.

Financial items decreased to SEK –958m (–1,309). Lower interest and lower average net debt had a positive impact.

Adjusted profit before tax1) increased 15% (20% excluding currency translation effects, acquisitions and divestments) and amounted to SEK 15,859m (13,753).

The tax expense, excluding effects of items affecting comparability, was SEK 4,054m (2,987).

Adjusted profit for the period increased 10% (15% excluding currency translation effects, acquisitions and divestments) and amounted to SEK 11,805m (10,766).

Profit for the period increased 15% (20% excluding currency translation effects, acquisitions and divestments) to SEK 11,747m (10,212). Earnings per share were SEK 14.56 (13.12). The adjusted earnings per share were SEK 15.45 (14.69).

Key figures

The adjusted return on capital employed1) was 15.7% (13.8). The adjusted return on equity1) was 18.3% (18.4).

Summary income statement

SEKm	2020	2019	2018
Net sales	121,752	128,975	118,500
Adjusted EBITA1)	17,626	15,840	12,935
EBITA	17,567	15,127	11,560
Adjusted operating profit1)	16,817	15,062	12,203
Items affecting comparability	–59	–713	–1,444
Operating profit	16,758	14,349	10,759
Financial items	–958	–1,309	–1,157
Adjusted profit before tax1)	15,859	13,753	11,046
Profit before tax	15,800	13,040	9,602
Adjusted tax1) 2)	–4,054	–2,987	–1,490
Tax2)	–4,053	–2,828	–1,050
Adjusted profit for the period1)	11,805	10,766	9,556
Profit for the period	11,747	10,212	8,552

1) Excluding items affecting comparability.

2) 2019: A revaluation of deferred tax had a positive impact on the tax rate of SEK +253m. 2018: A decision in a tax case in Sweden reduced tax by approximately SEK+1.1bn.

Adjusted EBITA1) and adjusted EBITA margin1) Adjusted earnings per share Net sales, share 1)

1) Excluding items affecting comparability.

Adjusted EBITA margin1)

1) Excluding items affecting comparability and amortization of acquisition-related intangible assets.

2) Indicative earnings per share on the assumption that the number of issued shares in Essity as of December 31, 2016 corresponded to the number of issued shares in Essity on December 31, 2017 (702.3 million).

Cash flow and financing

The operating cash surplus amounted to SEK 24,653m (22,932). The cash flow effect of changes in working capital was SEK –810m (359). Investments in non-current assets, net, excluding investments in operating assets through leases, amounted to SEK –6,439m (–5,707). Operating cash flow before investments in operating assets through leases amounted to SEK 16,427m (16,090). Investments in operating assets through leases amounted to SEK –409m (–451). Operating cash flow was SEK 16,018m (15,639).

Financial items decreased to SEK –958m (–1,309). Lower interest and lower average net debt had a positive impact.

Tax payments had an impact on cash flow of SEK –3,917m (–1,130). A decision in a tax case in Sweden reduced the tax payment by approximately SEK 1.1bn in 2019.

The net sum of acquisitions and divestments was SEK –380m (77). Net cash flow totaled SEK 6,046m (8,915).

Net debt decreased by SEK 8,252m during the year and amounted to SEK 42,688m. Excluding pension liabilities, net debt amounted to SEK 40,176m. Net cash flow reduced net debt by SEK 6,046m. Fair value measurement of pension assets and updated assumptions and assessments that affect measurement of the net pension liability, together with fair value measurement of financial instruments, increased net debt by SEK 199m. Exchange rate movements reduced net debt by SEK 2,804m. Investments in non-operating assets through leases increased net debt by SEK 399m.

The debt/equity ratio was 0.67 (0.81). Excluding pension liabilities, the debt/equity ratio was 0.63 (0.76). The debt payment capacity was 46% (38). Net debt in relation to adjusted EBITDA amounted to 1.76 (2.25).

The Group's cash flow

Divestments

Cash flow from current operations

Company acquisitions Cash flow before dividend

Operating cash flow, share of Group

Personal Care, 44%

Consumer Tissue, 38%

Professional Hygiene, 18%

Operating cash flow statement

SEKm	2020	2019	2018
Operating cash surplus	24,653	22,932	18,570
Change in working capital	–810	359	–971
Investments in non-current assets, net	–6,439	–5,707	–6,781
Restructuring costs, etc.	–977	–1,494	–918
Operating cash flow before investments in operating assets through leases	16,427	16,090	9,900
Investments in operating assets through leases	–409	–451	0
Operating cash flow	16,018	15,639	9,900
Financial items	–958	–1,309	–1,157
Income taxes paid	–3,917	–1,130	–2,466
Other	32	8	86
Cash flow from current operations	11,175	13,208	6,363
Acquisitions of Group companies and other operations	–747	–143	–694
Divestments of Group companies and other operations	367	220	68
Cash flow before transactions with shareholders	10,795	13,285	5,737
Private placement to non-controlling interests	64	4	5
Dividend to non-controlling interests	–423	–336	–397
Dividend	–4,390	–4,038	–4,038
Net cash flow	6,046	8,915	1,307

Investments in non-current assets

Investments in non-current assets, net Depreciation and amortization

Operating cash flow by business area

Personal Care

Consumer Tissue

Professional Hygiene

Financial position

Assets and capital employed

The Group's total assets decreased 4.7% compared with the preceding year, amounting to SEK 154,645m (162,295). Non-current assets decreased SEK 8,785m compared with the preceding year to SEK 111,529m (120,314), of which property, plant and equipment amounted to SEK 53,631m (56,900) and intangible assets to SEK 50,898m (55,763).

Current assets totaled SEK 43,116m (41,981). Working capital amounted to SEK 7,146m (6,782). Capital employed was 6.7% lower and totaled SEK 106,030m (113,741).

Equity

The Group's equity increased by SEK 541m during the period, to SEK 63,342m (62,801). Net profit for the period increased equity by SEK 11,747m. Equity decreased due to dividends to shareholders of SEK 4,843m. Equity increased net after tax by SEK 78m as a result of fair value measurement of pension assets and updated assumptions and assessments that affect the valuation of the pension liability. Fair value measurement of financial instruments increased equity by SEK 349m after tax. Exchange rate movements, including the effect of hedges of net foreign investments, after tax, reduced equity by SEK 6,896m. Other items increased equity by SEK 106m.

Financing

The Group's interest-bearing gross debt amounted to SEK 43,353m (48,191) at year-end. The maturity period was 3.1 (3.1) years.

During the year, net debt decreased year-on-year by SEK 8,252m and amounted to SEK 42,688m. Excluding pension liabilities, net debt amounted to SEK 40,176m. Net cash flow reduced net debt by SEK 6,046m. Fair value measurement of pension assets and updated assumptions and assessments that affect measurement of the net pension liability, together with fair value measurement of financial instruments, increased net debt by SEK 199m. Exchange rate movements reduced net debt by SEK 2,804m. Investments in non-operating assets through leases increased net debt by SEK 399m.

Key figures

The debt/equity ratio was 0.67 (0.81). Excluding pension liabilities, the debt/equity ratio was 0.63 (0.76). The visible equity/ assets ratio was 35% (33). Adjusted return on capital employed and equity was 15.7% (13.8) and 18.3% (18.4), respectively. The capital turnover rate was 1.1 (1.1). At year-end, working capital amounted to 6% (5) of net sales.

Consolidated capital employed by currency, SEKm

	2020	%	2019	%	2018	%
EUR	43,218	41	43,985	39	43,678	40
USD	17,458	16	20,173	18	20,304	19
CNY	17,750	17	17,376	15	16,865	15
MXN	5,519	5	6,570	6	5,505	5
GBP	4,794	5	5,432	5	5,325	5
Other	17,291	16	20,205	17	17,626	16
Total	106,030	100	113,741	100	109,303	100

Consolidated balance sheet

SEKm	2020	2019	2018
Intangible assets	50,898	55,763	55,028
Property, plant and equipment	53,631	56,900	51,673
Other non-current assets	7,000	7,651	5,420
Total non-current assets	111,529	120,314	112,121
Current assets	43,116	41,981	42,145
Total assets	154,645	162,295	154,266
Equity	63,342	62,801	54,899
Non-current liabilities	50,230	56,214	57,795
Current liabilities	41,073	43,280	41,572
Total equity and liabilities	154,645	162,295	154,266
Working capital	7,146	6,782	7,568
Capital employed	106,030	113,741	109,303
Net debt	42,688	50,940	54,404

Net debt and debt payment capacity

Capital employed, share of Group

Risks and risk management

Essity is an international group with sales in approximately 150 countries and manufacturing at about 90 production facilities in some 30 countries. The geographic structure means that operations are conducted in countries and in markets with different cultures and varying degrees of maturity. Essity is exposed to a number of strategic, operational and financial risks, which could exert a negative impact on the Group's operations. Accordingly, it is of major importance that the company has a systematic and effective process to identify, manage and mitigate the effects of these risks.

Processes for risk management

The responsibility for the management of risks follows the company's delegation scheme, from the Board of Directors to the President, and from the President to each Business Unit President. The delegation scheme involves risks being managed primarily by Essity's business units, but with clear central coordination and follow-up. The latter is mainly achieved through the business units' continuous reporting and in the annual strategy process.

Risk identification and risk management are a key part of the annual strategy process, where risks are analyzed based on how they impact Essity's opportunities to achieve established targets. Identified risks are assessed according to the likelihood of these becoming a reality and the potential impact each risk could have on the Group. This process also includes specifying who is responsible for managing the risk, and measures for how risks shall be mitigated and followed up. Responsibility and follow-up for the majority of risks are centralized at a global level.

• 1 Identification and analysis
• 2 Action for risk management
• 3 Monitoring

Essity's financial risk management is centralized. The Group's internal bank handles the Group's financial risks and energy risks. The financial risks are managed in accordance with the Group's finance policy, which is adopted by Essity's Board of Directors. Together with Essity's energy risk policy, the finance policy constitutes a framework for financial risk management. The risks are compiled and continuously monitored. Responsibility for insurable operational risks is managed by the Group Risk Management & Insurance department. Risks related to ethics, human rights and other sustainability risks as well as information security are aggregated and monitored on a regular basis at Group level.

Essity has a corporate internal audit unit, which follows up that Essity's organization complies with the adopted policies.

Based on current knowledge, the following are deemed to be the main factors that risk materially negatively impacting the operations and Essity's ability to achieve established targets:

GDP trend and economic conditions

Risk

Demand for Essity's products is affected by general macroeconomic fluctuations and the resulting changes to customer purchasing power and consumption patterns. For example, a tighter budget situation in the public sector or among business customers influences sales in the healthcare sector and business-to-business, respectively. Sales to the retail sector, which accounts for the bulk of sales of hygiene products, may also be affected by reduced purchasing power among consumers.

Action

Essity continuously works to manage the effect of cyclical fluctuations that arise, for example, through measures to reduce costs, increase efficiency and to create higher customer value through product innovations. Essity also works on differentiation to move toward product areas that are less sensitive to economic fluctuations.

Environmental impact and climate change

Risk

Essity's operations and the products used in the manufacturing process have an impact on air, water and land. Essity is subject to extensive environmental regulations in all of the countries where the company conducts operations. More stringent environmental requirements, remediation of the environment in connection with plant closures or breaches of permits could incur higher costs for the Group. Risks related to climate change and the financial implications of such change, for example, increased production costs and investment requirements, have increased in importance.

Action

Essity's strategic framework and sustainability target stipulate guidelines for the Group's measures within the environmental area. Environmental impact and the impact of climate change are part of the annual strategy process, which includes the identification, assessment and actions for managing these types of risks. Risks are managed, for example, through preventive work in the form of certified environmental management systems, environmental risk inspections in conjunction with acquisitions, and remediation projects in connection with plant closures. The use of energy, water, transport, production waste and raw materials is controlled using the company's Resource Management System (RMS). The system also enables the simulation of investments on the basis of climate aspects. The data is used for internal control and follow-up of established targets. Essity also works to reduce the volume of production waste.

Essity has adopted the Science Based Targets issued by the Science Based Targets initiative (SBTi) to reduce the company's climate impact and to support the 2015 Paris Agreement. Through clear governance and responsibility for climate targets within Essity's management team, climate impact also constitutes a clear part of the company's business strategies and financial planning. Essity works to reduce carbon emissions by, for example, making investments in renewable energy and energy-saving programs. In addition, Essity has adopted targets relating to packaging, which are part of Essity's commitment to the Ellen MacArthur Foundation's plastics initiative. The targets aim to increase the proportion of renewable or recycled material in the company's packaging. In 2020, Essity carried out scenario analyses to evaluate in detail the effects climate change may have on Essity's operations in the years ahead.

Read more about Essity's reporting based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD) on pages 42–43.

Global health risks

Risk

Extensive outbreaks of disease entail risks for Essity's operations, not least in terms of the risks posed to our employees' health and safety and their ability to carry out their work. Political decisions to limit the spread of disease, such as lockdowns, more stringent border security measures or other restrictions may also cause disruptions at production facilitates, in the supply chain or for a third party's ability to fulfill its obligations toward Essity. More extensive outbreaks of disease may also result in a temporary fall in demand for some of our products, changed consumer behavior and preferences and changes in the economic conditions in the countries where we conduct operations.

Disease outbreaks and global health risks could potentially also lead to an increase in healthcare costs. This, in turn, may result in limitations being imposed on subsidized prescription of Essity's products in Incontinence Products and Medical Solutions and an accelerated shift toward self-management of health and self-financing of these products.

Action

The highest priority during extensive outbreaks of disease, such as the current pandemic, is to take action to safeguard the health of employees. The company implements a series of actions to adapt local operations to reduce the risk of infection. These could include remote working where possible, information disclosure about handling the risk of infection, protective equipment, new procedures for carrying out work, limited access to plants and offices, restrictions on business travel, changed forms of customer contact and so forth.

When required due to disease outbreaks, the company also adapts its solutions for sourcing raw materials and storage as well as transport solutions for raw materials and finished products.

Changes in demographics, consumer behavior and preferences

Risk

Changing demographics and lifestyle alter demand from customers and consumers. There is a risk of a decline in demand for our products if we do not successfully satisfy customer and consumer needs and adapt our innovation program, product portfolio, sales channels, brand-building activities and communication accordingly.

The global population is growing, entailing that the age structure in many countries is moving toward a larger share of the population in the category 65 years and over. At the same time, younger generations of consumers have preferences and behaviors that impact what and how they shop, for example, in the form of more stringent demands on convenience, transparency, sustainability and social responsibility. This has given rise to demand for new products, services and solutions, such as subscription services, recycling solutions and a greater emphasis on a sustainable choice of materials.

Action

Customer and consumer insights constitute the core of Essity's innovation work. Through knowledge about people's daily needs and challenges, we create an offering that improves quality of life for users. We continuously analyze customer and consumer data and listen to the views of consumers, customers, experts and opinion formers to improve our offering.

Political decisions and regulatory mea- sures

Risk

Essity conducts operations in a large number of different countries. In some countries, the institutional structures are more established and developed, while the political, financial, legal and regulatory systems in other countries are less predictable. In both cases, political changes and decisions, as well as amended legislation and regulations could have a negative impact on Essity's operations in the form of higher costs or some other obstruction. In general, the regulatory requirements imposed on Essity's operations, products and services are intensifying.

Action

Essity works continuously to monitor, evaluate and anticipate changes in its business environment in the form of political decisions and amended regulations in the areas that are of importance for our operations.

Essity participates in various national and international industry organizations, as well as in other types of partnerships. The aim is to gain early knowledge, and also to contribute actively to the development of areas where we have expertise and that are significant to our operations. Such areas include environmental and energy issues, where the circular economy, use of resources and more specifically, issues relating to waste, plastics, chemicals, and emissions to water and air can be considered of particular importance for Essity. The public sector is both a significant customer and an important stakeholder group for Essity. The company is therefore working actively on matters relating to health and medical care, as well as care for the elderly. By complying with and contributing to the development of relevant regulations, Essity shares its experience garnered from existing systems to decision-makers in countries where new structures are being built or existing systems reformed. An example of this is the development of systems for subsidized prescription of incontinence aids in countries where such benefits were not offered in the past. Similarly, Essity monitors developments in regulations covering medical solutions.

Competition

Risk

Essity is subject to considerable competition from other producers of similar products. Essity is also exposed to the risk that alternative products and solutions with the same or similar function (substitutes) could replace the products included in Essity's range. Substitutes exist for virtually all Essity products. This may involve such products as cloth diapers or cloth rags for household or industrial cleaning, or completely different solutions to meet the needs of consumers. In recent years, digitalization has broadened Essity's competitive landscape in digital products and solutions, new digital business models and new players, such as start-ups and technology companies that now compete with Essity in the field of hygiene and health. Competition, the occurrence of substitutes and the effect of digitali-

zation present the risk of a negative effect on sales and pricing of Essity's products and jeopardizes the company's market position.

Action

Essity's focus on customer and consumer insight guides its innovation activities, ensuring that new products and services are attractive and competitive. Essity develops the company's offering to meet the needs of customers and consumers in terms of the products themselves, but also in providing these in the relevant sales channels, including digital solutions and sales models. New solutions are developed through the company's own research and development activities in cooperation with customers, consumers, suppliers or partners. Through its processes for monitoring the business environment, Essity follows up on new players and substitutes in the market and their impact on the company.

Read more about innovation on page 17.

Dependence on major customers and sales channels

Risk

Essity's success is attributable to its ability to offer attractive products, services and brands and to make these available to customers and consumers. Essity's products are sold through retailers, pharmacies, e-commerce, distributors and resellers, with retail representing the single largest customer category. If these players are not successful in selling Essity's products, this could have a negative impact on Essity's earnings. In general, there is a consolidation trend in several of Essity's sales channels and markets, particularly in the retail trade, through mergers and purchasing alliances, which could increase dependence on individual, large customers. Digitalization is also changing customer and consumer behavior, preferences and demand, and is leading to a gradual shift in channels toward an increased share of e-commerce.

Action

Essity's customer structure is relatively dispersed, with customers in many different geographies and areas of business. In 2020, Essity's ten largest customers, most of them retail companies and distributors, accounted for 22.5% of net sales. The company works to maintain strong long-term customer relationships in strategic customer segments, and to build relationships with new customers. Essity is participating through a continuous and steady increase in its e-commerce and also by aligning to the new and changing purchasing and consumption patterns. Essity also places great importance on developing processes, products and information to ensure customer satisfaction.

Production facilities

Risk

Essity has around 90 production facilities in some 30 countries. Fires, machinery breakdowns and other types of harmful incidents in plants could lead to considerable value destruction, and loss of production and income, which ultimately, could have a negative impact on Essity's market position.

Action

From this perspective, the aim of Essity's risk management is to protect its employees, the environment, the company's assets and the business properly and in a cost-efficient manner. Essity strives to create and maintain a balance between loss-prevention activities and insurance coverage. The loss-prevention work is conducted in accordance with established guidelines that include repeated inspections carried out by external risk engineers. Other important elements of loss-prevention activities are maintenance of production plants and machinery, staff training, and good orderliness. Essity invests continuously in loss-prevention activities to reduce its risk of damage in various ways. For example, the sites are usually protected by sprinkler systems. All wholly owned facilities are insured at replacement cost and for the loss of income. Within the EU, insurance is primarily conducted within the company's own insurance company, with external reinsurance for major damages. Outside the EU, Essity cooperates with market-leading insurance companies.

Unethical business practices

Risk

Essity works in a large number of countries and in environments where unethical business practices and violations of human rights may occur. The risk of such business practices is deemed to be very serious. The financial consequences of violations may be very severe in the form of various sanctions and fines. Violations also risk having a negative impact on the company's reputation in the market.

Action

Essity has a program for regulatory compliance, which aims to minimize the risk of Essity taking part in or being associated with unlawful or unethical business practices or committing violations of human rights. The program is based on a Code of Conduct adopted by the Board of Directors. The Code contains policies for how the company and its employees are to conduct themselves in the workplace, in the community and in the market. Essity's employees are routinely trained in the Code of Conduct. Within certain areas – corruption and competition regulations – Essity has an in-depth program for risk evaluation and various training courses for employees. The implementation of the regulatory compliance program is reported continuously to the Compliance Council, which includes parts of the Essity management team and where internal audit has an opportunity to take part in work.

Employees

Risk

To meet its targets, Essity is dependent on being able to recruit, retain and develop qualified and motivated employees. There is high competition for skilled employees.

Action

Essity ensures access to employees with relevant competence through strategic staffing and succession planning. Essity strives to build a reputation for the company as an attractive employer. This includes health and safety in the workplace, market-based and competitive forms of employment, personal development plans and the possibility to take on new challenges in the Group. In the recruitment of employees, it is important to create a modern and attractive corporate culture. Essity also works actively to build and maintain good relationships with union organizations.

Legal risks

Risk

Legal risks comprise a number of risks in, to some extent, diverse areas. Amended legislation, violations of laws in the operations or errors in any agreements signed by Essity, are some examples of legal risks that could have negative financial implications for Essity. In certain instances, they may also result in protracted and costly legal processes.

Action

Essity constantly monitors developments in a number of areas and addresses any legal risks that arise in cooperation with external advisers. Legal issues are often national by nature, which means that local experts are also often engaged by Essity in various issues.

Suppliers

Risk

Essity is dependent on a large number of suppliers. The unplanned or sudden loss of key suppliers could result in increased costs and disruptions to the company's production. Suppliers could also cause problems for Essity through non-compliance with applicable legislation and guidelines or by otherwise acting in an unethical manner.

Action

Essity enters into supply contracts of various durations with a large number of different suppliers. These agreements ensure the supply of key input goods. The Group has several suppliers for essentially all important input goods. In-depth collaboration also occurs with specially selected suppliers in the development of materials and processes. Essity continuously evaluates its suppliers to ensure compliance with agreements entered into. Particular importance is placed on suppliers operating in countries and industries deemed to be more vulnerable to risks. The assessment of key suppliers may take the form of a questionnaire, on-site visit or independent audit.

Information and IT

Risk

Essity relies on IT systems for its operations. Disruptions or faults in critical systems, as well as the increasing prevalence of cyber-attacks, risk having a direct impact on production and other important business processes. Errors in financial systems risk affecting the company's reporting of results.

Action

Essity has a management model for IT that contains governance, standardized IT processes and an organization for information security. The latter works with continuous risk assessment, preventive measures and the use of security technologies. Standardized procedures are in place for implementing and changing systems and IT services, as well as for daily operations.

Cost of input goods

Risk

Input goods account for a considerable part of Essity's total operating expenses. The market price of input goods fluctuates over time and could influence Essity's earnings positively or negatively. The price trend for a number of input goods over the past ten years is presented in the diagram below.

Highest/lowest market prices (annual average) 2010–2020 per input goods

Action

Fiber (pulp and recovered paper) is a significant cost item, mainly in Consumer Tissue and Professional Hygiene. Essity is evaluating alternative types of fiber, such as wheat straw as a means of diversifying fiber sourcing in the future. The cost of oil-based materials is driven by the trend in oil prices and represents a major cost item in Personal Care and for various packaging materials. The trend in oil prices also impacts transport costs. The impact of price movements on input goods can be delayed through purchasing agreements with fixed durations. Efficiency improvements in the company's operations, altered product specifications and price increases are examples of measures to offset the effect of rising costs for input goods.

Essity's costs for input goods are described on page 138.

Energy price

Risk

Energy price risk is the risk that increased energy prices could adversely impact Essity's operating profit. Essity is exposed to movements in the prices of electricity and natural gas, but the prices of other energy commodities also directly and indirectly impact Essity's operating profit.

Action

Essity centrally manages the energy price risk related to electricity and natural gas. According to Essity's Energy Risk Policy, these price risks can be hedged for a period of up to 36 months. Exceptions are made for regulated and non-hedgeable markets. Energy prices are hedged through financial instruments and fixed pricing in existing supply contracts.

Essity safeguards the supply of electricity and natural gas through centrally negotiated supply contracts. The portfolio of supply contracts and financial hedges is effectively spread to minimize Essity's counterparty risk.

In 2020, Essity purchased about 5 TWh (5; 5) of electricity and about 7 TWh (8; 8) of natural gas.

The graph shows Essity's price hedges in relation to forecast consumption of electricity and natural gas for the next three years. The graph includes financial hedges and hedging effected via supply contracts.

For further information concerning financial price hedges, see Note E6 Derivatives and hedge accounting on page 100.

Energy price hedges in relation to forecast consumption, December 31, 2020

Currency

Risk

Transaction exposure

Transaction exposure is the risk that exchange rate movements in export revenues as well as import expenses and other costs could negatively impact the Group's operating profit and the cost of non-current assets.

Action

Most of Essity's business is conducted outside Sweden and transaction exposure therefore arises primarily in currencies other than SEK. The largest exposure comprises a purchase requirement for USD and selling requirements for CNY and GBP. The significant USD exposure is a consequence of the Group's purchase of pulp that is invoiced in USD.

Transaction exposure, resulting from exports and imports, can be hedged for a period of up to 18 months. Contracted future payments for non-current assets in foreign currencies can be hedged up to the full cost. The currencies with the greatest net volume were hedged as follows: USD 1.2 months, CNY 0 months, GBP 1.2 months. During the year, there was continuous hedging of, primarily, trade receivables and payables, as well as future payments of non-current assets. The majority of hedges mature during the first quarter of 2021.

Net flows in 2020

For further information relating to hedging of transaction exposure, see Note E6 Derivatives and hedge accounting on page 100.

Risk

Long-term currency sensitivity

The table below presents a breakdown of the Group's net sales and operating expenses by currency, which provides an overview of the Group's long-term currency sensitivity. The largest exposures are denominated in EUR, USD, CNY and GBP.

			Adjusted	Average
	Sales	Costs	EBITA1)	rate
Currency	%	%	SEKm	2020
EUR	38	37	8,098	10.4721
USD	13	27	–12,026	9.1749
CNY	12	7	7,430	1.3303
GBP	8	4	4,379	11.7760
MXN	5	4	2,119	0.4296
COP	3	3	420	0.0025
RUB	3	2	770	0.1276
SEK	2	4	–962	1.0000
Other	16	12	7,398
Total	100	100	17,626

1) Excluding items affecting comparability.

Risk

Translation exposure

Translation exposure is the risk to which Essity is exposed when translating foreign Group companies' balance sheets and income statements to SEK.

Action

Essity manages translation exposure by distributing the liability across the various currencies where the Group owns assets so that key figures that are important for the company's credit rating are protected in the long term against exchange rate effects. Translation exposure in the income statements of foreign Group companies is not currency-hedged. As at December 31, 2020, net debt amounted to SEK 42,688m (50,940; 54,404).

Net debt distributed by currency

Currency		Percentage of net debt
	Net debt SEKm	2020 %	2019 %	2018 %
EUR	18,190	43	42	46
SEK	7,652	18	19	11
USD	7,002	16	10	13
GBP	5,085	12	14	15
CNY	3,262	8	5	7
MXN	1,529	4	5	4
HKD	654	2	4	3
Other	–686	–3	1	1
Total	42,688	100	100	100

For further information relating to hedging of translation exposure, see Note E6 Derivatives and hedge accounting on page 100.

Credit

Risk

Credit risk refers to the risk of losses due to a failure by Essity's customers, or counterparties in financial agreements, to meet payment obligations.

Action

Credit risk in trade receivables

Credit risk in trade receivables is managed through credit checks of customers using credit rating companies. The credit limit is set and regularly monitored. Trade receivables are recognized at the amount that is expected to be paid based on an assessment of the expected credit losses for the remaining lifetime of all trade receivables at the balance sheet date. For further information concerning trade receivables and recognition of anticipated credit losses, see Note E3 Trade receivables on page 98.

Financial credit risk

Essity's finance policy regulates the maximum permitted counterparty risk depending on the counterparty's credit rating from the credit rating agencies Standard & Poor's, Moody's and Fitch. The objective is that counterparties must have a minimum credit rating of BBB+ or equivalent from at least two of these credit rating agencies.

Credit exposure in derivative instruments is calculated as the market value of the instrument on the balance sheet date. Credit exposure in derivative instruments amounted to SEK 1,650m (971; 1,255), gross. Taking net calculation agreements per counterparty into consideration, credit exposure of derivatives amounted to SEK 887m (551; 810). At year-end, the total credit exposure was SEK 6,208m (3,750; 4,028). This exposure includes credit risk of SEK 5,048m (2,928; 3,081) for financial investments. Refer to the table below for the distribution of credit risk by category.

Financial credit exposure

	Category 1)
SEKm	A	B	C	Total
Financial assets measured at fair value through other comprehensive income	–	–	96	96
Financial assets measured at amortized cost	105	–	72	177
Cash and cash equivalents	4,188	353	441	4,982
Current investments >3 months	–	66	–	66
Derivative assets, net	887	–	–	887
Total	5,180	419	609	6,208

1) A: Investment grade, a long-term credit rating from one or more of the agencies of at least: Moody's (Baa3), Standard & Poor's (BBB–) and Fitch (BBB–)

B: Non-investment grade, a long-term credit rating lower than: Moody's (Baa3),

Standard & Poor's (BBB–) and Fitch (BBB–)

C: No credit rating (mainly assets that lack a separate credit rating and cash and cash equivalents in regulated markets)

Liquidity and refinancing

Risk

Liquidity and refinancing risk is the risk that Essity is unable to meet its payment obligations as a result of insufficient liquidity or difficulty in raising new loans.

Action

To ensure good access to loan financing, regardless of economic situation and on attractive terms, Essity strives to maintain a solid investment grade rating.

Essity maintains a financial flexibility in the form of a liquidity reserve consisting of cash and cash equivalents and unutilized credit facilities totaling at least 10% of the Group's forecast annual sales. Essity limits its refinancing risk by having a well distributed maturity profile of its gross debt. The gross debt must have an average maturity in excess of three years, taking unutilized credit facilities which are not part of the liquidity reserves into account. Surplus liquidity should primarily be used to amortize external liabilities. Essity's policy is to avoid terms that entitles the lender to terminate loans or adjust interest rates as a direct consequence of movements in Essity's financial key ratios or credit rating.

The Group's financing is mainly secured by bank loans, bond loans and through issuance of commercial papers. The refinancing risk in short-term borrowing is mitigated through long-term credit facilities from bank syndicates and individual banks with favorable creditworthiness.

Essity's net debt decreased by SEK 8,252m in 2020. At year-end, the average maturity of gross debt was 3.1 years (3.1; 3.5). If short-term loans would be replaced with long-term unutilized credit facilities, the average maturity would amount to 3.8 years. Unutilized credit facilities amounted to SEK 20,056m at year-end. In addition, cash and cash equivalents totaled SEK 4,982m.

Liquidity reserve

SEKm	2020	2019	2018
Unutilized credit facilities	20,056	20,850	20,554
Cash and cash equivalents	4,982	2,928	3,008
Total	25,038	23,778	23,562
SEKm	2020	2019	2018
Net sales	121,752	128,975	118,500
Liquidity reserve1)	21%	18%	20%

1) Liquidity reserve as a percentage of net sales.

For further information, see Note E2 Financial assets, cash and cash equivalents on page 98, and Note E4 Financial liabilities on page 99.

Interest rate

Risk

Interest rate risk relates to the risk that changes to interest rates could have a negative impact on Essity. Essity is affected by interest rate movements through financial income and expenses, cash flow and the value of its financial assets and liabilities.

Action

Essity strives to achieve a solid distribution of its interest maturity dates to avoid large debt volumes of renewals occurring at the same time. Essity's policy states that the average interest duration shall be a minimum of 3 months and a maximum of 36 months. Essity's financial items decreased in 2020. Lower interest rates and lower average net debt had a positive impact. Essity's major funding currencies are EUR, GBP and USD, refer to the graph on the right. To achieve the desired interest rate duration, Essity uses financial derivatives. The average interest rate duration for the gross debt, including derivatives, was 21.2 months (24.7; 26.7) at year-end. The average interest rate for the total outstanding net debt including derivatives, amounted to 1.61% (2.11; 2.55) at year-end.

Gross debt distributed by currency

Climate-related risks and opportunities

Climate change affects Essity. The company identifies the risks and opportunities this entails, by means of, for example, scenario analyses. This helps to identify, manage and minimize the risks and to thus take the correct and necessary actions and also estimate and reduce the negative financial impact. Essity also strives to identify opportunities and further develop the company's strengths in its sustainability work to achieve competitive advantages.

Reporting based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD). See also page 133 for an index of where more TCFD-related information can be found in the Annual and Sustainability Report.

Strategy and governance

The identification and assessment of climate-related risks and opportunities are part of Essity's strategy process. Climate risks and opportunities are evaluated in each business unit and in a centrally coordinated internal expert group that represents key functional competencies for climate-related topics in Essity.

Responsibility for managing climate risks follows the company's delegation scheme, which is described on page 36. Sustainability issues are discussed on an ongoing basis by Essity's Board of Directors and in 2020 comprised a focus area in the work of the Board of Directors.

Targets and KPIs

For many years Essity has worked with sustainability throughout the value chain: from responsible raw material sourcing, more efficient production with a smaller climate footprint, and sustainable solutions to customers and consumers. The sustainability work has been broken down into several targets and KPIs as Essity takes the approach that if you measure it, it will get done. The targets are ambitious and the company will also continue to grow. This places demands on the need to make a transition and on new

Process

Business intelligence and situation assessment from a climate perspective

Identification of possible climate scenarios and their consequences

production methods and circular business models, which is a challenge but if handled correctly also offers business opportunities and cost savings. Essity's targets to reduce carbon emissions were approved by the Science Based Targets initiative in 2018. For Scope 1 and 2, Essity has undertaken to reduce greenhouse gas emissions by 25%, and for Scope 3 by 18% by 2030 compared with 2016.

Essity has appointed a steering committee to ensure that it meets the climate targets. This committee is led by members of Essity's Executive Management Team and its task is to prepare plans for delivering on all Scope 1, 2 and 3 targets.

Read more about the Essity's targets and outcomes on pages 22–23.

Climate-risk analysis

A climate-risk analysis based on the recommendations of the framework of TCFD was completed in 2020. The analysis uses two different climate scenarios. Temperature change was studied from a long-term perspective until 2100. A ten-year perspective was used, until 2030, in order to draw conclusions about the impact on Essity. The analysis was based on the impact of climate change and the impact of changes to legislation.

Assessment according to Essity's risk process

Detailed analysis in centrally-coordinated internal expert group

Conclusions about the impact on Essity, assessment of risks and opportunities, and necessary action

Scenario 1: Global warming of 2°C

Description: Global warming is limited to no more than 2°C by 2100 through collaboration between governments, industries, companies and individuals pushing for tougher legislation, green innovation and rising demand for environmentally friendly products and services. Carbon emissions are strictly limited and carbon tax is extended, which promotes processes with low carbon emissions and greater use of circular material and products.

Risks

• Increased investment costs in innovation, production and distribution are needed due to tougher legislation for manufacturing processes, energy sources and material use
• Higher costs for goods sold due to price increases on raw materials, rising energy prices, higher distribution costs as well as higher carbon taxes and restrictions on carbon emissions
• Changed consumption patterns

Opportunities

• Competitive advantages through Essity's long-term and robust efforts to achieve lower resource use, innovative green production methods and lower carbon emissions
• Changed consumption patterns in the form of increased demand for sustainable solutions with a smaller climate footprint, rewarding companies with a strong sustainability profile
• Investments in and development of new business models and green solutions attract more customers and consumers
• Leading hygiene and health solutions are a priority

Actions

• Investment decisions consider both financial and environmental impact. Investments are made in state-of-the-art technology, improving process efficiency and reducing carbon emissions. Through "Industry 4.0" and the development of smart plants, Essity is achieving more efficient production, shorter lead times, higher quality and lower environmental impact.
• Essity researches and invests in several ground-breaking ideas in sustainable technology in its manufacturing processes with the aim of reducing the company's environmental footprint and setting new standards for the entire industry.
• In 2021, Essity will start up production of pulp from alternative fiber at its facility in Mannheim, Germany. The plant will produce high-quality pulp from wheat straw that will use less water, energy and chemicals as well as reducing carbon emissions. This will also offer Essity access to a new source of raw materials, which may over time reduce the company's exposure to wood-based pulp.
• Reduced resource consumption, efficiency enhancements, altered product specifications and price increases
• Essity prioritizes, if possible, emissions-effective transport methods for long-distance transportation. Essity has a strong focus on and prioritizes vehicle types that meet the requirements of the latest environmental and emissions classes combined with the most up-to-date alternatives, such as CNG fuel and electric trucks. Moreover, Essity participates in various local projects and partnerships with customers and suppliers to jointly reduce carbon emissions from transportation.
• The targets for carbon emission reductions are approved by the Science Based Targets initiative. To ensure that it meets the climate targets, Essity has appointed a steering committee led by members of Essity's Executive Management Team.
• Essity provides clear communication about how important and integrated sustainability work is within the company and the sustainability targets it is striving to fulfill.
• New offerings and business models are under development in Essity that contribute to a more sustainable society and reduce the environmental footprint of both the company and customers and consumers. For example, washable absorbent underwear has been launched, the proportion of renewable material has increased in our packaging, and more customers are using Tork PaperCircle®, which is the world's first recycling service for paper hand towels.
• Essity strives to increase the use of recycled and renewable material in packaging and products.
• Essity offers leading hygiene and health solutions to improve people's well-being all over the world. When people fulfill the most basic needs for food and shelter, the next priority is hygiene and health. Increased awareness globally of the importance of hygiene and health.

Scenario 2: Global warming of 4°C

Description: Global warming of 4°C in 2100, due to the failure to effectively reduce emissions and other negative environmental impacts. Extreme weather increasingly common. Sea levels continue to rise, desertification and deforestation continues. Access to key resources such as raw materials, energy, water and food declines, resulting in greater volatility and uncertainty for prices and food security.

Risks

• Production disruption due to extreme weather
• Rising insurance costs and costs for reconstruction
• Increased investment required to safeguard stable production and supply chain
• Significantly higher cost for sold goods as resource scarcity leads to higher prices for raw materials, energy, water and distribution
• Deforestation leads to a shortage of fresh wood-based fiber
• Lower living standards and changed consumption behavior

Opportunities

• Competitive advantages from reliable production and sourcing in regions at risk
• Leading hygiene and health solutions are a priority

Actions

• Essity has contingency plans in place in high-risk countries and is continuously working to safeguard production and sourcing of input goods.
• All of Essity's production facilities and associated distribution centers (regardless of their location) are obligated to follow Essity's loss-prevention policies, not only for fire, explosion, and machinery breakdowns but also for climate-related risks. In addition to contingency plans, this may involve tangible measures such as reinforcements for roofs and doors against wind, shut-off valves for gas in the event of an earthquake, or various customizations to keep rapidly rising water outside of a plant or warehouse. Essity has also employed external consultants to model the company's exposure to natural catastrophes where possible and is working with loss-prevention activities.
• Reduced resource consumption, efficiency enhancements, altered product specifications and price increases
• Essity's target for sourcing of fresh fiber means all wood-based fresh fiber is to be FSC® or PEFC™ certified, meaning from responsibly managed forests that uphold the principles of biodiversity and forest conservation.
• See also actions under Scenario 1.

Sustainability governance

Contributing to a sustainable and circular society is crucial to Essity. A healthy society is good for Essity. Based on well-defined areas of responsibility and follow-up, the company ensures that it delivers on established sustainability targets. To tackle increasing sustainability challenges, we also continuously develop our ambitions in dialogue with our stakeholders and external experts.

Essity's overall objective is to achieve and maintain the company's economic value creation with respect to social and environmental value creation. We want to improve well-being for people by providing better solutions with a lower impact on the environment. The Board has established a number of sustainability targets that are monitored and reported annually. To ensure that these targets are met, numerous policies and management systems are in place.

Essity's sustainability governance aims to ensure the company's commitments to its stakeholder groups, including customers, consumers, employees, shareholders, suppliers, creditors, decision-makers and representatives of the community. The company's commitments are expressed in the strategic framework, in objectives and in strategies. We maintain an active and continuous dialogue with our stakeholders to ensure that Essity's priorities and methods are relevant over time.

Sustainability is incorporated throughout Essity's operations which is why sustainability governance forms an integrated part of the Group's overall corporate governance. Accordingly, sustainability-related matters are an integrated part of all of the meetings conducted by the company's Board and Executive Management Team, and in the various business units and global units, as well as in Group functions. A number of committees and networks in the company's various business units contribute insight and seek supplementary expertise from external sources, as well as ensuring a consistent approach.

Essity's sustainability work is pursued from three platforms: Well-being, More from less, and Circularity. In addition, sustainability governance includes Employees and Business ethics and human rights.

Essity's sustainability platform

Essity's leading hygiene and health solutions cover all phases of life and can be used by individuals and society. Our contribution:

• Increasing access to hygiene and health solutions
• Providing safe products
• Taking an active role in society

We aim to create more value using less resources and contribute to a circular society. Our contribution:

• Reducing environmental impact from materials
• From waste to resources
• Reducing climate impact
• Improving water use

Employees

Sustainability work is dependent on our employees and our culture.

Essity's business ethics is crucial in our work in areas such as human rights.

Business ethics and human rights

Read more on
Corporate governancepages 52–57
Sustainability targets 22–23

Contribution to the UN Sustainable Development Goals........ page 21 More on sustainability governance ................essity.com/sustainability

As a global company, Essity can make a difference for people and societies. We offer hygiene and health solutions for hundreds of millions of people every day, which helps to improve well-being and gender equality. We share our expertise and drive global dialogue to increase awareness about the importance of hygiene and health and to break the taboo surrounding these.

Increasing access to hygiene and health solutions

Millions of people around the world lack fundamental solutions that could improve their quality of life. There are many reasons for this, for example, they do not have access to them or cannot afford them, the infrastructure is not in place or due to social stigma. It is essential to meet these needs. Essity wants to enhance the quality of life for more people and raise the hygiene and health standards around the world by increasing access to sustainable solutions and striving to break barriers surrounding hygiene and health that exist in our society.

To achieve this, we spend a large amount of time with our customers, consumers, users and other societal actors. This allows us to develop solutions based on a unique insight into the needs, challenges and expectations of our customers and consumers as well as whole societies. In this way, we enable and create value together for all of society Essity's Group target is that at least 33% of the company's innovations are to yield social and/or environmental improvements. Examples of innovations in 2020 include packaging with recycled or renewable plastic, face masks and washable absorbent underwear.

Sustainable innovations

Providing safe products

Product safety and product quality are of the utmost importance. For us, it is also important that our customers and consumers can easily find out what our products contain. We provide clear, reliable and accessible product information.

Essity complies with prevailing laws and regulations for the company's products. If specific sector requirements are lacking, we always comply with general legal frameworks on product safety. Essity monitors current research and continuously strives to make improvements in line with this research. This includes driving safety standards through voluntary undertakings that exceed statutory requirements. For example, Essity was involved in drawing up an industry standard in the EDANA association to harmonize assessment methods and enhance transparency of traces of chemicals in absorbent hygiene products.

We follow strict requirements and extensive procedures under our certified quality system (ISO 9001) to ensure that all materials and ingredients in the company's production and products are safe for consumers, customers, employees and the environment. Essity works closely with our suppliers to ensure they meet the company's Global Supplier Standard and guidelines.

A daughter visits her mother at a retirement home in Italy in 2020. The face masks are produced by Essity.

One important element of Essity's work to improve our solutions is feedback from our customers and consumers in the form of complaints and feedback. We always investigate whether there is cause for action beyond responding to the individual case. The company undertakes targeted corrective and preventive action.

Taking an active role in society

We leverage our global reach to break barriers to well-being and share our expertise in hygiene and health in such areas as hand hygiene, menstruation and incontinence. As a means of contributing to global dialogue and driving forward social solutions, we regularly publish "The Hygiene and Health Report." This report is a collaboration with the Water Supply and Sanitation Collaborative Council (WSSCC), and was presented at the United Nations Foundation 2020 Global Dialogue.

To further contribute with our knowledge and expertise, we participate in various national and international industry organizations and other partnerships and dialogues. In addition to contributing relevant expertise, the aim is to, at an early stage, gain knowledge and actively promote development of areas that have an impact on the company, such as environmental and climate issues, trends in health, hygiene, and other social issues. Essity's Public Affairs department is responsible for ensuring governance, strategy and implementation of this work.

We strive to be a dedicated partner in various local communities. In accordance with Essity's Community Relations Instruction, the company primarily prioritizes initiatives with a clear link to the company's operations, where our expertise can make an effective contribution. One example of an initiative is arranging education courses in hygiene and health for various societal partners. The guidelines state that Essity shall be politically and religiously neutral.

Read more about Essity's results
H3. Innovationpage 120
H4. Customers and consumerspage 121
H5. Role in society and community relationspage 121

More from less and Circularity

Essity is developing a resource-efficient value chain with sustainable manufacturing processes and products using innovative materials and smarter designs. We also encourage the use of recycled and renewable materials in our products and packaging. Circularity is a challenge that requires creative thinking, new business models and partnerships.

Strategic innovation is conducted globally by Essity, with cross-functional networks focusing on innovation, packaging and circularity. Essity uses ISO 9001 for quality management and ISO 14001 and the EU's Eco Management and Audit Scheme (EMAS) for environmental management. A large number of production units are certified in accordance with ISO and/or EMAS. Social, environmental and circularity assessments are performed by experts in the Sustainability Products & Services unit to measure the company's progress. We measure environmental impact using life cycle assessments that are based on the ISO 14040 series of standards as well as product-specific regulations for tissue products and Personal Care products. The results of our external life cycle assessments are subject to third-party assessments.

Through our partnership with such organizations as the Ellen MacArthur Foundation, Essity promotes greater circularity throughout the company in collaboration with other actors.

Reducing the environmental impact of materials

Essity works in several ways to reduce material used in production. For example, we have a material savings program, MSAVE, with the aim of achieving cost efficiency while minimizing the environmental impact from raw materials and reducing waste.

For sustainable forestry

Fresh wood-based and recycled fiber accounts for the largest share of material in Essity's products. Forest is a natural resource, which in addition to providing raw material plays a key role for the climate and biodiversity. To ensure that our consumers can rely on that all components in an Essity product and all fiber comes from responsible forestry, Essity introduced a new target in 2019 that all raw materials derived from wood-based fresh fiber in the company's products and packaging are to be certified in accordance with the Forest Stewardship Council® (FSC®) or the Programme for the Endorsement of Forest Certification (PEFC™). Both certification programs place demands on the management of growing forest and seek to preserve biodiversity and protect cultural environment and social values. We have a global sourcing policy for woodbased fresh fiber in place and a shared business system for the assessment, purchase and traceability of fiber. Essity conducts its own audits of suppliers' systems and sometimes employs external parties to prepare reports or perform additional surveys of suppliers. We take part in global forums, including the Consumer Goods Forum (CGF) Forest Positive Coalition of Action, to act together against global deforestation.

Percentage of purchased wood-based fresh fiber that is certified

Smaller quantities and more sustainable plastic solutions Plastic is a relatively robust material that can be customized for various uses, for example allowing Essity to produce thinner incontinence products. Plastic can therefore help Essity to make "more from less" at the same time as we can meet high quality standards. However, there are problems with fossil-based plastic, for example as a source of emissions and waste in nature.

Packaging represents a small part of our products' total life cycle but plays a big role to our customers. We are working to ensure that all of our packaging is recyclable and, step by step, is made from renewable and recycled materials. This means that we will continue to use paper packaging and are replacing fossil plastic in our plastic packaging with renewable plastic, recycled plastic or paper.

We are working continuously to develop smarter designs and innovative plastic materials for our products, which will reduce the climate impact in both our value chain and when in use. In the long term we want to offer more circular innovation.

Alternative materials

As a means of fulfilling our sustainability targets, we constantly research alternative fibers and production methods. One example is Essity's facility for alternative fiber at the company's tissue plant in Mannheim, Germany that will start manufacturing in 2021. We can thereby manufacture high-quality tissue from wheat straw, a renewable resource that is an agricultural by-product. This process is a circular innovation that will reduce the total environmental and climate impact of the pulp produced at the plant, including a significant decrease in water and energy consumption.

From waste to resources

Inefficient waste management leads to climate change, pollution, impact on ecosystems and financial losses. Essity is dedicated to reducing waste in the entire value chain. Since waste has a clear impact on the climate, we measure our waste within the framework of our climate targets.

Reducing waste from our production facilities has been integrated into our work methods for a long time. Wherever waste arises, we work actively to recover it for use as material or energy. The production facilities work toward meeting the target that all production waste will be subject to material and energy recovery by 2030. For example, recovered material from tissue manufacturing can be used as raw material for other industries, such as the construction industry.

Waste management of products after use is the shared responsibility of Essity and our customers and consumers. Essity has included circularity assessments in its innovation process to obtain a better understanding of how we can avoid consumer and customer waste from arising. We endeavor to make all packaging technically recyclable. Tissue comprises renewable fibers that have many different after uses. Due to their biodegradability, they are well suited to being flushed as toilet paper or composting. They are also suitable for combustion with energy recycling or for recycling. Personal Care products that are contaminated by various bodily fluids are a greater challenge, but we are continuously evaluating various alternatives for existing waste management.

One difficulty in many markets is the lack of infrastructure for collecting used packaging or products. We therefore support national initiatives that strive to make large-scale recycling of packaging work in practice. One example of new methods introduced by Essity is Tork PaperCircle®, where used paper hand towels are collected and recycled.

Reducing climate impact

Climate change is the defining issue of our time. Its effects are far-reaching and global. We ensure that we reduce our greenhouse gas emissions through collaboration and innovative and environmentally sound solutions.

In 2018, Essity adopted Science Based Targets for the reduction of our greenhouse gas emissions. These targets were approved by the Science Based Targets initiative. The targets help companies determine which emission reductions they need to achieve to decrease the global temperature rise, as agreed by the countries of the world at the 2015 UN climate change conference (COP 21) in Paris.

In terms of energy use within the company and purchased electricity (Scope 1 and 2), Essity has undertaken to reduce emissions by 25% by 2030 compared with 2016. The target applies to wholly owned companies. Essity has, moreover, undertaken to reduce greenhouse gas emissions from the most important purchased raw materials, transport, waste arising from operations and handling at the end of the life cycle for sold products (Scope 3) by 18% by 2030 compared with 2016. We measure climate impact for our range of products through life cycle assessments.

To ensure that we meet the climate targets, Essity has appointed a steering committee led by members of Essity's Executive Management Team, with the task of preparing plans for delivering on all Scope 1, 2 and 3 targets.

Activities to reduce the environmental impact of suppliers and materials are presented on the previous pages. Our efforts in the areas of energy, electricity and transport are presented below.

Energy and electricity

Energy efficiency, new technology and the greater use of renewable energy are required to achieve Essity's stated targets. Essity has a long history of enhancing energy efficiency. ESAVE is an Essity program that comprises investments in energy efficiency, and engages employees in the daily improvement activities for energy use. The company cooperates with external stakeholders such as machinery suppliers to ensure energy efficiency, continuous improvements and the compliance of new equipment with the latest environmental requirements. In 2020, Essity increased its share of renewable energy at the company's plants in Europe.

Transport

Essity's transportation activities primarily comprise the transportation of raw materials to our production facilities, and the delivery of finished products to our customers. Essity uses external suppliers for its transportation requirements. When possible, Essity prioritizes emissions-effective transport methods such as

million tons, CO2 e

barges, rail transportation and inter-model combinations (rail/ truck) for long-distance transportation. Sea freight represents the largest share of Essity's inbound transportation, while outbound transportation mainly comprises road and rail freight. Essity has a strong focus on and prioritizes vehicle types that meet the requirements of the latest environmental and emissions classes combined with the most up-to-date alternatives, such as CNG fuel and electric trucks.

Essity participates in various local projects and partnerships with customers and suppliers to jointly reduce emissions from transportation.

Improving water use

People around the world experience uncertainty concerning access to water, known as water stress. This affects Essity's operations, from access to raw materials and production facilities to the communities in which our employees and consumers live.

Essity strives to reduce water use and works continuously to enhance its water treatment and thus the quality of the effluent water discharged from its plants. Our target for water is that the company's tissue operations will reduce the level of suspended solids, the volume of water used and organic content (BOD) by 10% by 2020, with 2014 as reference year. This water is treated using mechanical and biological treatment systems.

TCFD framework

Essity's reporting based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD) can be found on pages 42–43. See also page 133 for a list of where more TCFD-related information can be found in the Annual and Sustainability Report.

EU taxonomy

For some time now Essity has worked with sustainability throughout the value chain: from responsible raw material sourcing, more efficient production with a lower climate footprint, and sustainable solutions to customers and consumers. The company's targets to reduce carbon emissions were approved by the Science Based Targets initiative in 2018. The target for 2030 for Scope 1 and 2 is to reduce emissions by 25%, and for Scope 3 by 18% with 2016 as the base year. Essity researches and invests in several ideas in sustainable technology in its manufacturing processes with the aim of reducing the company's environmental footprint. In 2021, for example, Essity will start up a pulp plant at its facility in Mannheim, Germany. The plant will produce high-quality pulp from wheat straw that will use less water, energy and chemicals as well as reducing carbon emissions. New offerings and business models are under development in Essity that contribute to a more sustainable society and reduce the environmental footprint of both the company and customers and consumers. Essity has been recognized as one of the world's 100 most sustainable companies by Corporate Knights at the annual meeting of the World Economic Forum in 2021. Essity is monitoring developments in the EU's taxonomy to identify and influence the extent to which the company's activities will be covered by the taxonomy, its provisions and definitions.

Read more about Essity's results

H6. Packagingpage 121
H8. Fiber sourcingpage 122
H9. Air emissions: Scope 1 and 2page 123
H10. Air emissions: Scope 3 page 124
H11. Waterpage 125

Essity offers career opportunities in a leading global hygiene and health company that is breaking barriers to well-being in the world. Employees at Essity make a difference and improve people's quality of life by providing access to leading hygiene and health solutions and increasing knowledge in these areas through development initiatives and collaboration. Essity's employees are the company's main asset and we strive continuously to develop our corporate culture, expertise and leadership to create the best possible conditions for a successful Essity. All Essity employees are to be treated fairly and respectfully. We value and work continuously to increase diversity in the company.

Development is important

Everyone should understand their contribution to generating results. It is important that Essity's employees have the right skills and are committed to performing at their best. In so doing, employees can grow as individuals and contribute to the development of the company. Employees are expected to continuously learn and develop. Everyone should give and receive regular feedback. We strive to leverage the opportunities offered by digitalization to facilitate ways of working and processes. This is all supported by leaders who nurture a supportive and enabling environment. As a mean of developing functional skills, Essity provides a number of academies with comprehensive training programs for employees.

One aim of Essity's global human resources strategy is that the company should be perceived as an attractive workplace for existing and potential employees and that Essity is a safe and healthy workplace, based on ethical business practices. Essity recruits and develops employees in line with its strategic competence plan. The plan is based on Essity's strategy, demography and access to expertise and determines the measures that the company needs to take to meet future skills and resource requirements.

Culture is key

Essity's corporate culture is central to its operations and is formulated in a set of "Beliefs and behaviors." These serve as a compass to offer guidance in how we are to act as Essity employees.

Diversity and inclusion

As a global company, we value and work continually to increase diversity and inclusion. All employees are recruited, evaluated and promoted based on objective criteria without discrimination with regard to gender, marital status, origin, sexual orientation, religious faith, political affiliation, age, disability or other categories protected by law. This is stipulated in our Diversity Policy. Fundamental to our corporate culture is offering a diverse and inclusive work environment, which helps to strengthen the company and its results. Our diversity and inclusion strategy aims to continuously increase employees' sense of belonging and inclusion of different perspectives, and also seeks to attract and recruit employees motivated by the company's objective of breaking barriers to well-being in society. Everyone who works at Essity is to be treated with dignity and respect and have an opportunity to develop in their career.

To increase the proportion of women in leadership positions, a number of programs and networks are run to highlight and sup-

port women in senior positions. The power of diversity and leveraging people's different perspectives are key. The organization receives training in "unconscious bias" with the aim of reinforcing an inclusive approach. Local activities are being carried out in various countries to include our employees with disabilities. A diversity study is held every year and encompasses nationalities, age structure and gender distribution in general and in leadership roles. No unjustified pay differences should exist due to gender, age or background. This is regularly monitored and any unjustified differences are corrected on an annual basis.

Caring through a safe and healthy work environment

Working at Essity means the right to a safe and healthy work environment. Health and safety for our employees is fundamental to our business and is based on our Beliefs & Behaviors and our Code of Conduct. Nothing we do is worth injury and our highest priority is that everyone who works or visits us, arrives at production facilities and offices that are safe and healthy. Essity's aim is zero workplace accidents and we work proactively to address the issues of safety and health.

Essity implements the international standard OHSAS 18001 (Occupational Health and Safety Assessment Series) to ensure the use of uniform processes within the Group and that Essity's units continuously improve workplace-related health and safety. OHSAS specifies requirements regarding the organization's occupational health and safety management systems.

Essity has a global framework to increase focus and awareness on different perspectives of health and ensures local efforts to secure a healthy work environment. The framework is based on the World Health Organization's (WHO) definition of health and includes the physical, mental and social well-being aspects of the

Accident frequency rate

Number of accidents ("LTA") per million hours worked

work environment. On this basis, Essity conducted self-assessments of health activities at the largest production facilities and offices in 2020. This forms the basis of local action plans. Essity offers health-enhancing activities, training in stress management and work-life balance, opportunities for remote working, flexible working hours and time off, where possible. The aim is to create a sustainable working life based on a healthy workplace.

Remuneration and benefits

Essity offers a "Total Reward" concept. This entails a mix of monetary and non-monetary components. We offer market competitive remuneration comprising salary, variable remuneration, pension and other benefits. We also offer a good working climate, competent leadership, individual development plans and international development opportunities. Together, this forms our "Total Reward" concept. The company follows local salary structures and respects internationally established rules for minimum wages and reasonable compensation. The company works continually to limit and prevent unjustified pay differences and other differences in employment conditions. The programs for variable remuneration are for most employees at Essity.

Employee relations

Transparent communication is fundamental to the trust between the company, its employees and union representatives. Essity recognizes the right of every employee to join a trade union and participate in union activities. The company meets with employee organizations at various levels on a regular basis to inform them of and discuss issues concerning the company's results, forthcoming changes, and health and safety and employment terms and conditions. Essity has an agreement with the industry union IndustriAll. When there is no union representation, Essity establishes other channels where possible, such as an employee council.

Essity supports Global Deal. This is a global partnership with members in the private and public sector. Its aim is to improve the dialogue between parties in the labor market and national governments.

Attractive employer

The basis for Essity to ensure access to competence is that the company is considered to be an attractive workplace, both internally and externally. Based on annual competence planning, we strive to attract potential employees through university events

and extensive activity in social media. Knowledge of Essity and the company's attractiveness has been gradually growing since 2017. We have been externally recognized many times for our work on Employer Branding. We offer a manufacturing apprenticeship program to ensure the long-term supply of talent. This takes place in partnership with local schools. Furthermore, we offer a new program to help recent graduates to find their first job and ensure sufficient talent in critical areas. Essity's "GO! Program" is a two-year program in which participants have a combination of project work, development activities and rotation, while also working in proper job. The annual Essity GO! program has 30–50 participates every year.

Leadership for success

Everyone at Essity practices leadership. Regardless of whether you are in charge of an operation, a team, or yourself, leadership skills are needed that ensure success in today's complex and rapidly changing environment.

To enable all employees to perform at their best, continuous dialogues are held between line managers and employees aimed at deciding goals, coaching and development. A digital platform with global processes is used for setting goals, individual development, recruitment, introduction and salary review. The platform is to ensure compliance and to realize Essity's HR strategic framework.

Continuous development of leadership is decisive to our continued success. To achieve this, Essity runs a leadership academy comprising 20 global training programs for managers at various levels or with specific competencies. All new managers take part in mandatory introduction training aimed at creating a shared basis for leadership at the company. In addition to the programs, training is offered through coaching, virtual seminars and leadership publications.

Our leadership platform is at the core of all our leadership activities and encompasses the competences and expectations required to contribute toward Essity's results and culture. Competences form the basis of recruiting and developing employees and thus creating the best possible conditions to deliver on Essity's targets.

Read more about Essity's results

H12 Employeespage 126
H13 Health and safety page 127

Business ethics and human rights

Essity impacts the lives of many people. It is essential that we conduct our business in a responsible manner. Essity is to act with integrity toward all its stakeholders. At work, in the market and in society.

Essity's Code of Conduct describes how employees are to act, how the company does business, stakeholder expectations of Essity and Essity's commitment to human rights. The Code is based on international standards such as the United Nations Guiding Principles on Business and Human Rights (UNGP), the ILO Core Conventions, the OECD Guidelines for Multinational Enterprises, the UN Global Compact Principles and related legislation.

All of Essity's wholly owned subsidiaries are bound by the Code of Conduct. Essity expects its joint-venture companies to implement a Code of Conduct and guidelines equivalent to those stipulated in Essity's Code. To ensure that all of Essity's employees comply with the Code of Conduct, it is included in all onboarding programs throughout the company. Essity also has the target of all new employees receiving training in the Code when they join the company. In addition to general training, there is a program for compliance with competition rules, which is compulsory for employees in particularly exposed positions. To address corruption risks, Essity has an anti-corruption program that includes control documents, training programs, third-party audits and risk analyses. Essity's Compliance & Ethics department is responsible for the Code of Conduct training program and for the anti-corruption program.

All of our suppliers and other business partners are expected to follow principles equivalent to those included in the company's Code of Conduct. Essity also has a Global Supplier Standard to routinely promote responsible business operations and respect for human rights in the company's supply chain. This standard contains requirements concerning quality, product safety, the environment and chemicals. It also contains a Code of Conduct for Suppliers that includes Essity's expectations as regards human rights and employee relations as well as health and safety. Compliance with these principles is a key factor in the selection of business partners.

Risk analysis

Essity conducts regular assessments and analyses of risks related to human rights, which comply with the UNGP. Corruption risks are followed up and analyzed regularly within the scope of the anti-corruption program.

Risk analyses are based partly on assessments carried out by Transparency International and the Supplier Ethical Data Exchange (Sedex) tool. Essity's own wholly owned plants and global and regional strategic suppliers of raw materials and finished products in locations defined by Sedex as high-risk countries are audited with a focus on health and safety, human rights, employment conditions and corruption.

Compliance and monitoring

Systematic activities, such as audits and other monitoring processes, take place to ensure compliance. Compliance with the Code of Conduct and Essity's business practice is ensured by audits conducted by the Internal Audit unit. The operations to be audited are determined by such factors as a country's social

and environmental risks, the outcome of the self-assessments in Sedex and indications of non-compliance with Essity's policies or information from Essity's management teams. The content of the audits emanates from Essity's Code of Conduct and the methods are based on the SA8000 standard. The audits are conducted by cross-disciplinary teams from Essity, and include representatives from the Internal Audit, Human Resources and Sourcing functions. The audits involve a review of documentation, inspection of the facility with a focus on health and safety, and interviews with managers, employees and union representatives. Every audit result in a report and action plan, which are followed up. The results of the audits are reported to Essity's Board via the Audit Committee.

Essity encourages an open and honest culture in which all employees can report suspicions of violations of the Code or laws in good faith. Essity offers its employees a number of internal channels to report violations of legislation or the Code of Conduct. All Essity employees have the opportunity to use a whistleblower system managed by an external party. Where permitted by law, there is the possibility of reporting breaches anonymously. Essity's Compliance & Ethics department receives all incoming reports from the whistleblower system. Reports are presented to Essity's Compliance Council.

Essity requires its suppliers to conduct self-assessments on labor standards, the environment, business ethics as well as health and safety through the Sedex database. Purchases from suppliers in countries classified as high risk are audited specifically with a focus on parameters such as human rights and employment conditions. An ethical audit can also be triggered by other indicators such as a low rating in Sedex or a low score in Essity's supplier audit. Essity's own wholly owned plants that have conducted self-assessments in Sedex are available to Essity's customers who are also part of Sedex.

Essity's stakeholders often have specific questions about how we conduct our business. Essity has developed positions in the form of position papers in which the company states its views on key topics. These are available at essity.com/sustainability.

Read more about Essity's results

H2. Business ethics page 119
H7. Supply chain and human rightspage 121

Materiality analysis

Every second year, Essity conducts a survey of our sustainability work among our stakeholders. This is used as a basis for our materiality analysis, together with continuous dialogue in various forms with our stakeholders. The analysis provides insight into the subject areas our stakeholders consider to be material. The result is part of supporting documentation in Essity's strategy work.

The latest survey was conducted in 2019 and the result showed increased interest in topics such as climate change and waste/ circularity as well as plastics. These topped the list, together with innovation and business ethics, which remain the topics that the stakeholders consider most important.

The selection of subject areas to be included in the materiality analysis was guided by employees from different parts of the company. This was done so that the selected areas would be relevant regardless of who responded to the survey. Various frameworks and policy documents such as the Global Reporting Initiative (GRI), the UN Global Compact and Essity's Code of Conduct also formed the basis for the selected areas. The survey covered 21 topics, all of which are important to Essity. Most remained unchanged from previous years so as to facilitate analysis and comparison over time. A number of the subjects were reformulated to cover a larger area. A few of them are new.

Last year's web-based survey yielded approximately 900 responses from customers, consumers, suppliers, investors, analysts, media representatives, community representatives, decision-makers and employees. The respondents were able to select the ten topics they considered most important for Essity. The stakeholders' prioritization of these topics was grouped together with responses from Essity's senior management, whose priorities correspond to the company's business strategy.

The results are presented in the graph below. The X axis shows the responses from all stakeholders except Essity's senior management, whose responses are shown on the Y axis. The responses from the stakeholder groups were weighted to provide an accurate view of the results. The topics are numbered according to how high they were ranked in the survey. There is also a reference to where you can find more information in this year's Annual and Sustainability Report.

A comprehensive account of all topics in the survey can be found at essity.com/sustainability.

Essity's materiality analysis

The stakeholders' ranking of the subject areas

		Read more on pages
1	Innovation	4, 17, 45, 120
2	Climate change	7, 11, 21, 36, 42–43, 47, 123–124
3	Business ethics	38, 50, 119–122
4	Waste/circularity and plastics	36, 46–47, 124–125
5	Transparency	133–134
6	Safe products	45, 121
7	Customer and consumer satisfaction	38, 45, 121
8	Water	21, 36, 47, 125
9	Health, well-being and equality	21, 45, 48, 126–127
	10 Human capital	14, 20, 48–49, 126
	11 Human rights	38, 48, 50, 119–120
	12 Fiber sourcing	20, 46, 122
	13 Brands	1, 24–29
	14 Corporate governance	52–61
	15 Efficient supply chain	19, 121–122
	16 Market positions	11–13
	17 Risk management	36–41
	18 Digitalization	6, 14, 18
	19 Distribution and accessibility	16, 44, 47, 124
	20 Tax	85–86
	21 Cyber and information security	39

Corporate governance

The task of corporate governance is to ensure the company's commitments to all of its stakeholders: shareholders, customers, suppliers, creditors, society and employees. It must be structured in a way that supports the company's long-term strategy, market presence and competitiveness. Corporate governance shall be reliable, clear, simple and business-oriented. This Corporate Governance Report forms part of the Board of Directors' Report for Essity's 2020 Annual and Sustainability Report. The report has been reviewed by the company's auditors.

Corporate governance, pages 52–57 This section describes applicable regulatory rules and regulations for the Group's corporate governance and the company's management structure and organization. It details the Board of Directors' responsibilities and its work during the year. It also contains a description of Essity's internal control with regard to financial reporting. Essity applies the Swedish Code of Corporate Governance without any deviations

(www.corporategovernanceboard.se).

Risk management, pages 36–43

Essity's processes to identify and manage risks are part of the Group's strategy work and are pursued at a local and Groupwide level. The section dealing with risk management describes the most significant risks and measures taken to eliminate or limit these risks.

Sustainability, pages 36–51 and 119–127

Essity's sustainability work is an integral part of the company's business model. The company's statutory sustainability report forms part of the Board of Directors' Report. The sustainability work helps reduce risks and costs, strengthen competitiveness, attract new employees and investors, and contributes toward a more sustainable world.

Governance at Essity

1. Shares and shareholders

Essity has engaged Euroclear Sweden AB to maintain the company's shareholders' register. On December 31, 2020, Essity had 108,856 shareholders according to the shareholders' register. The five largest shareholders in terms of voting rights on this date were AB Industrivärden (29.3%), AMF Insurance and Funds (7.3%), Norges Bank Investment Management (6.8%), MFS Investment Management (2.7%) and Swedbank Robur Funds (2.1%). Essity has two listed classes of shares: Class A and Class B shares. Every Class A share represents ten votes while every Class B share represents one vote. There are no other restrictions relating to voting rights in respect of shares used by shareholders at the general shareholders meeting. The two share classes carry the same entitlement to the company's assets and profits. Furthermore, according to the Articles of Association, owners of Class A shares are entitled to request conversion of their Class A shares to Class B shares. Essity holds no treasury shares.

2. General shareholder meeting

The general shareholder meeting is Essity's highest decision-making body, which all of the company's shareholders are entitled to attend, to have a matter considered and to vote for all shares held by the shareholder. The company's Board of Directors and auditor are elected at the Annual General Meeting (AGM). The AGM also resolves on the remuneration of the Board members, determines guidelines for the remuneration of senior executives and, as of the 2021 AGM, approves the Board's annual remuneration report.

3. Nomination Committee

Shareholders appoint members of the Nomination Committee at the AGM, or stipulate how the members shall be appointed. The Nomination Committee represents the company's shareholders. A majority of the members shall be independent of the company and corporate management. The President and other members of corporate management may not be a member of the Nomination Committee. The main duty of the Nomination Committee is to prepare and present proposals for the AGM's resolutions with respect to election and remuneration matters.

4. External auditors

The company's auditor is elected at the AGM and is responsible for reviewing Essity's annual report and consolidated financial statements and the Board's and President's administration. The auditor conducts a limited review of the company's sustainability report. The auditor submits audit reports from this review. The auditor also submits a statement concerning compliance with the company's guidelines for remuneration of senior executives. The audit is performed in accordance with the Swedish Companies Act, International Standards on Auditing (ISA) and generally accepted auditing principles in Sweden.

5. Board of Directors

The Board of Directors has overall responsibility for the Company's organization and administration. This responsibility is fulfilled, inter alia, through regular monitoring of the business and by ensuring the appropriateness of the organization, including the management team, and by issuing guidelines and reporting from internal control. The Board approves strategies and targets, and decides on major investments, acquisitions and divestments of operations, among other matters. Furthermore, the Board annually prepares a report on the remuneration that has been paid or is pending payment in accordance with the remuneration guidelines decided by the AGM. The Board of Directors comprises nine members elected by the shareholders at the 2020 AGM. According to the Articles of Association, the Board of Directors is to consist of not less than three and not more than twelve members elected by the AGM. The Board of Directors also includes three employee representatives with deputies, who are appointed by the respective employee organizations under Swedish law.

Essity's Articles of Association contain no provisions regarding appointment or dismissal of Board members or amendments to the Articles. The general shareholder meeting has not delegated to the Board to resolve to issue new shares or to repurchase own shares.

Chairman of the Board

The Chairman of the Board leads the work of the Board and is responsible for ensuring that it is effectively organized and that work is efficiently conducted. This includes continuous monitoring by the Chairman of the company's operations in close dialogue with the President and ensuring that other Board members receive information and decision data that will enable high-quality discussion and decisions by the Board. The Chairman leads the assessment of the Board's and the President's work. The Chairman also represents the company in ownership matters.

6. Audit Committee

The role of the Audit Committee is to monitor the company's financial reporting and provide recommendations and proposals to ensure the reliability of reporting. With regard to the financial reporting, the Committee overseas the effectiveness of the company's internal control, internal audit and risk management. The Audit Committee keeps itself continuously informed about the audit of the annual report and consolidated financial statements and where applicable about the conclusions of the quality control by the Swedish Inspectorate of Auditors concerning the company's external auditor. The Committee receives and addresses the supplementary report to the audit report concerning the conducted audit that the auditor submits in accordance with the EU Audit Regulation. The Audit Committee informs the Board of its observations and the results of the audit. The Audit Committee also examines and monitors the impartiality and independence of the auditor. In respect to this, particular attention is paid to whether the auditor is providing the company with services other than auditing services. The Committee also assesses the work of the auditor and provides proposals to the company's Nomination Committee concerning the appointment of auditor for the following mandate period. Members of the Audit Committee are not employed by the company and at least one member has accounting or auditing expertise.

7. Remuneration Committee

The Remuneration Committee drafts the Board's motions on issues relating to remuneration principles, remuneration and other terms and conditions of employment for the President and is authorized to make decisions in these matters for the company's other senior executives. The Committee monitors and assesses programs for variable remuneration, the application of the AGM's resolution on guidelines for remuneration of senior executives and evaluates the applicable remuneration structure and remuneration levels in the Group. The Remuneration Committee also prepares the annual remuneration report.

8. Internal audit

The internal audit assists the Group in improving and protecting the organization's value through a risk-based, independent and objective assurance and consultancy services. The internal audit reports to the Audit Committee and the Board in relation to internal audit issues. The internal auditors are geographically located throughout the world where Essity conducts operations. The internal audit examines, among other aspects, Essity's internal processes for sales, sourcing, financial reporting, IT systems, information security, HR issues, sustainability, various types of projects and compliance with Essity's internal rules, including the company's Code of Conduct. The internal audit also provides investigations and consultancy services in connection with internal control matters and risk management.

9. President and Executive Management Team

Essity's President and CEO is responsible for and manages the dayto-day administration of the Group and follows the Board's guidelines and instructions. The President and CEO is supported by the Executive Management Team, see pages 60–61, the work of which he leads. The Executive Management Team comprises the President, four Group Function Senior Vice Presidents, four Business Unit Presidents and the Presidents of the three global units. The working procedures for the Board of Directors and terms of reference issued by the Board of Directors to the President detail, for example, the division of work between the Board and President. In consultation with the Chairman and Secretary of the Board, the President prepares documentation and decision data for the Board's work.

10. Business units and global units:

Business units:

• Consumer Goods, markets and sells products in the categories of consumer tissue, baby care and feminine care in Europe, the Middle East and Africa.
• Health and Medical Solutions, markets and sells products in the categories of incontinence products in Europe, North America, the Middle East and Africa and produces, markets and sells products in medical solutions in Asia, Europe, North America, the Middle East and Africa.
• Latin America, markets and sells products in the categories of consumer tissue, baby care, incontinence products, medical solutions, feminine care and professional hygiene in Latin America.
• Professional Hygiene, markets and sells complete hygiene solutions to its business area's customer segments in Europe, North America, the Middle East and Africa.

Global units:

• Global Brand, Innovation and Sustainability has global responsibility for customer and consumer brands, innovation and sustainability and public affairs.
• Global Manufacturing has global responsibility for production and technology concerning all product categories with the exception of medical solutions.
• Global Operational Services has global responsibility for sourcing, logistics, business services, IT and digitalization.

Essity's business units and global units adhere to the principle of distinct decentralization of responsibility and authority. The business units and the global units have a delegated responsibility for managing and developing their respective operations through established objectives and strategies, a process that is also centrally coordinated. The business units are responsible for their operating results, capital and cash flow. The business and earnings position is followed up by the entire Executive Management Team on a monthly basis. Each quarter, business review meetings are conducted during which the management of each business unit personally meets with the President and the CFO. These meetings function as a complement to the daily monitoring of operations. Through working procedures and terms of reference, a number of issues of material significance are placed under the control of the CEO and the company's Board of Directors. Essity reports its operations according to three business areas: Personal Care, Consumer Tissue and Professional Hygiene.

11. Group functions

Essity has four Group functions: Communications, Finance, HR and Legal Affairs. These functions have Group-wide responsibility for matters within their respective fields of responsibility, and coordinate with the corresponding functions in the respective business area.

Rules and regulations

Certain internal rules and regulations

• Articles of Association
• Working procedures of the Board of Directors, including instructions for the Audit Committee and the Remuneration Committee
• Terms of reference issued by the Board to the President
• Code of Conduct
• Policy documents and instructions (in areas such as finance, human resources, sustainability, internal control, communication, pension and risk management as well as for specific issues, such as the processing of personal data, insider issues, conflicts of interest, competition law, corruption and diversity)

Certain external rules and regulations

• The Swedish Companies Act
• The Swedish Annual Accounts Act
• International Financial Reporting Standards (IFRS)
• EU Market Abuse Regulation (MAR)
• Nasdaq Stockholm's rules for issuers
• Swedish Code of Corporate Governance

Compliance with stock market regulations

• Essity complies with rules that apply in Sweden for listed companies and was not sanctioned by Finansinspektionen, the stock exchange's disciplinary board or any other authority or self-regulating body for violations of the rules concerning the stock market.

More detailed information about Essity's corporate governance is available on www.essity.com

• Articles of Association
• Swedish Code of Corporate Governance
• Information from the Nomination Committee ahead of the 2021 Annual General Meeting (composition, proposals and work)
• Other information ahead of the 2021 Annual General Meeting (notice, Board report on application of guidelines for remuneration of senior executives, information about routines for notifying attendance and advance voting, etc.).

Activities during the year

Annual General Meeting

Essity held its AGM in Stockholm on Thursday, April 2, 2020. The AGM elected the company's Board of Directors. Moreover, the Meeting resolved – in accordance with the Board of Director's proposal – to withhold its decision on a dividend for 2019 on account of the uncertainty arising from the effects of the COVID-19 pandemic. Finally, guidelines for remuneration of senior executives and the President were adopted, see page 56 and Note C2 on pages 87–89.

Extraordinary General Meeting

Essity held an Extraordinary General Meeting on Wednesday, October 28, 2020. Pursuant to the Swedish Act (2020:198) regarding Temporary Exemptions to Facilitate the Execution of General Meetings, the Meeting was held through postal voting only.

The Meeting addressed the Board's proposal regarding payment of a dividend of SEK 6.25 per share. The Meeting resolved in accordance with the Board's proposal.

Nomination Committee

The Nomination Committee of Essity is tasked with making proposals to the AGM in respect of the election of the Chairman of the Meeting, Board of Directors, Chairman of the Board and auditor, remuneration of each Board Member (divided between the Chairman of the Board and other Board Members), remuneration of the auditor and, where applicable, proposals for amendments to the instruction for the Nomination Committee. At the 2020 AGM, the following instructions to the Nomination Committee were adopted to apply until further notice:

"The Nomination Committee is to comprise representatives of the four largest shareholders, who express a wish to take part in the Nomination Committee, in terms of voting rights as per the shareholders' register maintained by the company on the final banking day of August, as well as the Chairman of the Board, who also convenes the first meeting of the Nomination Committee. The member representing the largest shareholder in terms of votes is to be appointed as Chairman of the Nomination Committee. The Chairman of the Board shall not be Chairman of the Nomination Committee. If necessary, due to subsequent ownership changes, the Nomination Committee is entitled to call on one or two additional members from among the next largest shareholders in terms of voting rights. The total number of members shall be not more than seven. In the event that a member steps down from the Nomination Committee before the task is completed and the Nomination Committee decides it would be beneficial for a replacement to be appointed, such a replacement is to be appointed by the same shareholder or, if this shareholder is no longer among the largest shareholders in terms of voting rights, by the next largest shareholder in terms of voting rights. Changes to the composition of the Nomination Committee are to be disclosed immediately.

Nomination Committee for the 2021 AGM

Member	Representative of	Votes as of August 31, 2020 (%)
Helena Stjernholm, Chairman	AB Industrivärden	29.7
Jonas Jølle	Norges Bank Investment Management	7.0
Anders Oscarsson	AMF and AMF Funds	5.4
Marianne Nilsson	Swedbank Robur Funds	1.9
Pär Boman	Chairman of the Board

The composition of the Nomination Committee is to be announced by Essity no later than six months prior to the AGM. No remuneration is to be paid to the members of the Nomination Committee. Any expenses incurred during the work of the Nomination Committee are to be paid by Essity. The mandate period of the Nomination Committee extends until the composition of the next Nomination Committee is disclosed. The Nomination Committee is to submit proposals relating to the Chairman of the Meeting, the Board of Directors, the Chairman of the Board, Board fees for the Chairman of the Board and each of the other Board members, including remuneration for committee work, the company's auditor and auditor's fees and, to the extent deemed necessary, proposals for amendments to this instruction."

In its work, the Nomination Committee is to consider the rules that apply to the independence of Board members, as well as the requirement of diversity and breadth with the endeavor to achieve an even gender distribution and that the selection shall be based on expertise and experience relevant to Essity.

All shareholders have had an opportunity to submit proposals to the Nomination Committee. The Nomination Committee's proposal for the 2021 AGM is presented in the notice convening the AGM available on Essity's website www.essity.com. The 2021 AGM will be held on Thursday, March 25, see page 10.

The Nomination Committee was convened on seven occasions prior to the 2021 AGM. The Chairman of the Board presented the Board evaluation and provided the Nomination Committee with information regarding Board and committee work during the year. When preparing proposals for the Board for the 2021 AGM, particular attention has been paid to the issues of diversity and an even gender distribution, and the Nomination Committee thus applied Item 4.1 of the Swedish Corporate Governance Code as its diversity policy. When preparing its proposal for the election of auditors, the Nomination Committee also gave consideration to the recommendation of the Audit Committee.

Board of Directors and composition of the Board of Directors

Essity's Board of Directors comprises nine members elected by the AGM.

Ewa Björling, Pär Boman, Maija-Liisa Friman, Annemarie Gardshol, Magnus Groth, Bert Nordberg, Louise Svanberg, Lars Rebien Sørensen and Barbara Milian Thoralfsson were elected as Board members in 2020. Pär Boman was elected as the Chairman of the Board.

The independence of Board members is presented in the table below. Essity complies with the requirements of the Swedish Corporate Governance Code that stipulate that not more than one member elected by the AGM shall be a member of corporate management, that the majority of the members elected by the AGM shall be independent of the company and company management, and that not fewer than two of these shall also be independent of the company's major shareholders. All of the AGM-

elected Board members have experience of the requirements incumbent upon a listed company. Five of the Board members are women, corresponding to 55% of the total number of AGMelected Board members. The employees have appointed Susanna Lind (formerly Naumanen), Örjan Svensson and Niclas Thulin as representatives to the Board for the period until and including the 2021 AGM, and their deputies Niklas Engdahl, Martin Ericsson and Andreas Larsson.

The AGM-elected Board members have broad international experience from various cultural and geographic areas and wide-reaching expertise and experience of relevance to Essity's areas of business and products. Accordingly, the Board has – with reference to the company's business, stage of development and general situation – a suitable composition. In addition, the Board of Directors and its committees have an even gender distribution.

Board activities

The Board was convened 12 times, primarily in the form of virtual meetings due to COVID-19. The Board has fixed working procedures that describe in detail which ordinary agenda items are to be addressed at the various Board meetings of the year. Recurring agenda items are finances, the market situation, sustainability issues, investments and adoption of the financial reports. The Board also establishes and evaluates the company's overall targets and strategy and decides on significant internal rules. Another key task is to continuously monitor the internal control of the compliance of the company and its employees with relevant internal and external rules, and that the company has well-functioning procedures for market disclosures. On a regular basis throughout the year, the Board has also dealt with reports from the Audit and Remuneration Committees and reports on strategy, market, internal audit, internal control and financial operations. The company's auditor regularly presents a report on its audit work and these issues are discussed by the Board. The Business Unit Presidents present their respective operations and current issues affecting them.

In 2020, in addition to customary Board work, the Board of Directors had a strong focus on digitalization and sustainability, and closely monitored developments in light of the COVID-19 pandemic and its general impact on the company and, in particular, the markets where the company is active. The Board also focused on strategy work during the autumn.

Evaluation of the Board's work

The work of the Board, like that of the President and the Chairman, is evaluated annually using a systematic and structured process. The purpose of this work is to obtain a sound basis for the Board's own development work and to provide the Nomination Committee with decision data for its nomination work. External expertise was used. The evaluation took the form of an anonymous questionnaire and interviews as well as group and

Board of Directors and committees

					Attendance1)
Elected	Dependence	Audit Committee	Remuneration Committee	Board of Directors (12)	Audit Committee (6)	Remuneration Committee (3)
2016				12/12
2016		x	Chairman	12/12	6/6	3/3
2016				11/12
2016				12/12
2016				12/12
2016		x	x	12/12	6/6	3/3
2016			x	11/12		3/3
2017				12/12
2016		Chairman		12/12	6/6
				Committees

1) Board meetings January 1–December 31, 2020.

= Dependent in relation to the company's major shareholder, AB Industrivärden.

= President of Essity, dependent in relation to the company and corporate management.

individual discussions. The evaluation covers such areas as the Board's methods of work, effectiveness, expertise and the year's work. The Board was provided with feedback after the results were compiled. The Nomination Committee was also informed of the results of the evaluation.

Audit Committee

The Audit Committee comprises Chairman Barbara Milian Thoralfsson, Pär Boman and Bert Nordberg. The Audit Committee held six meetings during the year. In addition, members have also held meetings with internal audit, the auditors and the CFO. In its monitoring of the financial reporting, the Committee dealt with relevant accounting issues, internal auditors' reviews, auditing work, a review of various measurement issues, such as testing of impairment requirements for goodwill, and the preconditions for the year's pension liability calculations. The Audit Committee also prepared a recommendation to be used by the Nomination Committee when deciding on its proposal to the AGM regarding the election of auditors.

Remuneration Committee

The Remuneration Committee comprises Chairman Pär Boman, Bert Nordberg and Louise Svanberg. The Remuneration Committee held three meetings in 2020. Activities mainly concerned remuneration and other employment terms and conditions for senior executives, and current remuneration structures and remuneration levels in the Group. In addition, the Committee prepared the Board's remuneration report relating to remuneration of senior executives taking into account new legislative requirements.

Internal audit

The basis of the work of the internal audit is a risk analysis based on external and internal information carried out in close dialogue with management teams at Essity. The risk analysis forms the basis of an audit plan, which is presented to the Audit Committee together with the risk analysis. In 2020, 91 audit projects were performed and reported at meetings with the Audit Committee.

Work in 2020 involved follow-up of the units' progress with process-based control, efficiency in internal governance and control, major investments, information security, sustainability and compliance with Essity's policies.

External auditor

The 2020 AGM appointed the accounting firm of Ernst & Young AB as the company's auditor for a mandate period of one year. The accounting firm notified the company that Hamish Mabon, Authorized Public Accountant, would be the auditor in charge. Hamish Mabon is also the auditor for SEB, Skanska AB, Assa Abloy AB and Husqvarna AB. He owns no shares in the company.

In accordance with its formal work plan, the Board met with the auditor at three scheduled Board meetings in 2020. The auditor also attended each meeting of the Audit Committee. At these meetings, the auditor presented and received opinions on the focus and scope of the planned audit and delivered verbal audit and review reports. Furthermore, at the Board's third scheduled autumn meeting, the auditor delivered an in-depth verbal report on the audit for the year. The working procedures specify a number of mandatory issues that must be addressed. These include matters of importance that have been a cause for concern or discussion during the audit, business routines and transactions where differences of opinion may exist regarding the choice of accounting methods. The auditor shall also disclose consultancy work conducted for Essity as well as other dependencies in relation to the company and its management. On each occasion, Board members have had an opportunity to ask the auditors questions. Certain parts of the detailed discussion on the accounts take place without representatives of corporate management being present.

Remuneration, Management and Board of Directors

Guidelines

The 2020 AGM adopted new guidelines for remuneration of senior executives that are based on a total remuneration package comprising a fixed salary, variable compensation and other benefits, and a pension, see Note C2 on pages 87–89. The guidelines are adapted to the new legal provisions on remuneration to senior executives and changes in the Swedish Corporate Governance Code that took effect on January 1, 2020.

Remuneration of the President and other senior executives

Remuneration of the President and other senior executives is presented in a separate remuneration report, which is available on the company's website and on pages 136–137. Furthermore, remuneration of the President and other senior executives is described in Note C2 on pages 87–89.

Remuneration of the Board

The total remuneration of the AGM-elected Board members amounted to SEK 9,010,000 in accordance with the AGM's resolution. See Note C3 on page 89 for further information.

Internal control and financial reporting

The Board's responsibility for internal governance and control is regulated in the Swedish Companies Act, the Annual Accounts Act and the Swedish Corporate Governance Code. The Annual Accounts Act requires that the company, each year, describes its system for internal control and risk management with respect to financial reporting. The purpose of these requirements is to create an internal framework for governance and control to reduce the risk of error in the financial reporting. Essity's processes for internal control of financial reporting is based on the model and principles developed by the Committee of Sponsoring Organisations of the Treadway Commission (COSO).

Control environment

A good control environment requires clarity in relation to decision-making paths, powers and accountability, in addition to a corporate culture characterized by strong values and awareness among employees of their role in maintaining good internal control. The Board of Directors has the overall responsibility for ensuring effective internal control and has, inter alia, adopted Group-wide internal rules aimed at establishing a foundation for a good corporate culture and to assure the quality of the financial reporting. In this context, Essity's Code of Conduct is an important steering document in issues concerning ethics, morality and regulatory compliance, and employees regularly receive information and training regarding the Code. Other significant steering documents for the control environment include the finance policy, internal control policy, communications policy and information security policy. Essity's Financial Reporting Manual is particularly important for the Group's financial reporting procedures as it contains a number of specific instructions and guidelines that are specially designed to ensure the quality of the financial reporting. Important steering documents are published in a separate database (Global Management System, GMS) that also contains a process for annual updates to the documents.

Risk assessment

Risks relate to material errors in the financial reporting that may arise, such as incomplete disclosures, valuation issues, the reporting process and correctness. Risks also include loss of assets, unduly favoring a third party and misappropriation.

Risks related to the financial reporting are evaluated and monitored by the Board via the Audit Committee, where an annual risk assessment is conducted. The risks that are identified and may result in material errors also form the basis for internal control activities that proactively manage these risks. Clear guidelines for accountability and the division of work also form a component of risk prevention efforts. Furthermore, measures are continuously taken to improve business processes and thus reduce risks.

Control activities

Significant instructions and guidelines related to financial reporting are prepared and updated regularly by the Group Function Finance and are easily accessible on the Group's intranet. The Group Function Finance is responsible for ensuring compliance with instructions and guidelines. Process managers at various levels within Essity are responsible for carrying out the necessary control measures with respect to financial reporting. An important role is played by the business unit's controller organizations, which are responsible for ensuring that financial reporting from each unit is correct, complete and delivered in a timely manner. In addition, each business unit has a Finance Manager with responsibility for the individual business unit's financial reporting. The company's control activities are supported by the budgets prepared by each

business unit and updated during the year through continuous forecasts.

Essity has a standardized system of control measures involving processes that are significant to the company's financial reporting. These measures include company-wide controls related to the Code of Conduct, process controls and IT controls. Sell-assessments are carried out based on a selection of critical controls for the respective operations in order to assess the effectiveness of the internal control and governance.

Information and communication

Financial reporting to the Board

The Board's working procedures stipulate which reports and information of a financial nature are to be submitted to the Board at each scheduled meeting. The President, together with the Chairman, ensures that the Board receives the reports required to enable the Board to continuously assess the company's and Group's financial position. Detailed instructions specifically outline the types of reports that the Board is to receive at each meeting.

Internal reporting

Ahead of each interim report, the company's finance department prepares detailed instructions regarding deadlines, changes to accounting policies and other circumstances of significance for reporting to ensure the quality of the financial statements. Furthermore, the company has a process and technical system support to limit the risk of price-sensitive information being leaked in conjunction with the submission of financial information ahead of the issue of interim reports.

Accounting and reporting for the majority of units is carried out by Essity's Shared Service Center, which ensures efficient and uniform reporting.

External financial reporting

The quality of external financial reporting is guaranteed via a number of actions and procedures. The President is responsible for ensuring that all information issued, such as press releases with financial content, presentation material for meetings with the media, owners and financial institutions, is correct and of a high quality. The responsibilities of the company's auditors include reviewing accounting issues that are critical for the financial reporting and reporting their observations to the Audit Committee and the Board of Directors. In addition to the audit of the annual accounts, a review of the half-year report and of the company's administration and internal control is carried out.

Monitoring activities

Essity's Board of Directors, through the Audit Committee, as well as the corporate management continuously assesses the effectiveness of the processes applied by the company with respect to the internal control of the financial reporting. Of particular importance to this assessment are the reports submitted by the internal audit and feedback from the company's external auditor.

The company has a structured process within the scope of its day-to-day operations for monitoring significant observations from internal control or internal audit. Such observations and the status of measure taken to address these are regularly reported to corporate management and to the Audit Committee.

The results of the self-assessment in control activities are compiled in a list of activities that require resolution. The internal control and governance department lead these monitoring activities. To ensure the quality of the self-assessment, internal control conducts it own testing of control activities and reports the results to the units, the internal control and governance department, corporate management and the Audit Committee.

The external auditor also carries out testing of internal control and governance within the scope of its audit. The results are shared with corporate management, the internal control and governance department and the Audit Committee.

Board of Directors and Auditors

Elected by the Annual General Meeting

Pär Boman (1961)

Engineering and Business Administration degrees Chairman of the Board since 2016. Chairman of the Board of Svenska Handelsbanken AB and Svenska Cellulosa Aktiebolaget SCA, Deputy Chairman of the Board of AB Industrivärden and member of the Board of Skanska AB. 2006–2015 President of Handelsbanken Elected: 2016

Independent of the company and corporate management.

Own shareholdings and those of related persons, Class B shares: 5,000

Annemarie Gardshol (1967)

MSc Eng.

Member of the Board of Svenska Cellulosa Aktiebolaget SCA. CEO of PostNord and President PostNord Sverige.

Former member of the Boards of Etac AB, Bygghemma AB, Ortivus and Semcon. Former President of PostNord Strålfors Group AB and various management positions in Gambro AB and McKinsey & Company.

Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons, Class B shares: 3,200

Ewa Björling (1961) Med. Dr. Sci. and Associate Professor from Karolinska

Institutet Chairman of the Board of Drivkraft AB and Xolaris AB. Member of the boards of Biogaia AB and Mobilaris AB. Former member of the Boards of the Swedish National

Insurance Office, the Swedish International Development Cooperation Agency (SIDA) and Svenska Cellulosa Aktiebolaget SCA.

Minister for Trade 2007–2014, and Minister for Nordic Cooperation 2010–2014. Previously Karolinska Institutet. Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons: 0

Bert Nordberg (1956)

Engineer

Chairman of the Board of Vestas Wind Systems A/S. Member of the Boards of Svenska Cellulosa Aktiebolaget SCA and SAAB.

Previously held various management positions in Digital Equipment Corp. and Ericsson, President of Sony Mobile Communications AB 2009–2012. Former Chairman of the Boards of Sony Mobile Communications and TDC and member of the Boards of BlackBerry Ltd, Skistar AB, Axis AB and AB Electrolux. Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons, Class B shares: 16,800

Maija-Liisa Friman (1952)

MSc Eng.

Partner of Boardman Oy.

Former Chairman of the Board of Helsinki Deaconess Institute and Ekokem. Vice Chairman of Neste Corporation, member of the Boards of TeliaSonera, Rautaruukki, Metso, Talvivaara Mining Company Plc, Finnair, Svenska Cellulosa Aktiebolaget SCA and Securities Market Association. Former CEO of Aspocomp Group Plc 2004–2007 and President of Vattenfall Oy and Gyproc Oy.

Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons: 0

Louise Svanberg (1958) MSc Econ.

Member of the Boards of Dana Farber Cancer Institute, Boston and CERAS Health, New York. Chairman of the Swedes Worldwide organization.

Previously held various management positions in EF Education First, including President 2002–2008 and Chairman of the Board 2008–2010. Former member of the Boards of Careers Australia Group Ltd and Svenska Cellulosa Aktiebolaget SCA.

Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons, Class B shares: 28,540

Lars Rebien Sørensen (1954) BSc Forestry and MSc Econ.

Chairman of Axcel, Novo Holding A/S and Novo Nordisk Foundation. Member of the Boards of Jungbunzlauer and Thermo Fisher Scientific Inc. Former Deputy Chairman of the Board of Carlsberg A/S, President and CEO of Novo Nordisk 2000–2017. Elected: 2017

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons: 0

Barbara Milian Thoralfsson (1959) MBA, BA

Member of the Board of Hilti AG, G4S Plc and Svenska Cellulosa Aktiebolaget SCA.

Former President of NetCom ASA 2001–2005 and President of Midelfart & Co AS 1995–2000. Former member of the Boards of Cable & Wireless Plc, AB Electrolux, Orkla ASA, Tandberg ASA and Telenor ASA. Elected: 2016

Independent of the company, corporate management and Essity's major shareholders.

Own shareholdings and those of related persons: 0

Magnus Groth (1963)

MBA and MSc ME President and CEO of Essity.

Former President and CEO of SCA 2015–2017, former President of SCA Consumer Goods Europe 2011–2015. President of Studsvik AB (publ) 2006–2011 and SVP of Vattenfall 2001–2005. Former member of the Board of Acando AB and Svenska Cellulosa Aktiebolaget SCA. Elected: 2016

Independent of Essity's major shareholders. Own shareholdings and those of related persons, Class B shares: 57,700

Board members and deputies appointed by trade unions

Susanna Lind (1966)

Operator at Essity Hygiene and Health AB, Falkenberg Member of the Swedish Trade Union Confederation (LO). Appointed: 2019

Own shareholdings and those of related persons: Class B shares: 100

Örjan Svensson (1963)

Andreas Larsson (1989) Employed at Essity Hygiene and Health AB, Gothenburg

Own shareholdings and those of related persons, Class B shares: 1,420

and Cooperation (PTK). Appointed: 2018

Member of the Council for Negotiation

Senior Industrial Safety Representative at Essity Hygiene and Health AB, Edet Bruk, Lilla Edet.

Member of the Swedish Trade Union Confederation (LO). Former member of the Board of Svenska Cellulosa Aktiebolaget SCA.

Appointed: 2017 Own shareholdings and those of related persons, Class B shares: 112

Niclas Thulin (1976) IT Specialist Collaboration & Workplace at Essity Hygiene & Health AB, Gothenburg Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017 Own shareholdings and those of related persons: 0

Deputies

Niklas Engdahl (1980)

Employed at Essity Hygiene and Health AB, Lilla Edet Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017 Own shareholdings and those of related persons: 0

Martin Ericsson (1968)

Employed at Essity Hygiene and Health AB, Falkenberg Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017 Own shareholdings and those of related persons, Class A shares: 200, Class B shares: 200

Auditors

persons: 0

Ernst & Young AB

Senior Auditor: Hamish Mabon, Authorized Public Accountant Own shareholdings and those of related

Secretary to the Board

Mikael Schmidt (1960)

Master of Laws Senior Vice President, Group Function Legal Affairs, General Counsel Employed since: 1992 Own shareholdings and those of related persons, Class B shares: 31,000

Executive Management Team

Magnus Groth (1963) President and CEO MBA and MSc ME Employed since: 2011 Own shareholdings and those of related persons, Class B shares: 57,700

Fredrik Rystedt (1963) CFO and Executive Vice President, Head of Group Function Finance MSc Econ. Employed since: 2014 Own shareholdings and those of related persons, Class B shares: 22,700

Joséphine Edwall Björklund (1964) Senior Vice President, Group Function Communications University Degree in Communications Employed since: 2012 Own shareholdings and those of related persons, Class B shares: 11,110

Pablo Fuentes (1973) President, Latin America MSc, MBA Employed since: 2006 Own shareholdings and those of related persons, Class B shares: 10,077

Donato Giorgio (1973) President, Global Manufacturing MSc Eng. Employed since: 2009 Own shareholdings and those of related persons, Class B shares: 10,665

Ulrika Kolsrud (1970) President, Health and Medical Solutions MSc Eng. Employed since: 1995 Own shareholdings and those of related persons, Class B shares: 8,553

Don Lewis (1961) President, Professional Hygiene MSc Econ Employed since: 2002 Own shareholdings and those of related persons, Class B shares: 3,901

Mikael Schmidt (1960) Senior Vice President, Group Function Legal Affairs, General Counsel and Secretary to the Board Master of Laws Employed since: 1992 Own shareholdings and those of related persons, Class B shares: 31,000

Robert Sjöström (1964) President, Global Operational Services MSc Econ., MBA Employed since: 2009

Own shareholdings and those of related persons, Class B shares: 28,000

Tuomas Yrjölä (1978) President, Global Brand, Innovation and Sustainability MSc Econ Employed since: 2014 Own shareholdings and those of related persons, Class B shares: 8,225

Anna Sävinger Åslund (1969) Senior Vice President, Group Function Human Resources BSc Human Resources Employed since: 2001 Own shareholdings and those of related persons, Class B shares: 7,145

Volker Zöller (1967) President, Consumer Goods BSc BA Employed since: 1994 Own shareholdings and those of related persons, Class B shares: 11,946

Financial statements including notes

Contents

Financial statements, Group
Consolidated income statement IS 64
Consolidated statement of comprehensive income CI 64
Consolidated statement of change in equity EQ 65
Consolidated operating cash flow statement, supplementary disclosure OCF 66
Consolidated cash flow statement CF 67

Auditor's report 129
Consolidated balance sheet BS 69
Correlation between consolidated cash flow statement and operating cash flow statement, supplementary disclosure 68
Change in liabilities attributable to financing activities 68

Non-current assets held for sale 111

Contingent liabilities and pledged assets 112

Transactions with related parties 112

Leases 111

Contents

Group notes
A. Accounting principles and basis of preparation as well as use of alternative performance measures	B. Sales and earnings		C. Employees	D. Operating assets and liabilities		E. Capital structure and financing
pages 70–76	pages 77–86		pages 87–91	pages 92–95		pages 96–104
A1. General accounting princi ples, new accounting rules and basis of preparation 70	B1. Net sales – Revenues from contracts with customers	77	C1. Personnel costs 87	D1. Intangible assets	92	E1. Financial instruments by category and measurement level	96
A2. Use of alternative perfor mance measures 71	B2. Segment reporting	79	C2. Remuneration of senior executives 87	D2. Property, plant and equipment	94	E2. Financial assets, cash and cash equivalents	98
	B3. Operating expenses	84	C3. Fees to Board members in the Parent company during the year 89	D3. Inventories	94	E3. Trade receivables	98
	B4. Auditing expenses	84	C4. Remuneration after comple tion of employment 89	D4. Other current receivables	95	E4. Financial liabilities	99
	B5. Income taxes	85		D5. Other liabilities	95	E5. Liquidity risk	99
				D6. Other provisions	95	E6. Derivatives and hedge accounting	100
						E7. Financial income and expenses	103
						E8. Equity	103

Amounts that are reconcilable to the balance sheet, equity, income statement, statement of comprehensive income, cash flow statement and the operating cash flow statement are marked with the following symbols:

CI Statement of comprehensive income

CF Cash flow statement

OCF Operating cash flow statement

Financial statements, Parent company ...........................113

Parent company income statement Parent company statement of comprehensive income Parent company cash flow statement Parent company balance sheet Parent company statement of change

Contents Contents

in equity

Parent company notes

PC. Parent company notes

pages 114–118, 128

PC1.

Basis for preparation of Parent company's annual accounts 114

PC2. Operating profit/loss 114

PC3.

Income taxes 115

Intangible assets 116

Personnel and Board costs 114 PC4.

PC5.

PC6. Property, plant and equipment 116

PC7.

Participations in subsidiaries 116

Receivables from and liabilities to Group companies 117

PC9. Other current receivables 117

PC10. Financial instruments 117

PC11. Other current liabilities 118

PC12. Share capital 118

PC13.

PC8.

Contingent liabilities and pledged assets 118

PC14. Adoption of the annual accounts 118

PC15. Events after the balance sheet date 118

PC16. Proposed disposition of earnings 128

Group non-financial notes

H.

Notes to Group non-financial information

pages 119–127

H1. General accounting principles	119
H2. Business ethics	119
H3. Innovation	120
H4. Customers and consumers	120
H5. Role in society and community relations	121
H6. Packaging	121
H7. Supply chain and human rights	121
H8. Fiber sourcing	122
H9. Emissions to air: Scope 1 and 2	123
H10. Emissions to air: Scope 3	124
H11. Water	125
H12. Employees	126
H13. Health and safety	127
H14. Certifications	127

F.

F1.

F2.

F3.

F4.

F5. Shares and

F6.

Acquisitions and divestments of Group companies and

Group structure

Group companies 105

controlling interests 106

Joint operations 108

participations 108

other operations 109

Jointly owned Group companies with significant non-

Joint ventures and associated companies 106 G. Other

G1.

G2.

G3.

G4.

Non-current assets held for sale 111

Contingent liabilities and pledged assets 112

Transactions with related parties 112

Leases 111

Group notes Group notes, cont.

E.

E1.

E2.

E3.

E4.

E5.

E6.

E7.

E8.

pages 70–76 pages 77–86 pages 87–91 pages 92–95 pages 96–104 pages 105–110 pages 111–112

Capital structure and financing

Financial instruments by category and

Financial assets, cash and cash equivalents 98

measurement level 96

Trade receivables 98

Financial liabilities 99

Liquidity risk 99

and expenses 103

Equity 103

Derivatives and hedge accounting 100

Financial income

Operating assets and liabilities

Intangible assets 92

Inventories 94

receivables 95

Other liabilities 95

Other provisions 95

Property, plant and equipment 94

D.

D1.

D2.

D3.

D4. Other current

D5.

D6.

A.

measures

A1.

A2.

Accounting principles and basis of preparation as well as use of alternative performance

General accounting principles, new accounting rules and basis of preparation 70

Use of alternative performance measures 71 B. Sales and earnings

B1.

B2.

B3.

B4.

B5.

Net sales – Revenues from contracts with customers 77

Segment reporting 79

Operating expenses 84

Auditing expenses 84

Income taxes 85

C. Employees

C1.

C2.

C3.

C4.

Personnel costs 87

Remuneration of senior executives 87

Fees to Board members in the Parent company during the year 89

Remuneration after completion of employment 89

Consolidated income statement IS

		2020		2019		2018
	Note	SEKm	EURm1)	SEKm	EURm1)	SEKm	EURm1)
Net sales	B1, B2	121,752	11,626	128,975	12,193	118,500	11,565
Cost of goods sold	B3	–82,132	–7,843	–90,876	–8,591	–85,058	–8,301
Items affecting comparability – cost of goods sold	B2, B3	–181	–17	–243	–23	–1,437	–140
Gross profit		39,439	3,766	37,856	3,579	32,005	3,124
Sales, general and administration	B3	–22,088	–2,109	–22,319	–2,110	–20,570	–2,008
Items affecting comparability – sales, general and administration	B2, B3	122	11	–470	–45	62	6
Share of profits of associated companies and joint ventures	B3	94	9	60	6	63	6
Operating profit before amortization of acquisition-related intangible assets (EBITA)		17,567	1,677	15,127	1,430	11,560	1,128
Amortization of acquisition-related intangible assets	B3	–809	–77	–778	–73	–732	–71
Items affecting comparability – acquisition-related intangible assets	B2, B3	–	–	–	–	–69	–7
Operating profit		16,758	1,600	14,349	1,357	10,759	1,050
Financial income	E7	108	10	106	10	91	9
Financial expenses	E7	–1,066	–101	–1,415	–134	–1,248	–122
Profit before tax		15,800	1,509	13,040	1,233	9,602	937
Income taxes	B5	–4,053	–387	–2,828	–268	–1,050	–102
Profit for the period		11,747	1,122	10,212	965	8,552	835
Earnings attributable to:
Owners of the Parent company		10,228	977	9,216	871	7,886	770
Non-controlling interests		1,519	145	996	94	666	65
Earnings per share – owners of the Parent company
Earnings per share before and after dilution effects, SEK		14.56	1.4	13.12	1.2	11.23	1.1
Dividend per share, SEK		6.752)		6.25		5.75
Average number of shares before and after dilution, million		702.3		702.3		702.3

1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.47 (10.58; 10.25) was used.

2) Board proposal.

Consolidated statement of comprehensive income CI

SEKm	2020	2019	2018
IS Profit for the period	11,747	10,212	8,552
Other comprehensive income for the period
Items that will not be reclassified to the income statement
Actuarial gains/losses on defined benefit pension plans	–202	482	–1,036
Fair value through other comprehensive income	3	6	–5
Income tax attributable to components in other comprehensive income	279	52	176
	80	540	–865
Items that have been or may be reclassified subsequently to the income statement
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity	–9	–725	471
Transferred to profit or loss for the period	473	112	–378
Translation differences in foreign operations	–8,092	2,095	2,080
Gains/losses from hedges of net investments in foreign operations	1,504	–168	–122
Other comprehensive income from associated companies	–20	–14	23
Income tax attributable to components in other comprehensive income	–415	179	4
	–6,559	1,479	2,078
Other comprehensive income for the period, net of tax	–6,479	2,019	1,213
Total comprehensive income for the period	5,268	12,231	9,765
Total comprehensive income attributable to:
Owners of the Parent company	4,588	11,006	8,893
Non-controlling interests	680	1,225	872

By operating segment	Net sales			Adjusted EBITA1)
SEKm	2020	2019	2018	2020	2019	2018
Personal Care	46,095	48,340	45,342	7,161	6,746	6,354
Consumer Tissue	50,221	49,904	45,125	8,045	5,321	3,331
Professional Hygiene	25,418	30,731	28,017	3,317	4,463	3,841
Other	18	0	16	–897	–690	–591
Total	121,752	128,975	118,500	17,626	15,840	12,935

1) Excluding items affecting comparability.

Consolidated statement of change in equity EQ

SEKm	Share capital	TE8:1 Reserves	Retained earnings	Equity attributable to owners of the Parent company	Non-controlling interests	Total equity
Value, January 1, 2020	2,350	6,284	45,491	54,125	8,676	62,801
IS Profit for the period			10,228	10,228	1,519	11,747
Other comprehensive income for the period
Items that will not be reclassified to the income statement
Actuarial gains/losses on defined benefit pension plans1)			–203	–203	1	–202
Fair value through other comprehensive income		3		3		3
TE8:2 Income tax attributable to components in other comprehensive income		–1	280	279	–	279
		2	77	79	1	80
Items that have been or may be reclassified subsequently to the income statement
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity		–9		–9		–9
Transferred to profit or loss for the period		473		473		473
Translation differences in foreign operations		–7,252		–7,252	–840	–8,092
Gains/losses from hedges of net investments in foreign operations		1,504		1,504		1,504
Other comprehensive income from associated companies			–20	–20		–20
TE8:2 Income tax attributable to components in other comprehensive income		–419	4	–415		–415
Other comprehensive income for the period, net of tax		–5,701	61	–5,640	–839	–6,479
CI Total comprehensive income for the period		–5,701	10,289	4,588	680	5,268
Private placement to non-controlling interests			33	33	31	64
Divestment of non-controlling interests				–	57	57
Acquisition of non-controlling interests			–1	–1	–1	–2
Transferred to cost of hedged investments		–2		–2		–2
Revaluation effect upon acquisition of non-controlling interests			–1	–1		–1
CF OCF Dividend, SEK 6.25 per share2)			–4,390	–4,390	–453	–4,843
BS Value, December 31	2,350	581	51,421	54,352	8,990	63,342
Value, January 1, 2019	2,350	5,003	39,788	47,141	7,758	54,899
IS Profit for the period			9,216	9,216	996	10,212
Other comprehensive income for the period
Items that will not be reclassified to the income statement
Actuarial gains/losses on defined benefit pension plans1)			479	479	3	482
Fair value through other comprehensive income		6		6		6
TE8:2 Income tax attributable to components in other comprehensive income		–2	54	52	–	52
		4	533	537	3	540
Items that have been or may be reclassified subsequently to the income statement
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity		–725		–725		–725
Transferred to profit or loss for the period		112		112		112
Translation differences in foreign operations		1,869		1,869	226	2,095
Gains/losses from hedges of net investments in foreign operations		–168		–168		–168
Other comprehensive income from associated companies			–14	–14		–14
TE8:2 Income tax attributable to components in other comprehensive income		175	4	179		179
Other comprehensive income for the period, net of tax		1,267	523	1,790	229	2,019
CI Total comprehensive income for the period		1,267	9,739	11,006	1,225	12,231
Private placement to non-controlling interests			2	2	2	4
Divestment of non-controlling interests				–	27	27
Transferred to cost of hedged investments		14		14		14
CF OCF Dividend, SEK 5.75 per share3)			–4,038	–4,038	–336	–4,374
BS Value, December 31	2,350	6,284	45,491	54,125	8,676	62,801

1) Including payroll tax.

2) Dividend of SEK 6.25 per share pertains to owners of the Parent company. For the 2020 fiscal year, the Board of Directors has decided to propose a divided of SEK 6.75 per share to the Annual General Meeting. 3) Dividend of SEK 5.75 per share pertains to owners of the Parent company.

	Share	TE8:1	Retained	Equity attributable to owners of the	Non-controlling	Total
SEKm	capital	Reserves	earnings	Parent company	interests	equity
Value, January 1, 2018	2,350	3,154	36,785	42,289	7,281	49,570
Effect of changed accounting principle IFRS 9			–7	–7		–7
IS Profit for the period			7,886	7,886	666	8,552
Other comprehensive income for the period
Items that will not be reclassified to the income statement
Actuarial gains/losses on defined benefit pension plans1)			–1,038	–1,038	2	–1,036
Fair value through other comprehensive income		–5		–5		–5
TE8:2 Income tax attributable to components in other comprehensive income		1	175	176		176
		–4	–863	–867	2	–865
Items that have been or may be reclassified subsequently to the income statement
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity		471		471		471
Transferred to profit or loss for the period		–378		–378		–378
Translation differences in foreign operations		1,876		1,876	204	2,080
Gains/losses from hedges of net investments in foreign operations		–122		–122		–122
Other comprehensive income from associated companies			23	23		23
TE8:2 Income tax attributable to components in other comprehensive income		5	–1	4		4
Other comprehensive income for the period, net of tax		1,848	–841	1,007	206	1,213
CI Total comprehensive income for the period		1,848	7,045	8,893	872	9,765
Private placement to non-controlling interests			3	3	2	5
Transferred to cost of hedged investments		1		1		1
CF OCF Dividend, SEK 5.75 per share2)			–4,038	–4,038	–397	–4,435
BS Value, December 31	2,350	5,003	39,788	47,141	7,758	54,899

1) Including payroll tax. 2) Dividend of SEK 5.75 per share pertains to owners of the Parent company.

For further information, see Note E8 Equity on page 103.

Consolidated operating cash flow statement, supplementary disclosure OCF

		2020		2019		2018
	Note	SEKm	EURm1)	SEKm	EURm1)	SEKm	EURm1)
IS Net sales		121,752	11,626	128,975	12,193	118,500	11,565
Operating expenses		–97,555	–9,315	–106,416	–10,060	–100,165	–9,776
Operating surplus		24,197	2,311	22,559	2,133	18,335	1,789
Adjustment for non-cash items		456	43	373	35	235	23
Operating cash surplus		24,653	2,354	22,932	2,168	18,570	1,812
Change in
Inventories		–2,207	–211	–194	–18	–1,017	–99
Operating receivables		53	5	–1,949	–184	–344	–34
Operating liabilities		1,344	128	2,502	237	390	38
Change in working capital		–810	–78	359	35	–971	–95
Investments in non-current assets, net		–6,439	–615	–5,707	–540	–6,781	–660
Restructuring costs, etc.		–977	–93	–1,494	–141	–918	–90
Operating cash flow before investments in operating assets through leases		16,427	1,568	16,090	1,522	9,900	967
Investments in operating assets through leases		–409	–39	–451	–43	–	–
Operating cash flow		16,018	1,529	15,639	1,479	9,900	967
Financial items	E7	–958	–91	–1,309	–124	–1,157	–113
Income taxes paid	B5	–3,917	–374	–1,130	–107	–2,466	–241
Other		32	3	8	1	86	8
Cash flow from current operations		11,175	1,067	13,208	1,249	6,363	621
Acquisitions of Group companies and other operations	F6	–747	–71	–143	–13	–694	–68
Divestments of Group companies and other operations	F6	367	35	220	21	68	7
Cash flow from acquisitions and divestments		–380	–36	77	8	–626	–61
Cash flow before transactions with shareholders		10,795	1,031	13,285	1,257	5,737	560
Private placement to non-controlling interests		64	6	4	0	5	0
Dividend to non-controlling interests	E8	–423	–40	–336	–32	–397	–39
Dividend	E8	–4,390	–419	–4,038	–382	–4,038	–394
Net cash flow		6,046	578	8,915	843	1,307	127
Net debt		2020 SEKm	EURm	SEKm	2019 EURm	2018 SEKm	EURm
Net debt, January 12)		–50,940	–4,886	–54,404	–5,294	–52,467	–5,332
Changed opening balance for net debt due to IFRS 16 Leases1)		–	–	–3,786	–358	–	–
Net cash flow1)		6,046	578	8,915	843	1,307	127
Remeasurements to equity1)		–199	–19	488	46	–1,041	–102

Investments in non-operating assets through leases1) –399 –38 –434 –41 – – Translation differences 2,804 108 –1,719 –82 –2,203 13

Net debt, December 312) –42,688 –4,257 –50,940 –4,886 –54,404 –5,294 1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.47 (10.58; 10.25) was used.

2) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.03 (10.43; 10.28) was used for net debt.

Consolidated cash flow statement CF

	2020		2019			2018
Note	SEKm	EURm1)	SEKm	EURm1)	SEKm	EURm1)
Operating activities
IS Operating profit	16,758	1,600	14,349	1,357	10,759	1,050
T:1 Adjustment for non-cash items	7,812	746	8,193	774	7,562	738
	24,570	2,346	22,542	2,131	18,321	1,788
Interest paid	–872	–83	–1,010	–95	–818	–80
Interest received	101	10	105	10	85	8
Other financial items	–205	–20	–420	–40	–408	–39
Change in liabilities relating to restructuring programs, etc.	–1,048	–100	–1,095	–104	–583	–57
Paid tax B5	–3,917	–374	–1,130	–107	–2,466	–241
Cash flow from operating activities before changes in working capital	18,629	1,779	18,992	1,795	14,131	1,379
Cash flow from changes in working capital
Change in
Inventories	–2,207	–211	–194	–18	–1,017	–99
Operating receivables	53	5	–1,949	–184	–344	–34
Operating liabilities	1,344	128	2,502	237	390	38
Cash flow from operating activities	17,819	1,701	19,351	1,830	13,160	1,284
Investing activities
Acquisitions of Group companies and other operations F6	–668	–64	–143	–14	–461	–45
Divestments of Group companies and other operations F6	65	6	5	0	68	7
T:2 Investments in intangible assets and property, plant and equipment	–6,587	–629	–5,908	–559	–6,882	–672
T:2 Paid interest capitalized in intangible assets and property, plant and equipment	–20	–2	–39	–4	–24	–2
Sale of property, plant and equipment	169	16	239	23	134	13
Loans granted to external parties	–54	–5	–62	–6	–	–
Repayment of loans from external parties	–	–	–	–	178	17
Cash flow from investing activities	–7,095	–678	–5,908	–560	–6,987	–682
Financing activities
Private placement to non-controlling interests	64	6	4	0	5	0
Proceeds from borrowings	6,474	618	2,448	231	4,386	428
Repayment of borrowings	–10,100	–964	–11,708	–1,107	–7,295	–711
Dividend to non-controlling interests E8	–423	–40	–336	–32	–397	–39
Dividend E8	–4,390	–419	–4,038	–382	–4,038	–394
Cash flow from financing activities	–8,375	–799	–13,630	–1,290	–7,339	–716
Cash flow for the period	2,349	224	–187	–20	–1,166	–114
Cash and cash equivalents, January 12)	2,928	281	3,008	293	4,107	418
Translation differences in cash and cash equivalents	–295	–8	107	8	67	–11
Cash and cash equivalents, December 312) E2	4,982	497	2,928	281	3,008	293

1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.47 (10.58; 10.25) was used. 2) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.03 (10.43; 10.28) was used.

For information about the Group's liquidity reserve, refer to the Risk and risk management section on page 36.

T:1 Adjustment for non-cash items

2020	2019	2018
7,671	7,529	6,708
–44	24	35
–69	160	–69
–19	128	669
–187	–	–
–	–	–225
–	–	95
–	–	–288
–	–	278
460	352	359
7,812	8,193	7,562

T:2 Investments in intangible assets and property, plant and equipment including paid capitalized interest
SEKm	2020	2019	2018
Measures to raise the capacity level of operations (Strategic capital expenditures)	–2,675	–1,431	–2,424
Measures to uphold capacity level (Current capital expenditures)	–3,932	–4,516	–4,490
Investments through finance leases	–	–	8
Total	–6,607	–5,947	–6,906

Change in liabilities attributable to financing activities

SEKm	Value at January 1	Cash flow	Acquisi tions/ divest ments	Trans lation differ ences	Actuarial gains/ losses	Effect of IFRS 16 Leases	Other changes	Value at December 31
2020
Non-current and current financial liabilities	52,062	–2,655	–205	–3,102	–	–	7901)	46,890
Provisions for pensions including surplus in funded pension plans	3,025	–532	–	3	202	–	–1872)	2,511
Assets for hedging financial liabilities included in cash flow from financing activities	–948	–439	–	–	–	–	–	–1,387
Total Financial liabilities including surplus in funded pension plans attributable to financing activities	54,139	–3,626	–205	–3,099	202	–	603	48,014
2019
Non-current and current financial liabilities	54,327	–8,498	–214	1,793	–	3,786	8683)	52,062
Provisions for pensions including surplus in funded pension plans	4,141	–659	–1	26	–482	–	–	3,025
Assets for hedging financial liabilities included in cash flow from financing activities	–846	–103	–	1	–	–	–	–948
Total Financial liabilities including surplus in funded pension plans attributable to financing activities	57,622	–9,260	–215	1,820	–482	3,786	868	54,139
2018
Non-current and current financial liabilities	54,838	–2,913	231	2,145	–	–	264)	54,327
Provisions for pensions including surplus in funded pension plans	3,393	–420	2	130	1,036	–	–	4,141
Assets for hedging financial liabilities included in cash flow from financing activities	–1,269	424	–	–1	–	–	–	–846
Total Financial liabilities including surplus in funded pension plans attributable to financing activities	56,962	–2,909	233	2,274	1,036	–	26	57,622

1) Other changes 2020 relate to change in accrued interest SEK –18m, change in liability related to financial leases in accordance with IFRS 16 of SEK 808m, of which SEK 409m relates to operating assets and SEK 399m to non-operating assets.

2) Other changes 2020 relate to the impact from settlement of pension liability SEK –187m.

3) Other changes 2019 relate to change in accrued interest SEK –17m, change in liability related to financial leases in accordance with IFRS 16 of SEK 885m, of which SEK 451m relates to operating assets

and SEK 434m to non-operating assets. 4) Other changes 2018 relate to change in accrued interest of SEK 17m and an adjustment for a financial lease liability of SEK 9m.

Correlation between consolidated cash flow statement and operating cash flow statement, supplementary disclosure

SEKm	2020	2019	2018
Cash flow from operating activities
Cash flow from operating activities	17,819	19,351	13,160
Adjustments
Investments in non-current assets, net	–6,439	–5,707	–6,781
Accrued interest	18	17	–17
Investments in operating assets through leases	–409	–451	–
Impact from settlement of pension liability	187	–	–
Other	–1	–2	1
Cash flow from current operations according to consolidated operating cash flow statement	11,175	13,208	6,363
Cash flow from investing activities
Cash flow from investing activities	–7,095	–5,908	–6,987
Adjustments
Investments in non-current assets, net	6,439	5,707	6,781
Loans granted to external parties	54	62	–
Repayment of loans from external parties	–	–	–178
Net debt in acquired and divested companies	205	215	–234
Non-paid financial receivable upon divestment of Group companies	18	–	–
Investments through finance leases	–	–	–8
Other	–1	1	–
Cash flow from acquisitions and divestments according to consolidated operating cash flow statement	–380	77	–626
Cash flow for the period
Cash flow for the period	2,349	–187	–1,166
Adjustments
Repayment of borrowings	10,100	11,708	7,295
Proceeds from borrowings	–6,474	–2,448	–4,386
Loans granted to external parties	54	62	–
Repayment of loans from external parties	–	–	–178
Net debt in acquired and divested operations	205	215	–234
Non-paid financial receivable upon divestment of Group companies	18	–	–
Investments through finance leases	–	–	–8
Investments in operating assets through leases	–409	–451	–
Accrued interest	18	17	–17
Impact from settlement of pension liability	187	–	–
Other	–2	–1	1
Net cash flow according to consolidated operating cash flow statement	6,046	8,915	1,307

Consolidated balance sheet BS

	2020			2019		2018
	Note	SEKm	EURm1)	SEKm	EURm1)	SEKm	EURm1)
ASSETS
Non-current assets
Goodwill	D1	32,324	3,223	34,581	3,316	33,553	3,264
Other intangible assets	D1	18,574	1,852	21,182	2,031	21,475	2,089
Property, plant and equipment	D2	53,631	5,348	56,900	5,457	51,673	5,028
Participations in joint ventures and associated companies	F3	847	84	865	83	777	76
Shares and participations	F5	7	1	8	1	29	3
Surplus in funded pension plans	C4	2,817	281	2,841	273	1,117	109
Non-current financial assets	E2	738	74	694	67	634	62
Deferred tax assets	B5	1,823	182	2,539	244	2,158	210
Other non-current assets	B1	768	76	704	68	705	69
Total non-current assets		111,529	11,121	120,314	11,540	112,121	10,910
Current assets
Inventories	D3	16,383	1,634	15,764	1,512	15,234	1,482
Trade receivables	E3	17,825	1,777	19,864	1,906	18,687	1,818
Current tax assets	B5	760	76	745	71	2,126	207
Other current receivables	D4	2,173	217	2,113	203	2,599	253
Current financial assets	E2	993	99	525	50	422	41
Non-current assets held for sale	G1	–	–	42	4	69	7
Cash and cash equivalents	E2	4,982	497	2,928	281	3,008	293
Total current assets		43,116	4,300	41,981	4,027	42,145	4,101
Total assets		B2 154,645	15,421	162,295	15,567	154,266	15,011
EQUITY AND LIABILITIES
Equity	E8
Owners of the Parent company
Share capital Reserves		2,350 581	234 58	2,350 6,284	225 603	2,350 5,003	229 487
Retained earnings		51,421	5,128	45,491	4,363	39,788	3,871
		54,352	5,420	54,125	5,191	47,141	4,587
Non-controlling interests		8,990	896	8,676	832	7,758	755
Total equity		63,342	6,316	62,801	6,023	54,899	5,342
Non-current liabilities
Non-current financial liabilities	E4	38,202	3,810	43,079	4,131	43,500	4,233
Provisions for pensions	C4	5,328	531	5,866	563	5,258	512
Deferred tax liabilities	B5	6,150	613	6,545	628	7,272	707
Other non-current provisions	D6	445	44	541	52	1,694	165
Other non-current liabilities	D5	105	11	183	18	71	7
Total non-current liabilities		50,230	5,009	56,214	5,392	57,795	5,624
Current liabilities
Current financial liabilities	E4	8,688	866	8,983	862	10,827	1,054
Trade payables		14,791	1,475	15,802	1,516	15,911	1,548
Current tax liabilities	B5	2,301	229	2,432	233	570	55
Current provisions	D6	748	75	1,065	102	1,472	143
Other current liabilities	D5	14,545	1,451	14,998	1,439	12,792	1,245
Total current liabilities		41,073	4,096	43,280	4,152	41,572	4,045
Total liabilities		91,303	9,105	99,494	9,544	99,367	9,669
Total equity and liabilities		154,645	15,421	162,295	15,567	154,266	15,011
Contingent liabilities and pledged assets, see Note G3 on page 112.
Capital employed		106,030	10,573	113,741	10,910	109,303	10,635
Net debt		42,688	4,257	50,940	4,886	54,404	5,294

1) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.03 (10.43; 10.28) was used.

A1. GENERAL ACCOUNTING PRINCIPLES, NEW ACCOUNTING RULES AND BASIS OF PREPARATION

READING INSTRUCTIONS

General accounting principles AP and new accounting rules are presented below. Other accounting principles considered material by Essity are presented in conjunction with the respective note.

Key assessments and assumptions KAA are presented under the respective note, see use of assessments below.

Amounts that are reconcilable to the balance sheet, equity, income statement, statement of comprehensive income, cash flow statement and the operating cash flow statement are marked with the following symbols:

• BS Balance sheet
• EQ Equity
• IS Income statement

CI Statement of comprehensive income

CF Cash flow statement

OCF Operating cash flow statement

Tx:x Reference to table in note

BASIS FOR PREPARATION

Essity's financial statements are prepared in accordance with the Annual Accounts Act and International Financial Reporting Standards (IFRS)/International Accounting Standards (IAS), as adopted within the EU, and the Swedish Financial Reporting Board, Recommendation RFR 1 Supplementary Accounting Rules for Groups. The accounts for both the Group and the Parent company relate to the fiscal year that ended on December 31, 2020. Essity applies the historical cost method for measurement of assets and liabilities except for financial assets and liabilities, including derivative instruments, measured at fair value through profit or loss. Changes in assets and liabilities measured at fair value through profit or loss are recognized either in profit or loss or other comprehensive income.

In December 2018, the EU adopted a directive to complement the Transparency Directive entailing that listed companies in the EU whose securities are admitted to trading on a regulated market must issue a digital annual financial report in an electronic format called ESEF (European Single Electronic Format), which was developed by the European Securities and Markets Authority (ESMA). The regulation requires that the annual financial report be prepared in xHTML and consolidated financial statements prepared in accordance with IFRS must be marked up using XBRL tags.

Originally, the directive was to come into force for fiscal years beginning January 1, 2020 or later. However, on December 11, 2020, the EU approved an amendment that will be made to the Transparency Directive permitting the member states to postpone the introduction by one year. Accordingly, on January 21, 2021, the Swedish government decided to propose a legislative change that enabled deferral of the application of the requirements in the directive by one year. It is proposed that the legislative change come into force on March 15, 2021, but be applied from January 1, 2021.

Essity has chosen to defer the application of the ESEF directive by one year in accordance with the proposed legislative change.

New or amended accounting standards 2020

In this Annual and Sustainability Report, the Group applies the amended accounting standards that came into effect from January 1, 2020. The changes did not have any impact on the Group's financial statements and are not expected to have any material impact moving forward.

IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures

Amendments to IFRS 9 and IFRS 7 were adopted on January 15, 2020 due to the Interest Rate Benchmark Reform. The amendments provide temporary exemptions from applying specific hedge accounting requirements for hedging relationships directly affected by this reform. The exemptions relate to hedge accounting and are to ensure that companies are not required to discontinue the hedging relationships due to uncertainties concerning the reform. At present, the reform primarily impacts Essity's fair value hedges on loans. As a result of the reform, uncertainty regarding the measurement of effectiveness has been eliminated and these hedges are expected to remain effective in the future. For further information concerning derivatives and hedge accounting, see Note E6 Derivatives and hedge accounting on page 100.

New or amended accounting standards after 2020

A number of new and amended accounting standards have not yet come into effect and have not been applied in advance in the preparation of the Group's and the Parent company's financial statements. The Group intends to comply with these new and amended standards when they come into force. These standards and amendments to standards published by IASB are not expected to have any impact on the Group's or the Parent company's financial statements.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform

The amendments address issues that may arise when an existing interest rate benchmark is replaced with an alternative benchmark interest rate and aims to facilitate the transition. The changes also include disclosures related to the transition. Essity is monitoring all changes concerning the development of interest rate benchmarks. The effects on the financial statements are continuously evaluated. The EU approved the change on January 13, 2021 and it came into effect on January 1, 2021. The implementation of the changes is dependent on the development of changes in the transition from Interbank Offered Rates (IBORs) to alternative benchmark interest rates.

USE OF ASSESSMENTS KAA

The preparation of financial statements in accordance with IFRS and generally accepted Swedish accounting principles requires assessments and assumptions to be made that affect recognized assets, liabilities, income and expenses as well as other information disclosed.

These assumptions and estimates are often based on historical experience, but also on other factors, including expectations of future events. With other assumptions and estimates, the result may be different and the actual result will seldom fully concur with the estimated result.

Uncertainty and risks have arisen as a result of the COVID-19 pandemic that may affect Essity's sales, earnings and financial position.

In Essity's opinion, the areas that are impacted the most by assumptions and estimates are:

Taxes, B5 Income taxes, page 85

Pensions, C4 Remuneration after employment, page 89

Goodwill, D1 Intangible assets, page 92

Provisions, D6 Other provisions, page 95

Provision for doubtful receivables, E3 Trade receivables, page 98 Leases, G2 Leases, page 111

Essity's assessments and assumptions are presented in the respective notes.

PRINCIPLES OF CONSOLIDATION

The Group's financial statements include the Parent company and its Group companies, which comprise subsidiaries, joint ventures, associates and joint operations. Group companies are consolidated from the date the Group exercises control or influence over the company according to the definitions and accounting policies provided in Notes F1 Group companies on page 105, F3 Joint ventures and associated companies on page 106 and F4 Joint operations on page 108. Divested Group companies are included in the consolidated accounts until the date the Group ceases to control or exercise influence over the companies. For additional information about accounting policies regarding acquisitions of Group companies and respective non-controlling interests, see Note F6 Acquisitions and divestments of Group companies and other operations on page 109. Intra-Group transactions have been eliminated.

TRANSLATION OF FOREIGN CURRENCY

Functional currency and translation of foreign Group companies to the presentation currency

The functional currency of each Essity Group company is determined on the basis of the primary economic environment in which the respective company is active which, with a few exceptions, is the country in which the individual company operates. Essity's Parent company has Swedish kronor (SEK) as its functional currency. The financial statements of Group companies are translated to the Group's presentation currency, which is also SEK. Assets and liabilities are translated at the closing rate, while income and expenses are translated at the average rate for the respective period. Translation differences during the period on the Group's net assets are recognized in other comprehensive income in the translation reserve as a component of equity.

Exchange rate effects arising from financial instruments used to hedge foreign Group companies' net assets are recognized in the same manner in other comprehensive income in the translation reserve as a component of equity. On divestment, the accumulated translation differences on the foreign Group company and accumulated exchange rate effects on the financial instrument used to currency hedge the net assets in the company are recognized as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising in connection with the acquisition of a foreign Group company are translated from their functional currency to the presentation currency in the same way as the net assets in the company are translated.

TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN CURRENCY

Transactions in foreign currency are translated to a functional currency using the rate prevailing on the transaction date. At the balance sheet date, monetary assets and liabilities in foreign currency are translated at the closing rate and any exchange rate effects are recognized in profit or loss. In cases where the exchange rate effect is related to the operations, the effect is recognized net in operating profit. Exchange rate effects pertaining to borrowing and financial investments are recognized as other financial items. If hedge accounting has been applied, for example, for cash flow hedges or hedging of net investments, the exchange rate effect is recognized in equity in other comprehensive income.

If a financial instrument has been classified as financial assets measured at fair value through comprehensive income, the portion of the value change pertaining to currency is recognized in profit or loss, any other unrealized changes are recognized in equity under other comprehensive income.

GOVERNMENT GRANTS

Government grants are measured at fair value when there is reasonable assurance that the grants will be received and Essity will comply with the conditions attached to them. Government grants related to acquisition of assets are recognized in the balance sheet by the grant reducing the carrying amount of the asset. Government grants received as compensation for costs are accrued and recognized in profit or loss during the same period as the costs. If the government grant or assistance is neither related to the acquisition of assets nor to compensation for costs, the grant is recognized as other income.

A2. USE OF ALTERNATIVE PERFORMANCE MEASURES

Guidelines concerning non-IFRS performance measures for companies with securities listed on a regulated market in the EU have been issued by the ESMA (The European Securities and Markets Authority). These guidelines are to be applied to alternative performance measures not supported under IFRS.

The Annual and Sustainability Report refers to a number of performance measures not defined in IFRS. These performance measures are used to assist investors and company management to analyze the company's operations and objectives. These non-IFRS measures may differ from similar terms used by other companies.

A description of the various non-IFRS performance measures used as a complement to the financial information reported according to IFRS is presented below.

RETURN MEASURES	Return is a financial term that describes how much the value of an asset changes from an earlier point in time
Non-IFRS performance measure	Description			Reason for use of the measure
Return on capital employed, ROCE	Accumulated return on capital employed is calculated as 12-months rolling operating profit before amortization of acquisition-related intangible assets (EBITA) as a percentage of an average of capital employed during the five most recent quarters. The corresponding key figure for a single quarter is calculated as EBITA for the quarter multiplied by four as a percentage of capital employed for the two most recent quarters.		A central ratio for measuring return on capital tied up in operations.
Adjusted return on capital employed, ROCE	for the two most recent quarters.	Accumulated return on capital employed is calculated as 12-months rolling operating profit before amortization of acquisition-related intangible assets (EBITA), excluding items affecting comparability, as a percentage of an average of capital employed during the five most recent quarters. The corresponding key figure for a single quarter is calculated as EBITA for the quarter, excluding items affecting comparability, multiplied by four as a percentage of capital employed		A central ratio for measuring return on capital tied up in operations, excluding items affecting comparability.
SEKm		2020	2019	2018
ADJUSTED RETURN ON CAPITAL EMPLOYED, ROCE
EBITA		17,567	15,127	11,560
Items affecting comparability		59	713	1,375
Adjusted EBITA		17,626	15,840	12,935
Average capital employed		112,473	114,663	107,575
Adjusted return on capital employed, ROCE		15.7%	13.8%	12.0%

CALCULATION OF PERFORMANCE MEASURES NOT INCLUDED IN IFRS FRAMEWORK

CAPITAL MEASURES	Shows how capital is utilized and the company's financial strength
Non-IFRS performance measure	Description	Reason for use of the measure
Return on equity	For the Group, return on equity is calculated as profit for the period as a percentage of average equity.	Shows, from a shareholder perspective, the return that is generated on the owners' capital that is invested in the company.
Adjusted return on equity	For the Group, adjusted return on equity is calculated as profit for the period, excluding items affecting comparability, as a percentage of average equity.	Shows, from a shareholder perspective, the return excluding items affecting comparability that is generated on the owners' capital that is invested in the company.
Equity	The equity reported in the consolidated balance sheet consists of taxed equity Equity is the difference between the Group's assets and liabilities, increased by the equity portion of the Group's untaxed reserves and non which corresponds to the Group's equity contributed by owners controlling interests. The deferred tax liability in untaxed reserves has been and the Group's accumulated profits including the share of calculated on the basis of the corporate tax rate that has been decided to apply associated non-controlling interests. when the reserves are expected to be realized.
Equity per share	Equity in relation to the average number of shares outstanding that exist in A measure of the amount of equity that exists per outstanding share Essity Aktiebolag (publ). and is used for measuring the share against the share price.
Equity/assets ratio	Equity expressed as a percentage of total assets.	A traditional measure for showing financial risk, expressing the percentage of total assets that is financed by the owners.
Capital employed	The Group's and business areas' capital employed is calculated as the balance sheet's total assets, excluding interest-bearing assets and pension assets, less total liabilities, excluding interest-bearing liabilities and pension liabilities.	This measure shows the amount of total capital that is used in the operations and is thus one of the components for measuring the return from operations.
SEKm	2020	2019	2018
CAPITAL EMPLOYED
Total assets	154,645	162,295	154,266
Financial assets	–9,530	–6,988	–5,181
Non-current, non-interest-bearing liabilities	–6,700	–7,269	–9,037
Current, non-interest-bearing liabilities	–32,385	–34,297	–30,745
Capital employed	106,030	113,741	109,303
CAPITAL EMPLOYED
Personal Care	40,505	44,268	41,768
Consumer Tissue	45,283	47,345	44,915
Professional Hygiene	20,915	22,996	22,153
Other	–673	–868	467
Capital employed	106,030	113,741	109,303
Non-IFRS performance measure	Description	Reason for use of the measure
Capital turnover	Net sales for the year divided by average capital employed.	Shows in a clear manner how effectively capital is employed. Together with sales growth and the operating margin, the capital turnover ratio is a key measure for monitoring value creation.
Working capital	The Group's and business areas' working capital is calculated as current operating receivables less current operating liabilities.	This measure shows how much working capital is tied up in the operations and can be put in relation to sales to understand how effectively tied-up working capital is used.
SEKm	2020	2019	2018
WORKING CAPITAL
Inventories	16,383	15,764	15,234
Trade receivables	17,825	19,864	18,687
Other current receivables	2,173	2,113	2,599
Trade payables	–14,791	–15,802	–15,911
Other current liabilities	–14,545	–14,998	–12,792
Other	101	–159	–249
Working capital	7,146	6,782	7,568

CAPITAL MEASURES, cont.	Shows how capital is utilized and the company's financial strength
Non-IFRS performance measure	Description	Reason for use of the measure
Net debt	The sum of consolidated interest-bearing liabilities, including pension liabilities and accrued interest less pension assets, cash and cash equiva lents and interest-bearing current and non-current receivables.	Net debt is the most relevant measure for showing the company's total debt financing.
SEKm	2020	2019	2018
NET DEBT Surplus in funded pension plans	2,817	2,841	1,117
Non-current financial assets	738	694	634
Current financial assets	993	525	422
Cash and cash equivalents	4,982	2,928	3,008
Financial assets	9,530	6,988	5,181
Non-current financial liabilities	38,202	43,079	43,500
Provisions for pensions Current financial liabilities	5,328 8,688	5,866 8,983	5,258 10,827
Financial liabilities	52,218	57,928	59,585
Net debt	42,688	50,940	54,404
Non-IFRS performance measure	Description	Reason for use of the measure
Debt/equity ratio	Debt/equity ratio is expressed as net debt in relation to equity.	Shows financial risk and is the most useful measure for management to monitor the level of the company's indebtedness.
Debt payment capacity, %	Debt payment capacity is expressed as 12 months rolling cash earnings (see page 76) in relation to closing net debt.	A financial measure that shows the company's capacity to repay its debt.
Adjusted debt payment capacity, %	Adjusted debt payment capacity expressed as 12 months rolling adjusted cash earnings (see page 76) in relation to closing net debt.	A financial measure that shows the company's capacity to repay its debt, adjusted for the impact of items affecting comparability.
Net debt/EBITDA	Calculated as the closing balance of net debt in relation to 12 months rolling EBITDA.	A financial measure that shows the company's capacity to repay its debt.
Net debt/Adjusted EBITDA	Calculated as the closing balance of net debt in relation to 12 months rolling EBITDA, excluding items affecting comparability.		A financial measure that shows the company's capacity to repay its debt, adjusted for the impact of items affecting comparability.
Interest coverage ratio	Calculated on a net basis, according to which operating profit is divided by financial items.	Helps to show the company's capacity to cover its interest expenses.
SEKm	2020	2019	2018
Debt/equity ratio, multiple	0.67	0.81	0.99
Debt payment capacity, % Adjusted debt payment capacity, %	46 45	38 40	25 27
Net debt/EBITDA	1.75	2.33	3.11
Net debt/Adjusted EBITDA	1.76	2.25	2.96
PERFORMANCE MEASURES	Various types of performance measures and margin measures expressed as a percentage of sales
Non-IFRS performance measure	Description	Reason for use of the measure
Organic net sales	Underlying change in net sales compared with the preceding period attributable to changed volume, price or product mix excluding changes attributable to exchange rate effects, acquisitions and divestments.	This measure is of major importance for management in its monitoring of underlying net sales driven by changes in volume, price of product mix for comparable units between different periods.
SEKm	2020	2019	2018
ORGANIC NET SALES
Personal Care Organic net sales	–19	1,549	1,213
Exchange rate effects	–2,248	1,623	1,173
Acquisitions/Divestments	22	–175	2,371
Recognized change	–2,245	2,997	4,757
Consumer Tissue
Organic net sales	2,060	2,754	1,089
Exchange rate effects	–1,743	1,972	1,832
Acquisitions/Divestments	–	53	190
Recognized change	317	4,779	3,111
Professional Hygiene
Organic net sales	–4,501	1,010
Exchange rate effects			516
Acquisitions/Divestments Recognized change	–812	1,703	780
	–	1	22
	–5,313	2,714	1,318
Group Organic net sales	–2,439	5,297	2,868
Exchange rate effects	–4,806	5,299	3,785
Acquisitions/Divestments	22	–121	2,582
Recognized change	–7,223	10,475	9,235
ORGANIC NET SALES, %	2020	2019	2018
Previous period sales	128,975	118,500	109,265
Organic net sales Total organic sales for the period	–2,439 126,536	5,297 123,797	2,868 112,133

Organic net sales, % –1.9% 4.5% 2.6%

Non-IFRS performance measure	Description	Reason for use of the measure
Adjusted gross profit	Net sales minus cost of goods sold excluding items affecting comparability.	Gross profit shows the company's earnings before the effects of sales, general and administration. Adjusted gross profit excludes items affecting comparability.
Operating profit before deprecia tion, amortization and impairment of property, plant and equipment and intangible assets (EBITDA)	Calculated as operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets.	This measure is a complement to operating profit, as it shows the cash earnings from operations.
Adjusted operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets (EBITDA)	Calculated as operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets excluding items affecting comparability.	This measure is a complement to operating profit, as it shows the cash earnings from operations adjusted for the impact of items affecting comparability.
Operating profit before amortization of acquisition-related intangible assets (EBITA)	Calculated as operating profit after depreciation, amortization and impairment of property, plant and equipment and intangible assets but before amortization and impairment of acquisition-related intangible assets.	The measure is a good complement to enable earnings comparisons with other companies, regardless of whether business activities are based on acquisitions or organic growth.
Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA)	Calculated as operating profit after depreciation, amortization and impairment of property, plant and equipment and intangible assets but before amortization and impairment of acquisition-related intangible assets, excluding items affecting comparability.	The measure is a good complement to enable earnings comparisons with other companies, regardless of whether business activities were based on acquisitions or organic growth, and is also adjusted for the impact of items affecting comparability.

SEKm	2020	2019	2018
Operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets (EBITDA)
Operating profit	16,758	14,349	10,759
Amortization of acquisition-related intangible assets	809	778	732
Depreciation/amortization	5,618	5,815	5,443
Depreciation right-of-use assets	922	884	–
Impairment	125	79	19
Items affecting comparability, net of impairment	197	–27	445
Items affecting comparability, impairment of acquisition-related intangible assets	–	–	69
EBITDA	24,429	21,878	17,467
Items affecting comparability excluding depreciation/amortization and impairment	–138	740	930
Adjusted operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets (EBITDA)	24,291	22,618	18,397
SEKm	2020	2019	2018
Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA)
Operating profit	16,758	14,349	10,759
Amortization of acquisition-related intangible assets	809	778	732
Items affecting comparability, amortization of acquisition-related intangible assets	–	–	69
Operating profit before amortization of acquisition-related intangible assets (EBITA)	17,567	15,127	11,560
EBITA margin	14.4%	11.7%	9.8%
Items affecting comparability, cost of goods sold	181	243	1,437
Items affecting comparability, sales, general and administration	–122	470	–62
Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA)	17,626	15,840	12,935
Adjusted EBITA margin	14.5%	12.3%	10.9%

Non-IFRS performance measure	Description		Reason for use of the measure
Items affecting comparability	page 84.	Under items affecting comparability, Essity includes costs in connection with acquisitions, restructuring, impairment and other specific events which are relevant when comparing earnings for one period with those of another. The item other specific events is specified in Note B3 Operating expenses on	Separate reporting of items affecting comparability between periods provides a better understanding of the company's underlying operating activities.
Restructuring costs	Costs for impairment together with headcount reductions in connection with restructuring.		This measure shows the specific costs that have arisen in connection with restructuring of a specific operation, which contributes to a better understanding of the underlying cost level in the continuing operations.
Adjusted gross margin	Relates to adjusted gross profit as a percentage of net sales for the period.		Adjusted gross margin is cleared of items affecting comparability and is thus a better measure than gross margin for showing the company's margins before the effect of costs such as sales, general and administration.
EBITA margin		Operating profit before amortization of acquisition-related intangible assets as a percentage of net sales for the period.		EBITA margin is a good complement to enable operating margin comparisons with other companies, regardless of whether business activities are based on acquisitions or organic growth.
Adjusted EBITA margin	Operating profit before amortization of acquisition-related intangible assets, excluding items affecting comparability, as a percentage of net sales for the period.		Adjusted EBITA margin is a good complement to enable operating margin comparisons excluding items affecting comparabillity with other companies, regardless of whether business activities are based on acquisitions or organic growth.
Operating margin	Operating profit as a percentage of net sales for the period.		The operating margin is a key measure together with sales growth and capital turnover ratio for monitoring value creation.
Adjusted operating margin	net sales for the period.	Operating profit, excluding items affecting comparability, as a percentage of	Adjusted operating margin is a key measure together with sales growth and capital turnover ratio for monitoring value creation.
Adjusted operating profit	Calculated as operating profit before financial items and tax, excluding items affecting comparability.		Adjusted operating profit is a key ratio for control of the units and provides a better understanding of earnings performance of the operations than the non-adjusted operating profit.
SEKm		2020	2019	2018
ADJUSTED OPERATING PROFIT
Operating profit		16,758	14,349	10,759
Items affecting comparability Adjusted operating profit		59 16,817	713 15,062	1,444 12,203
Adjusted operating margin		13.8%	11.7%	10.3%
Non-IFRS performance measure	Description		Reason for use of the measure
Financial net margin		Net financial items divided by net sales.		This measure shows the relationship between net financial items and net sales.
Adjusted profit before tax	Calculated as profit before tax, excluding items affecting comparability.		This is a useful measure for showing total profit for the company including financing costs, but not affected by taxes and items affected comparability.
Adjusted tax	Tax expenses for the period adjusted for tax expenses relating to items affecting comparability.		A useful measure to show the total tax expense for the period, adjusted for taxes related to items affecting comparability.
SEKm		2020	2019	2018
ADJUSTED TAX
Tax		–4,053	–2,828	–1,050
Tax relating to items affecting comparability Adjusted tax		–1 –4,054	–159 –2,987	–440 –1,490
Non-IFRS performance measure	Description		Reason for use of the measure
Adjusted profit for the period			Shows the period's total underlying earnings capacity
	Profit for the period excluding items affecting comparability.		excluding items affecting comparability.
Net margin	Profit for the period as a percentage of net sales for the year.		The net margin shows the remaining share of net sales after all of the company's costs, including income tax, have been deducted.
Earnings per share	Profit for the period attributable to owners of the Parent company divided by the number of shares outstanding.		Earnings per share is a good measure of the company's profitability and is used to determine the value of a company's outstanding shares.
Adjusted earnings per share	Adjusted earnings for the period attributable to owners of the Parent company, excluding amortization of acquisition-related intangible assets after tax divided by number of shares.		Adjusted earnings per share is a good measure of the company's profitability and is used to determine the value of a company's outstanding shares. The measure is a good complement to enable comparison of earnings per share with other companies, regardless of whether business activities are based on acquisitions or organic growth.

CASH FLOW PERFORMANCE MEASURES		Various performance measures and costs that have impacted the company's cash flow
Non-IFRS performance measure	Description		Reason for use of the measure
Cash earnings	Cash earnings consist of the net of operating profit before depreciation, assets (EBITDA), financial income and expenses and income taxes.	amortization and impairment of property, plant and equipment and intangible	A financial measure used when calculating the company's debt payment capacity, see page 73.
Adjusted cash earnings		Adjusted cash earnings consist of the net of adjusted operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets (EBITDA), financial income and expenses and income taxes.		A financial measure used when calculating the company's debt payment capacity, see page 73.
Operating cash surplus	Calculated as operating profit with a reversal of depreciation, amortization and impairment of property, plant and equipment and intangible assets. Share of profits of associated companies and joint ventures, items affecting comparability and capital gains/losses are excluded.		This measure shows the cash flow generated by profit and is part of the follow-up of cash flow.
Investments in non-current assets, net	Investments in non-current assets, net, to maintain competitiveness, such as maintenance, rationalization and replacement measures or investments of an environmental nature and strategic investments in sites.		Shows the size of the capital expenditures required to maintain existing manufacturing capacity and investments in expansion and other growth measures.
Operating cash flow before investments in operating assets through leases	restructuring costs.	Operating cash flow consists of the sum of operating cash surplus and change in working capital, with deductions for net investments in non-current assets and		This is an important control measure of operating activities that the units have control over themselves.
Investments in operating assets through leases	leases for distribution centers.	Additional right-of-use of assets directly attributable to operating activities. Mainly	Investments in operating assets through leases is part of the follow-up of cash flow that the units have control over themselves.
Operating cash flow	Operating cash flow consists of the sum of operating cash surplus and change in working capital, with deductions for net investments in non-current assets and restructuring costs and investments in operating assets through leases.	This is an important control measure of operating activities that the units have control over themselves.
Investments in non-operating assets through leases	Additional right-of-use of assets that are not directly attributable to operating activities, mainly leases for offices.		Investments through leases in non-operating assets that the units do not have control over themselves. These are recognized in the operating cash flow statement as a legend entry in changes to net debt.
SEKm		2020	2019	2018
OPERATING CASH FLOW
Personal Care
Operating cash surplus		9,089	8,785	7,821
Change in working capital		236	401	–410
Investments in non-current assets, net		–1,658	–1,866	–2,134
Restructuring costs, etc.		–101	–644	–271
Operating cash flow before investments in operating assets
through leases		7,566 –81	6,676 –181	5,006
Operating cash flow	Investments in operating assets through leases		6,495	5,006
		7,485
Consumer Tissue
Operating cash surplus		10,817	8,107	5,612
Change in working capital		–548	–553	94
Investments in non-current assets, net		–3,191	–2,239	–3,073
Restructuring costs, etc.		–418	–251	–245
Operating cash flow before investments in operating assets
through leases		6,660	5,064	2,388
Investments in operating assets through leases Operating cash flow		–205 6,455	–194 4,870	2,388
Professional Hygiene
Operating cash surplus		5,479	6,589	5,630
Change in working capital		–360	438	–565
Investments in non-current assets, net		–1,135	–1,402	–1,337
Restructuring costs, etc.		–677	–603	–365
Operating cash flow before investments in operating assets through leases		3,307	5,022	3,363
Investments in operating assets through leases		–124	–84
Operating cash flow		3,183	4,938	3,363

B1. NET SALES – REVENUES FROM CONTRACTS WITH CUSTOMERS

AP KAA ACCOUNTING POLICIES AND KEY ASSESSMENTS AND ASSUMPTIONS

Essity applies IFRS 15 Revenue from Contracts with Customers that regulates revenue recognition and disclosure requirements for commercial agreements (contracts) with customers. The standard pertains to commercial agreements with customers in which delivery of goods/services is divided into separately identifiable performance obligations that are recognized independently.

Revenue recognition

Essity primarily generates revenues from the sale of finished products to, for example, the retail sector, industries and the healthcare sector. Revenue from sales of services occurs to a certain extent but only accounts for a small portion of the Group's sales. Essity's operations and sales are divided into various segments that sell different products in several regions. The product portfolio is diversified but the principles for revenue recognition are the same for all segments. For a description of the products, see the section on Essity's three business areas, Personal Care, Consumer Tissue and Professional Hygiene on pages 24–29. Essity's contracts with customers primarily comprise framework agreements without established minimum volumes, which means that a binding contract according to IFRS 15 criteria does not arise until the customer places an order.

Performance obligations and timing of revenue recognition

Essity's performance obligations in the contracts involve providing the goods specified in the contracts. The performance obligations are satisfied and the revenue recognized when control of the products is passed to the customer. The timing of when control is passed to the customer is determined by the delivery terms (Incoterms) applied in the contract. For most supply contracts, control is passed when the goods have been delivered to the customer's warehouse and the customer thereby can control the use and receive the benefits of the goods. Invoicing is normally done in connection with, or directly after, delivery and recognized at a specific point in time, no revenue is recognized over time. Essity has chosen to apply the practical expedient in IFRS 15 not to disclose the remaining performance obligations that have a term of less than one year.

Determination of transaction price

The transaction price primarily comprises the fixed price of the quantity sold less estimated volume discounts. Marketing subsidies and discount coupons that reduce Essity's recognized revenue exist to only a very limited extent.

The outcome of volume discounts is continuously assessed over the year and reduces recognized revenues in parallel with a provision being made that includes the estimated discount rate for each customer. At year end, the final volume discounts are determined on the basis of the actual sales volume and the provision is reduced in the following year when the discount is credited to the customer. Marketing subsidies entail that the customer receives a discount for carrying out marketing activities. In certain cases, Essity reimburses customers in the retail sector in accordance with contracts for loss of income due to discount vouchers used by consumers. The probable outcome of used discount vouchers and thus discounts provided during the reporting period is assessed and revised every time the accounts are closed. Customers have only limited rights to return products and past volumes of return products are low. Essity essentially grants customers no right of return except when the products are faulty. When the right arises to return goods sold, a liability is recognized for the repayment that is expected to be made and an asset is recognized for the right to recover the goods. Past experience is used to estimate the share of returns at the time of sale and revenue is only recognized for products that are not expected to be returned. The total transaction price is estimated at the amount that Essity deems will accrue to the company when the contract is signed with respect to volume discounts and any marketing subsidies, discount vouchers and returns. The transaction price is updated if the conditions forming the basis of the estimate have significantly changed.

Trade receivables

Once the goods and services have been delivered and control has been passed to the customer, a trade receivable is recognized since this is the point in time when the consideration becomes unconditional, only the passage of time is required for payment to be made.

Contract liabilities

Contract liabilities pertain to liabilities for volume discounts and advance payments from customers. Both items are recognized under Other current liabilities. Advance payments from customers are normally recognized as revenue in the subsequent fiscal year.

Assets that have arisen from expenses to fulfill contracts with customers

In the Professional Hygiene business area, Essity supplies dispensers to customers to fulfill contracts for delivery of the business area's other products, refer to page 28. Expenses for these dispensers are recognized as prepaid expenses under Other non-current assets since Essity expects to cover these expenses through the sale of the business area's other products. The dispensers are depreciated over three years according to the average term of the contract with customers. Recognition takes place in accordance with the rules in IFRS 15 since the expense is directly linked to securing contracts with customers. The rules on Property, Plant and Equipment in IAS 16 and IAS 2 Inventories are not deemed to be applicable since there are no economic benefits associated with the dispenser after it has been delivered to the customer.

The tables below show consolidated net sales broken down by operating segment: Personal Care, Consumer Tissue and Professional Hygiene. Net sales in geographic markets reflects the perspective – sold to, which is based on sales to the countries where Essity has its customers, known as its "footprint." See page 82 for further information.

SEKm	Personal Care	Consumer Tissue	Professional Hygiene	Other operations	Total Group
2020
Revenue from contracts with customers
Sale of finished products	46,089	50,221	25,370	18	121,698
Sale of services	6	–	48	–	54
IS Total revenues from contracts with customers	46,095	50,221	25,418	18	121,752
Geographic markets
Europe	26,611	29,822	11,970	18	68,421
North America	4,862	34	10,087	–	14,983
Latin America	8,078	5,805	1,386	–	15,269
Asia	4,832	14,390	1,734	–	20,956
Other	1,712	170	241	–	2,123
IS Total revenues from contracts with customers	46,095	50,221	25,418	18	121,752

B1. REVENUE FROM CONTRACTS WITH CUSTOMERS, CONT.

	Personal	Consumer	Professional	Other	Total
SEKm	Care	Tissue	Hygiene	operations	Group
Product category
Incontinence Products	20,934	–	–	–	20,934
Baby Care	8,650	–	–	–	8,650
Feminine Care	7,956	–	–	–	7,956
Medical Solutions	8,051	–	–	–	8,051
Consumer Tissue Professional Hygiene	– –	50,221 –	– 25,418	– –	50,221 25,418
Other	504	–	–	18	522
IS Total revenues from contracts with customers	46,095	50,221	25,418	18	121,752
SEKm	Personal Care	Consumer Tissue	Professional Hygiene	Other operations	Total Group
2019
Revenue from contracts with customers
Sale of finished products	48,325	49,904	30,726	0	128,955
Sale of services	15	–	5	–	20
IS Total revenues from contracts with customers	48,340	49,904	30,731	0	128,975
Geographic markets
Europe	27,417	29,880	13,322	–	70,619
North America	5,173	5	13,158	–	18,336
Latin America	8,869	5,946	1,816	–	16,631
Asia	5,007	13,902	2,178	–	21,087
Other	1,874	171	257	0	2,302
IS Total revenues from contracts with customers	48,340	49,904	30,731	0	128,975
Product category
Incontinence Products	21,205	–	–	–	21,205
Baby Care	9,183	–	–	–	9,183
Feminine Care	8,361	–	–	–	8,361
Medical Solutions	8,936	–	–	–	8,936
Consumer Tissue	–	49,904	–	–	49,904
Professional Hygiene	–	–	30,731	–	30,731
Other	655	–	–	0	655
IS Total revenues from contracts with customers	48,340	49,904	30,731	0	128,975
	Personal	Consumer	Professional	Other	Total
SEKm 2018	Care	Tissue	Hygiene	operations	Group
Revenue from contracts with customers
Sale of finished products	45,333	45,125	28,011	16	118,485
Sale of services	9	–	6	–	15
IS Total revenues from contracts with customers	45,342	45,125	28,017	16	118,500
Geographic markets
Europe	26,327	28,107	12,383	–	66,817
North America	4,788	22	11,837	–	16,647
Latin America	7,933	5,207	1,575	–	14,715
Asia	4,611	11,624	1,935	–	18,170
Other	1,683	165	287	16	2,151
IS Total revenues from contracts with customers	45,342	45,125	28,017	16	118,500
Product category
Incontinence Products	19,355	–	–	–	19,355
Baby Care	9,079	–	–	–	9,079
Feminine Care	7,506	–	–	–	7,506
Medical Solutions	8,578	–	–	–	8,578
Consumer Tissue	–	45,125	–	–	45,125
Professional Hygiene	–	–	28,017	–	28,017
Other	824	–	–	16	840

IS Total revenues from contracts with customers 45,342 45,125 28,017 16 118,500

Trade receivables and contractual liabilities
SEKm	Note	2020	2019	2018
TE3:1 Trade receivables	E3	17,825	19,864	18,687
Contractual liabilities – bonuses and discounts to customers	D5	6,070	6,038	5,269
Contractual liabilities – advance payments from customers		158	157	96

Trade receivables increased by SEK 64m in 2020 due to acquisitions but declined by SEK 126m due to divestments. Overall, trade receivables declined by SEK 2,039m in 2020 due to reduced sales compared with previous year and exchange rate effects.

Assets that have arisen from expenses to fulfill contracts with customers

SEKm	2020	2019	2018
TE3:2 Value, January 1	585	538	484
Costs for the year	473	408	358
Depreciation	–375	–377	–344
Translation differences	–96	16	40
Value, December 31	587	585	538

B2. SEGMENT REPORTING

AP ACCOUNTING PRINCIPLES

Operating segments are recognized in a manner that complies with the internal reporting submitted to the chief operating decision maker. The chief operating decision maker is the function that is responsible for allocating resources and assessing the result of the operating segments. At Essity, this function has been identified as the company's President, who is responsible for and manages the day-to-day administration of the Group in accordance with the Board's guidelines and terms of reference. One Executive Vice President and the Executive Management Team support him in his work. Essity's three business areas, Personal Care, Consumer Tissue and Professional Hygiene, comprise the operating segments. For management purposes, the Group is organized into business areas based on their products.

Essity's offering in Personal Care includes Incontinence Products, Medical Solutions, Baby Care and Feminine Care. Products are sold under brands such as TENA, JOBST, Leukoplast, Libero, Libresse, Nosotras and Saba, and as retailer brands. Distribution channels are the retail trade, pharmacies, medical device stores, hospitals, distributors and care institutions and e-commerce.

Essity's offering in Consumer Tissue includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Products are sold under brands such as Edet, Lotus, Regio, Tempo, Vinda and Zewa. In Europe, Essity also sells products under retailer brands. Distribution channels for the products are the retail trade and e-commerce.

Essity's offering in Professional Hygiene comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand lotion, hand sanitizers, dispensers, cleaning and wiping products as well as service and maintenance. Essity also offers digital solutions, such as Internet of Things sensor technology that enables data-driven cleaning. Customers consist of companies and office buildings, universities, healthcare facilities, industries, restaurants, hotels, stadiums and other public venues. Distribution channels for the products consist of distributors and e-commerce.

Other operations comprise Group-wide functions and non-allocated tax. Essity's business is an integrated operation in the form of a matrix organization with four business units (Health and Medical Solutions, Consumer Goods, Latin America and Professional Hygiene) and three global units (Global Manufacturing, Global Operational Services and Global Brand, Innovation and Sustainability). The business units have limited responsibility to impact operational costs, since the global units are responsible for production, planning, technology development, purchasing and product development.

No business areas were aggregated to form the aforementioned segments.

The President monitors the operating profit for the business areas separately in order to make decisions regarding the allocation of resources and how performance targets were achieved. The segments are evaluated based on operating profit, excluding items affecting comparability.

The tables below show parts of the consolidated balance sheet and income statement broken down by operating segment: Personal Care, Consumer Tissue and Professional Hygiene.

SEKm	Personal Care	Consumer Tissue	Professional Hygiene	Other operations	Eliminations	Total Group
2020
REVENUES
IS TB2:2 Net sales	46,095	50,221	25,418	18		121,752
RESULT
Adjusted operating profit/loss before amortization of acquisition-related intangible assets	7,161	8,045	3,317	–897	–	17,626
Amortization of acquisition-related intangible assets	–766	–6	–37	–	–	–809
Adjusted operating profit/loss per operating segment	6,395	8,039	3,280	–897	–	16,817
TB2:1 Items affecting comparability	–172	–7	–12	132	–	–59
IS Operating profit/loss	6,223	8,032	3,268	–765	–	16,758
IS Financial income						108
IS Financial expenses						–1,066
IS Tax expense for the period						–4,053
IS Profit for the period						11,747
OTHER DISCLOSURES
Assets	55,778	61,928	28,723	–729	–1,429	144,271
BS Participations in joint ventures and associated companies	222	506	118	1	–	847
Unallocated financial assets				9,527		9,527
BS Total assets	56,000	62,434	28,841	8,799	–1,429	154,645
Net investments/acquisitions	– 2,485	–3,396	–1,259	–455	–	–7,595
Depreciation/amortization	–2,718	–2,675	–1,788	–168	–	–7,349
Expenses, in addition to depreciation/amortization, not matched by payments	2	17	439	–2	–	456
NET SALES BY REGION
Europe	58%	59%	47%			56%
North America	11%	–	40%			12%
Latin America	17%	12%	5%			13%
Asia	10%	29%	7%			17%
Other	4%	–	1%			2%
Total	100%	100%	100%			100%
Mature markets	64%	53%	80%			63%
Emerging markets	36%	47%	20%			37%
Total	100%	100%	100%			100%

B2. SEGMENT REPORTING, CONT.

	Personal	Consumer	Professional	Other		Total
SEKm 2019	Care	Tissue	Hygiene	operations	Eliminations	Group
REVENUES
IS TB2:2 Net sales	48,340	49,904	30,731	0		128,975
RESULT
Adjusted operating profit/loss before amortization of acquisition-related intangible assets	6,746	5,321	4,463	–690	–	15,840
Amortization of acquisition-related intangible assets	–732	–7	–39		–	–778
Adjusted operating profit/loss per operating
segment	6,014	5,314	4,424	–690	–	15,062
TB2:1 Items affecting comparability	–345	–118	–88	–162	–	–713
IS Operating profit/loss	5,669	5,196	4,336	–852	–	14,349
IS Financial income IS Financial expenses						106 –1,415
IS Tax expense for the period						–2,828
IS Profit for the period						10,212
OTHER DISCLOSURES Assets	60,704	64,094	32,252	3,035	–5,756	154,329
BS Participations in joint ventures and associated
companies	226	514	123	2	–	865
Unallocated financial assets				7,101		7,101
BS Total assets	60,930	64,608	32,375	10,138	–5,756	162,295
Net investments/acquisitions	–2,061	–2,432	–1,486	–322	–	–6,301
Depreciation/amortization	–2,772	–2,706	–1,852	–147	–	–7,477
Expenses, in addition to depreciation/amortization,
not matched by payments	10	31	339	–7	–	373
NET SALES BY REGION
Europe	57%	60%	43%			55%
North America Latin America	11% 18%	– 12%	43% 6%			14% 13%
Asia	10%	28%	7%			16%
Other	4%	–	1%			2%
Total	100%	100%	100%			100%
Mature markets	63%	53%	80%			63%
Emerging markets Total	37% 100%	47% 100%	20% 100%			37% 100%
	Personal	Consumer	Professional	Other		Total
SEKm	Care	Tissue	Hygiene	operations	Eliminations	Group
2018
REVENUES
IS TB2:2 Net sales	45,342	45,125	28,017	16		118,500
RESULT
Adjusted operating profit/loss before amortization of acquisition-related intangible assets	6,354	3,331	3,841	–591	–	12,935
Amortization of acquisition-related intangible assets	–691	–5	–36	–	–	–732
Adjusted operating profit/loss per operating segment	5,663	3,326	3,805	–591	–	12,203
TB2:1 Items affecting comparability	–123	–1,046	–494	219	–	–1,444
IS Operating profit/loss	5,540	2,280	3,311	–372	–	10,759
IS Financial income						91
IS Financial expenses						–1,248
IS Tax expense for the period						–1,050
IS Profit for the period						8,552
OTHER DISCLOSURES
Assets	57,688	61,020	30,768	5,071	–6,239	148,308
BS Participations in joint ventures and associated
companies	196	486	94	1	–	777
Unallocated financial assets				5,181		5,181
BS Total assets	57,884	61,506	30,862	10,253	–6,239	154,266
Net investments/acquisitions	–2,521	–3,381	–1,337	–236	–	–7,475
Depreciation/amortization	–2,126	–2,287	–1,643	–119	–	–6,175
Expenses, in addition to depreciation/amortization, not matched by payments	29	36	194	–24	–	235
NET SALES BY REGION
Europe	58%	62%	44%			56%
North America	11%	–	42%			14%
Latin America	17%	12%	6%			13%
Asia Other	10% 4%	26% –	7% 1%			15% 2%
Total	100%	100%	100%			100%
Mature markets Emerging markets	64% 36%	56% 44%	81% 19%			65% 35%

B2. SEGMENT REPORTING, CONT.

TB2:1 Items affecting comparability allocated by business segment

	Personal	Consumer	Professional
SEKm	Care	Tissue	Hygiene	Other	Total
2020
Items affecting comparability – cost of goods sold	–104	–28	–49	–	–181
Items affecting comparability – sales, general and administration	–68	21	37	132	122
Total	–172	–7	–12	132	–59
2019
Items affecting comparability – cost of goods sold	–123	–62	–58	–	–243
Items affecting comparability – sales, general and administration	–222	–56	–30	–162	–470
Total	–345	–118	–88	–162	–713
2018
Items affecting comparability – cost of goods sold	–157	–812	–468	–	–1,437
Items affecting comparability – sales, general and administration	116	–248	–26	220	62
Items affecting comparability – acquisition-related intangible assets	–82	14	–	–1	–69
Total	–123	–1,046	–494	219	–1,444

Assets and liabilities: The assets included in each operating segment comprise all operating assets used in the operating segment, primarily trade receivables, inventories and non-current assets after deduction for operating liabilities and provisions. Most of the assets are directly attributable to each operating segment. Assets that are common to two or more operating segments are allocated among the operating segments.

Internal sales: No internal sales are carried out between the segments. Production in shared facilities is allocated among the segments already at the operational reporting stage.

Customers: Essity had no customers in 2020, 2019 or 2018 from which it generated income that accounted for more than 10% of the company's net sales. Essity's ten largest customers account for 22.5% (23.7; 23.6) of the company's sales.

B2a. SEGMENT REPORTING, CONT.

	Net sales – sold to1)						Net sales – sold by1)
	2020		2019		2018		2020		2019		2018
TB2:2 Group by country	SEKm	%	SEKm	%	SEKm	%	SEKm	%	SEKm	%	SEKm	%
Sweden	3,049	2.5	2,774	2	2,636	2	3,485	2.9	3,338	3	3,143	2
EU excl. Sweden
Germany	13,672	11.2	13,884	11	13,115	11	14,266	11.7	14,544	12	13,713	12
France	10,074	8.3	10,621	8	10,234	9	10,270	8.4	10,859	9	10,491	9
Spain	5,451	4.5	6,004	5	6,005	5	5,593	4.6	6,103	5	6,087	5
Netherlands	3,985	3.3	3,966	3	3,696	3	4,128	3.4	4,121	3	3,892	3
Italy	3,344	2.7	3,762	3	3,541	3	3,616	3.0	4,028	3	3,907	3
Austria	1,967	1.6	1,911	2	1,824	2	2,168	1.8	2,114	2	2,003	2
Belgium	1,700	1.4	1,719	1	1,589	1	1,795	1.5	1,832	1	1,696	1
Finland	1,639	1.3	1,609	1	1,531	1	1,653	1.4	1,606	1	1,520	1
Denmark	1,407	1.2	1,280	1	1,151	1	1,447	1.2	1,246	1	1,098	1
Hungary	1,067	0.9	1,100	1	1,057	1	1,148	0.9	1,169	1	1,075	1
Poland	976	0.8	1,032	1	918	1	1,035	0.8	1,111	1	971	1
UK2)	749	0.6	9,279	7	8,421	7	761	0.6	9,394	7	8,492	7
Czech Republic	697	0.6	698	1	633	1	687	0.6	668	1	607	1
Ireland	577	0.5	564	1	502	0	507	0.4	494	1	430	1
Greece	528	0.4	494	1	536	1	306	0.2	328	0	345	0
Romania	415	0.3	442	0	377	0	393	0.3	384	0	346	0
Portugal	402	0.3	414	0	392	0	335	0.3	352	0	332	0
Croatia	330	0.3	357	0	318	0	–	–	–	–	–	–
Slovakia	328	0.3	305	0	270	0	474	0.4	476	0	479	1
Lithuania	236	0.2	230	0	206	0	236	0.2	230	0	206	0
Rest of EU excl. Sweden	733	0.6	767	1	709	1	336	0.3	355	0	296	0
Total EU excl. Sweden	50,277	41.3	60,438	48	57,025	48	51,154	42.0	61,414	48	57,986	49
Rest of Europe
UK2)	8,234	6.8	–	–	–	–	8,369	6.9	–	–	–	–
Russia	2,862	2.3	3,380	3	3,225	3	3,060	2.5	3,613	3	3,440	3
Switzerland	1,588	1.3	1,448	1	1,347	1	1,540	1.2	1,398	1	1,295	1
Norway	1,321	1.1	1,344	1	1,271	1	1,304	1.1	1,269	1	1,211	1
Ukraine	399	0.3	418	0	338	0	352	0.3	369	0	298	0
Turkey	262	0.2	378	0	556	1	280	0.2	411	0	601	1
Rest of Europe excl. EU	429	0.4	439	0	419	0	–	–	–	–	–	–
Total Rest of Europe	15,095	12.4	7,407	5	7,156	6	14,905	12.2	7,060	5	6,845	6
TOTAL EUROPE	68,421	56.2	70,619	55	66,817	56	69,544	57.1	71,812	56	67,974	57
North America
USA	13,016	10.7	16,132	12	14,617	12	12,880	10.6	16,104	12	14,681	12
Canada	1,962	1.6	2,198	2	2,024	2	1,987	1.6	2,227	2	2,046	2
Rest of North America	5	0.0	6	0	6	0	–	–	–	–	–	–
TOTAL NORTH AMERICA	14,983	12.3	18,336	14	16,647	14	14,867	12.2	18,331	14	16,727	14
Latin America
Mexico	5,754	4.7	6,051	5	4,822	4	6,250	5.1	6,655	5	5,355	5
Colombia	3,594	3.0	4,144	3	3,955	3	3,750	3.1	4,317	4	4,155	4
Ecuador	1,505	1.3	1,652	1	1,510	1	1,487	1.2	1,623	1	1,486	1
Chile	879	0.7	991	1	1,018	1	883	0.7	1,000	1	1,013	1
Peru	558	0.5	590	1	462	1	550	0.5	581	1	425	0
Brazil	526	0.4	637	1	606	1	526	0.4	637	1	605	1
Costa Rica	486	0.4	513	0	476	1	588	0.5	535	0	472	0
Dominican Republic	442	0.4	483	0	431	0	442	0.4	482	0	419	0
Argentina	351	0.3	381	0	374	0	369	0.3	395	0	386	0
Nicaragua	171	0.1	185	0	172	0	–	–	–	–	–	–
Rest of Latin America	1,003	0.8	1,004	1	889	1	367	0.3	324	0	235	0
TOTAL LATIN AMERICA	15,269	12.6	16,631	13	14,715	13	15,212	12.5	16,549	13	14,551	12
Asia
China	16,021	13.2	15,887	12	13,542	11	16,421	13.5	16,212	12	13,687	11
Malaysia	1,762	1.4	1,740	1	1,544	1	2,055	1.7	2,086	2	1,858	2
Japan	1,003	0.8	1,065	1	852	1	646	0.5	725	1	699	1
Taiwan	388	0.3	370	1	364	1	398	0.3	382	0	373	1
Singapore	321	0.3	283	0	240	0	263	0.2	234	0	202	0
India	153	0.1	234	0	222	0	155	0.1	235	0	219	0
Rest of Asia	1,308	1.1	1,508	1	1,406	1	663	0.6	737	1	670	1
TOTAL ASIA	20,956	17.2	21,087	16	18,170	15	20,601	16.9	20,611	16	17,708	16
Rest of the world
South Africa	263	0.2	344	1	326	1	352	0.3	457	0	435	0
Tunisia	233	0.2	263	0	262	0	451	0.4	497	0	447	0
Libya	172	0.1	195	0	142	0	–	–	–	–	–	–
Morocco	147	0.1	166	0	139	0	70	0.1	78	0	68	0
Other Rest of the world	1,308	1.1	1,334	1	1,282	1	655	0.5	640	1	590	1
TOTAL REST OF THE WORLD	2,123	1.7	2,302	2	2,151	2	1,528	1.3	1,672	1	1,540	1
Total Group	121,752		100.0 128,975	100	118,500	100	121,752		100.0 128,975	100	118,500	100

1) Net sales have been recognized from two perspectives. The first column "Net sales – sold to" is based on sales to the countries where Essity has its customers, or Essity's "footprint". The second column "Net sales – sold by" takes the perspective of IFRS 8, meaning revenue from external customers where the company is domiciled and in all other countries from which the company receives revenues. 2) The UK is included in the group EU excl. Sweden up to and including January 2020. Following its exit from the EU, the UK is included in the group Rest of Europe as of February 2020.

B2b. SEGMENT REPORTING, CONT.

Of whom Of whom Of whom Of whom Of whom Of whom 2020 2019 2018 TB2:2 Group by country 2020 men, % women, % 2019 men, % women, % 2018 men, % women, % SEKm SEKm SEKm Sweden 2,120 53 47 1,984 55 45 2,062 55 45 4,192 3,520 2,331 EU excl. Sweden Germany 4,637 73 27 4,559 73 27 4,513 74 26 25,320 26,050 25,552 France 2,489 67 33 2,482 68 32 2,619 68 32 7,380 7,807 8,517 Netherlands 1,244 82 18 1,240 82 18 1,256 82 18 3,267 3,211 2,695 Spain 1,137 76 24 1,171 75 25 1,242 75 25 3,386 3,669 3,646 Slovakia 905 62 38 896 63 37 937 63 37 685 736 1,053 Italy 901 75 25 883 75 25 860 75 25 3,313 3,439 3,001 Poland 842 71 29 840 73 27 826 72 28 1,586 1,922 1,864 Austria 581 81 19 604 81 19 610 81 19 808 864 707 Belgium 482 80 20 472 81 19 474 79 21 668 700 629 Finland 303 73 27 296 74 26 300 74 26 1,097 1,211 773 UK2) 134 75 25 1,614 76 24 1,614 76 24 – 5,742 5,166 Hungary 113 35 65 129 39 61 134 42 58 9 13 5 Denmark 112 45 55 107 43 57 96 40 60 38 42 3 Czech Republic 60 48 52 58 47 53 62 46 54 7 8 1 Greece 45 53 47 46 54 46 49 54 46 14 17 11 Romania 37 41 59 33 36 64 33 36 64 14 19 14 Lithuania 26 46 54 24 50 50 25 48 52 3 4 – Portugal 20 60 40 20 60 40 22 57 43 75 79 75 Ireland 14 64 36 14 64 36 14 64 36 32 32 29 Croatia 11 36 64 14 29 71 12 35 65 1 2 – Rest of EU excl. Sweden 16 25 75 16 25 75 17 22 78 2 3 – Total EU excl. Sweden 14,109 72 28 15,518 73 27 15,715 73 27 47,705 55,570 53,741 Rest of Europe UK2) 1,479 75 25 – – – – – – 5,094 – – Russia 1,299 62 38 1,295 61 39 1,346 61 39 1,090 1,592 1,468 Turkey 125 77 23 134 80 20 231 81 19 39 60 187 Norway 85 49 51 84 50 50 111 41 59 13 15 2 Ukraine 70 43 57 71 42 58 68 44 56 5 5 5 Switzerland 35 29 71 34 29 71 34 35 65 80 140 65 Rest of Europe excl. EU 5 100 – 4 100 – 4 100 – – – – Total Rest of Europe 3,098 68 32 1,622 61 39 1,794 62 38 6,321 1,812 1,727 TOTAL EUROPE 19,327 69 31 19,124 70 30 19,571 70 30 58,218 60,902 57,799 North America USA 3,215 71 29 3,214 71 29 3,473 71 29 16,529 19,283 18,478 Canada 286 64 36 306 65 35 345 61 39 537 598 563 Rest of North America – – – – – – – – – – – – TOTAL NORTH AMERICA 3,501 71 29 3,520 71 29 3,818 70 30 17,066 19,881 19,041 Latin America Colombia 3,676 67 33 3,889 66 34 3,703 68 32 2,025 2,345 2,037 Mexico 3,007 69 31 3,027 70 30 3,060 70 30 4,366 5,207 4,510 Ecuador 1,086 69 31 1,163 66 34 1,171 65 35 542 626 613 Brazil 546 58 42 606 60 40 781 60 40 411 644 718 Chile 420 73 27 422 71 29 468 74 26 596 650 679 Argentina 369 66 34 323 65 35 335 63 37 26 40 60 Dominican Republic 266 67 33 268 66 34 261 65 35 200 236 246 Peru 140 40 60 130 37 63 131 26 74 343 439 400 Costa Rica 92 54 46 89 55 45 91 56 44 11 15 2 Nicaragua – – – 3 67 33 4 38 62 – – – Rest of Latin America 54 43 57 45 49 51 46 49 51 3 3 2 TOTAL LATIN AMERICA 9,656 67 33 9,965 66 34 10,051 67 33 8,523 10,205 9,267 Asia China 9,493 57 43 9,287 57 43 9,533 57 43 16,309 16,906 16,435 Malaysia 1,371 43 57 1,332 43 57 1,307 43 57 1,570 1,345 912 India 330 91 9 389 88 12 449 86 14 70 91 75 Taiwan 246 62 38 259 62 38 268 61 39 616 663 649 Japan 122 41 59 134 46 54 148 42 58 68 80 36 Singapore 34 29 71 33 28 72 30 32 68 3 16 11 Rest of Asia 515 62 38 359 53 47 386 56 44 601 709 685 TOTAL ASIA 12,111 56 44 11,793 56 44 12,121 56 44 19,237 19,810 18,803 Rest of the world Tunisia 866 89 11 887 92 8 922 89 11 – 119 116 South Africa 404 43 57 449 41 59 437 43 57 643 791 725 Morocco 72 50 50 68 51 49 62 55 45 – – – Libya – – – – – – – – – – – – Other Rest of the world 147 33 67 174 44 56 240 58 42 842 955 950 TOTAL REST OF THE WORLD 1,489 69 31 1,578 71 29 1,661 71 29 1,485 1,865 1,791 104,529 112,663 106,701		Average number of employees								Non-current assets1)
	Total Group	46,084	65	35	45,980	66	34	47,222	66	34

1) Information about non-current assets by country refers to intangible assets and property, plant and equipment according to Notes D1 and D2. As of 2019, also right-of-use assets are included, refer to Note G2 on page 111.

2) The UK is included in the group EU excl. Sweden up to and including January 2020. Following its exit from the EU, the UK is included in the group Rest of Europe as of February 2020.

B3. OPERATING EXPENSES

Operating expenses by function and type of cost

Operating expenses by function

SEKm	2020	2019	2018
IS Cost of goods sold	–82,132	–90,876	–85,058
IS Sales, general and administration	–22,088	–22,319	–20,570
IS Share of profits of associated companies and joint
ventures	94	60	63
IS Amortization of acquisition-related intangible assets	–809	–778	–732
IS TB3:1 Items affecting comparability	–59	–713	–1,444
Total		–104,994 –114,626 –107,741

Refer also to the Description of costs section on page 138.

Operating expenses by type of cost

SEKm	Note	2020	2019	2018
TB3:2 Other income		1,066	1,028	897
Change in inventory of finished products and products in progress1)		87	–962	196
Raw materials and consumables1)		–41,384	–43,800	–43,771
Personnel costs1)	C1	–22,914	–23,888	–22,021
TB3:3 Other operating expenses1)		–34,318	–39,399	–36,412
Amortization of intangible assets1)	D1	–1,140	–1,111	–1,049
Depreciation of property, plant and equipment1) D2, G2		–6,209	–6,366	–5,126
Impairment of intangible assets1)	D1	–54	–19	–105
Impairment of property, plant and equipment1)	D2	–276	–152	–428
Reversal of impairment of property, plant and equipment1)	D2	8	119	–
Share in profits of associated companies and joint ventures1)		71	84	–215
Revaluation of previously owned shares in associated companies1)	F6	–	–	225
Gain/loss on divestment and liquidation1) 2)		69	–160	68
Total			–104,994 –114,626 –107,741

1) Including items affecting comparability.

2) Including transaction costs and reversal of realized translation differences in divested companies to profit or loss.

TB3:1 Items affecting comparability

Distribution of items affecting comparability by type of cost

SEKm	2020	2019	2018
Impairment of inventory of finished products and products in progress, net	–9	–70	–61
Impairment of trade receivables	–	–10	–
Personnel costs	187	–445	–700
Other operating expenses	–86	–79	–183
Impairment of intangible assets, net	–54	–16	–105
Impairment of property, plant and equipment, net	–143	43	–410
Share in profits of associated companies from impairment and divestments	–23	24	–278
Revaluation of previously owned shares in associated companies	–	–	225
Gain/loss on divestment and liquidation	69	–160	68
Total	–59	–713	–1,444

Distribution of items affecting comparability
SEKm	2020
Gain from settlement of defined benefit pension liability	187
Gain/loss on divestment and liquidation	69
Costs for restructuring measures, Russia among other countries	–198
Increase of previous provision for legal disputes	–80
Other	–37
Total	–59

Distribution of items affecting comparability, previous periods

SEKm	2019
Restructuring costs relating to the Group-wide cost-savings
program	–409
Costs for other restructuring programs	–181
Transfer to profit or loss of realized translation differences
relating to divested and liquidated companies	–178
Other	55
Total	–713

SEKm	2018
Costs for restructuring measures at production facilities of Professional Hygiene and Consumer Tissue	–1,222
Impairment in the associated company Asaleo Care Ltd.	–278
Restructuring costs relating to the Group-wide cost-savings program	–131
Dissolution of reserve for foreign tax	288
Increase in participations in joint venture in Latin America	165
Other	–266
Total	–1,444

TB3:2 Other income

SEKm	2020	2019	2018
Sales not included in core operations	1,066	1,028	897
Total	1,066	1,028	897

Other income includes rental income, which is recognized in the period covered by the rental contract, royalties and similar items, which are recognized in accordance with the implied financial effect of the contract.

TB3:3 Distribution of other operating expenses

SEKm	2020	2019	2018
Transport expenses	–9,107	–9,360	–8,290
Energy costs1)	–4,493	–5,125	–4,775
Purchased finished goods for resale	–2,564	–6,811	–5,144
Marketing costs	–6,745	–6,604	–6,031
Repairs and maintenance	–2,966	–2,927	–2,546
IT, telephony and lease of premises2)	–974	–903	–1,633
Other operating expenses, production	–3,759	–4,092	–3,919
Other operating expenses, distribution, sales and administration	–3,516	–3,481	–3,674
Other	–194	–96	–400
Total		–34,318 –39,399 –36,412

1) After deduction for revenues from energy in the amount of SEK 186m (184; 327).

2) As of 2019, leases are recognized in accordance with the new accounting standard IFRS 16 Leases. This means that lease payments from 2019 are recognized as depreciation and interest expenses rather than lease payments in IT, telephony and lease of premises, which is why the item has decreased.

Other disclosures

Exchange rate effects had a negative impact of SEK –11m (–70; –186) on operating profit.

Other disclosures1)

SEKm	2020	2019	2018
Government grants received2)	241	47	55
Research and development	–1,559	–1,485	–1,320
1 ) These items are included in the tables above in Note B3 under the respective type of cost.

2) The increase in government grants received for 2020 pertains mainly to grants received in China related to the COVID-19 pandemic.

B4. AUDITING EXPENSES

Auditing expenses

2020	2019	2018
–69	–70	–64
–2	–2	–2
–2	–2	–1
–1	–3	–3
–74	–77	–70
–15	–18	–17
–14	–10	–5
–2	–8	–9
–31	–36	–31
–105	–113	–101

B5. INCOME TAXES

AP ACCOUNTING PRINCIPLES

The Group's tax expense comprises current tax and deferred tax.

Current tax is calculated on the taxable profit for the period based on the tax rules prevailing in the countries where the Group operates. Since taxable profit excludes costs that are not tax deductible and income that is not taxable, this is differentiated from profit before tax in profit or loss. Current tax also includes adjustments relating to recognized current tax from prior periods. Taxation at source on intra-Group transactions and interest attributable to income tax are also recognized as current income tax.

Deferred tax is calculated based on temporary differences between the carrying amounts and the tax base values of assets and liabilities and for tax loss carryforwards and other unutilized tax deductions where it is probable that these can be utilized against future taxable profits. Deferred taxes are measured in the balance sheet at their nominal amount and based on the tax rates enacted or substantively enacted on the balance sheet date. Deferred tax is not calculated on the initial recognition of goodwill or when an asset or liability is recognized for the first time, provided that the asset or liability is not attributable to a business combination. Essity does not recognize any deferred tax liability regarding temporary differences on undistributed earnings from shares in subsidiaries, joint ventures or associated companies, since Essity can control the reversal of the temporary differences and it is probable that such a reversal will not take place in the foreseeable future.

The recognition of tax effects is determined by the manner in which the underlying transaction is recognized. For items in profit or loss, the tax effect is recognized in profit or loss, with the same applying for transactions in other comprehensive income within equity, whereby the tax effect is subsequently recognized in other comprehensive income.

Tax liabilities and tax assets are recognized net when Essity has a legal right to offset.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

To determine the value of current and deferred tax assets and tax liabilities on the balance sheet date, it is necessary to make certain assessments and assumptions. Given that Essity operates globally, the company monitors future changes to tax legislations in addition to the development of the business climate in many countries. These factors could impact the company's future taxable profits and thus its possibility to utilize deferred tax assets on loss carryforwards, tax credits and other temporary differences. Furthermore, Essity evaluates tax assets and tax liabilities on a regular basis.

If it is deemed probable that a chosen tax position will not be accepted by a tax authority or court, the tax liability is adjusted in accordance with the presumed outcome. Accordingly, a changed assessment of the probability of future taxable profits, or the probability that a tax authority or court will accept a chosen tax position, could have a positive or negative effect. The actual outcome may differ from the assessment that Essity has made.

Tax expense

Tax expense (+), tax income (–)

SEKm	2020	%	2019	%	2018	%
Current tax
Income tax for the period	3,603	22.8	2,764	21.2	2,207	23.0
Adjustments for prior periods1)	139	0.9	1,020	7.8	–1,324	–13.8
TB5:1 Current tax expense	3,742	23.7	3,784	29.0	883	9.2
Deferred tax
Changes in temporary differences	467	3.0	275	2.1	226	1.9
Adjustments for prior periods1)	–45	–0.3	–1,252	–9.6	37	–0.8
Revaluations	–111	–0.7	21	0.2	–96	0.6
TB5:1 TB5:2 TB5:3 Deferred
tax expense	311	2.0	–956	–7.3	167	1.7
IS Tax expense	4,053	25.7	2,828	21.7	1,050	10.9

1) During 2019, tax liabilities were reallocated between current tax and deferred tax, which resulted in an increase in current tax liabilities of SEK 936m and a corresponding impact on deferred tax income.

Explanation of tax expense

The difference between the recognized tax expense and expected tax expense is explained below. The expected tax expense is calculated based on profit before tax in each country multiplied by the tax rate in effect in the country.

SEKm	2020	%	2019	%	2018	%
IS Profit before tax	15,800		13,040		9,602
IS Tax expense	4,053	25.7	2,828 21.7		1,050	10.9
Expected tax expense	3,789	24.0	3,036 23.3		2,144	22.3
Difference	264	1.7	–208	–1.6	–1,094 –11.4
The difference is explained by:
Permanent differences between accounting and taxable result
Effects of subsidiary financing1)	57	0.4	–165	–1.3	–35	–0.4
Effects of acquisitions and divest ments2)	–19	–0.1	53	0.4	–106	–0.9
Taxes relating to profit-taking	32	0.2	27	0.2	42	0.4
Other permanent effects3)	1	–0.0	102	0.8	272	2.3
Taxes related to prior periods4)	94	0.6	–232	–1.8	–1,287 –14.5
Changes in the value of deferred tax assets5)	44	0.3	37	0.3	60	2.1
Changes in tax rates6)	55	0.3	–30	–0.2	–40	–0.4
Total	264	1.7	–208	–1.6	–1,094 –11.4

1) The effects are principally attributable to financing of the operation in Germany. The years 2019

and 2018 pertain to the financing effects in the USA, Germany, France and Belgium (only 2018). 2) The year 2019 relates essentially to divested operations in Turkey and Brazil. In the year 2018, the effects of acquisitions and divestments relate essentially to acquisitions and the revaluation of existing holdings in operations in Peru and Bolivia.

3) The year 2019 primarily comprises BEAT effects in the USA of SEK 125m. For the year 2018 the effects relate to a non-deductible share in profit in Asaleo Care of SEK 97m primarily attributable to

an impairment of assets, and dissolution effects of tax on non-current assets of SEK –57m. 4) Taxes attributable to prior periods relate mainly to adjustments in Mexico, Germany and the Netherlands. For year 2019, the largest share pertains to the effect of a remeasurement of the tax amount on non-current assets in Mexico of SEK –253m. Year 2018 relates mainly to the effect of a tax dispute in Sweden totaling SEK –1,110m and a tax dispute in Denmark totaling SEK –417m in which the final rulings were in Essity's favor.

5) The change in value of deferred tax assets relates mainly to uncapitalized tax loss carryforwards in Brazil of SEK 50m. The year 2019 relates mainly to uncapitalized tax loss carryforwards in Brazil of SEK 109m and an increase in a tax credit in Poland of SEK –68m. For the year 2018 the effects relate mainly to uncapitalized tax loss carryforwards in Brazil of SEK 98m and in Mexico of

SEK 41m, as well as the increase in a tax credit in Poland of SEK –109m. 6) Relates mainly to the revaluation of a deferred tax liability of SEK 87m concerning pension obligations in the UK.

B5. INCOME TAXES, CONT.

Current tax liability

Current tax liability (+), current tax asset (–)

SEKm	2020	2019	2018
Value, January 1	1,687	–1,556	–216
TB5:1 Current tax expense	3,742	3,784	883
OCF CF TB5:1 Paid tax	–3,917	–1,130	–2,466
Other changes from acquisitions, divestments and reclassifications1)	40	670	240
Translation differences	–11	–81	3
Value, December 31		1,687	–1,556
BS of which current tax liability	2,301	2,432	570
BS of which current tax asset	760	745	2,126

1) During 2019, tax risks were reclassified as tax liabilities from provisions in line with the interpretation of IFRIC 23 Uncertainty over Income Tax Treatments, which has taken effect.

B5:1 Tax by country

Tax expense (+), tax income (–)

Tax payments made by entities in different countries, paid tax (–), SEKm

Country	Current tax expense	Deferred tax expense	Total tax expense	Paid tax
Sweden	527	121	648	–123
Netherlands	521	63	584	–772
China	565	–34	531	–592
UK	125	179	304	–147
Germany	225	18	243	–260
France	136	47	183	–184
USA	148	33	181	–226
Colombia	173	–6	167	–240
Spain	114	–4	110	–210
Austria	80	11	91	–39
Poland	45	34	79	–58
Belgium	96	–19	77	–80
Italy	76	–1	75	–102
Ecuador	73	–2	71	–99
Russia	69	–10	59	–73
Finland	67	–9	58	–59
Canada	64	–6	58	0
Denmark	53	1	54	–53
Mexico	174	–123	51	–153
Japan	48	1	49	–40
Switzerland	46	0	46	–29
Slovakia	24	19	43	–31
Norway	38	1	39	–33
Peru	37	–2	35	–32
Other countries1)	218	–1	217	–282
OCF CF IS Total	3,742	311	4,053	–3,917

1) Other countries comprise several countries where the tax expense and tax payments for the respective countries are of a low amount.

TB5:2 Deferred tax liability

Deferred tax liability (+), deferred tax asset (–)

	Value, January	Deferred	Other	Translation	Value, December
SEKm	1	tax expense	changes2)	differences	31
Intangible
assets	5,874	1,295	158	–335	6,992
Property, plant
and equipment	3,522	–1,640	–99	–198	1,585
Non-current
financial assets	150	530	–143	–36	501
Current assets	–435	37	7	35	–356
Provisions	–646	–86	–140	119	–753
Liabilities	–1,618	–317	40	99	–1,796
Tax credits and tax
loss carryforwards	–2,340	854	25	144	–1,317
Other	–501	–362	381	–47	–529
Total1)	4,006	311	229	–219	4,327

1) The net closing deferred tax liability comprises BS deferred tax assets of SEK 1,823m (2,539; 2,158) and BS deferred tax liabilities of SEK 6,150m (6,545; 7,272).

2) Other changes mainly include deferred tax recognized directly in other comprehensive income within equity according to IAS 19 Employee Benefits of SEK –279 m and IFRS 9 Financial Instruments of SEK 419m, in addition to effects from acquisitions and divestments of SEK 89m.

TB5:3 Preceding periods' deferred tax liability (+), deferred

tax asset (–), SEKm

YEAR	Value, January 1	Deferred tax expense	Other changes	Translation differences	Value, December 31
BS 2019	5,114	–956	–234	82	4,006
BS 2018	4,858	167	–167	256	5,114

Tax loss carryforwards

Tax credits and tax loss carryforwards for which deferred tax assets were recognized have been reported at the tax amount on the line Tax credits and tax loss carryforwards in TB5:2 in the amount of SEK –1,317m.

Loss carryforwards for which no deferred tax assets were recognized amounted to SEK 4,342m (6,412; 6,470), gross, at December 31, 2020.

The change in uncapitalized tax loss carryforwards for the period includes SEK 842m in exchange rate effects, SEK 573m that has expired and SEK 290m that was either utilized or capitalized. The tax value of uncapitalized tax loss carryforwards amounted to SEK 1,145m (1,791; 1,748). The expiry dates of these tax loss carryforwards are distributed as follows:

Tax loss carryforwards, gross, for which no deferred tax assets were recognized,

SEKm
Year of maturity	2020	2019	2018
Within 1 year	13	90	48
2 years	43	62	305
3 years	13	53	17
4 years	66	99	100
5 years or more	426	1,108	1,499
Indefinite life	3,781	5,000	4,501
Total	4,342	6,412	6,470

C1. PERSONNEL COSTS

The table below presents the Group's total personnel costs.

Personnel costs

SEKm	Note	2020	2019	2018
Salaries and remuneration			–16,228 –16,825 –15,403
TC2:1 of which Executive Management Team	C2	–103	–141	–124
of which Board	C3	–9	–9	–9
Pension costs		–1,215	–1,411	–1,433
of which defined benefit pension costs	C4	–240	–468	–528
of which other pension costs		–975	–943	–905
Other social security costs		–3,849	–4,194	–3,594
Other personnel costs		–1,622	–1,458	–1,591
Total1)			–22,914 –23,888 –22,021

1) Items affecting comparability of SEK 187m (–445; –700) are included in total personnel costs.

C2. REMUNERATION OF SENIOR EXECUTIVES

AP ACCOUNTING PRINCIPLES

Incentive programs

Essity has variable remuneration programs: Short Term Incentive (STI) and Long Term Incentive (LTI). Variable remuneration is capped at a specific percentage of fixed salary and is recognized as an expense and current liability, respectively, during the earning period in accordance with IAS 19 Employee Benefits. The programs are continuously evaluated and reported in the annual accounts. Payment is made in cash the year following the vesting period.

Description of incentive programs

The structure of the STI targets is related to the financial targets, or goals that contribute to the achievement of financial targets, such as operating cash flow, cost efficiency, EBITA margin, organic sales growth and consolidated profit before tax, as well as innovation goals.

The LTI goal is based on the performance of the company's B share, measured as the TSR (Total Shareholder Return) index compared with the MSCI Household Products Index, Consumer Staples, which contains a weighted index of competitors' and consumer companies' shares performance (TSR) over a three-year period, where the performance target is higher TSR for the company than the benchmark index (maximum outcome requires a 5% better outcome than the benchmark index).

Variable remuneration under LTI is paid in cash to employees and accordingly does not have any dilutive effect. Participants in the LTI program are to acquire shares in Essity for half of the LTI outcome paid after tax and to refrain from divesting these shares for a period of three years.

Annual General Meeting guidelines for remuneration of senior executives

These guidelines shall govern remuneration to Board directors, the President, vice presidents and other senior executives. The guidelines do not include remuneration decided upon by the General Meeting.

Remuneration principles

Successful implementation of the company's business strategy and the fostering of the company's long-term interests, including its sustainability, require that the company is able, through competitive remuneration on market terms, to recruit, incentivize and retain skilled employees. The total remuneration package must therefore be on market terms and competitive on the executive's field of profession, and must be related to the executive's responsibilities, powers and performance. The remuneration may comprise fixed salary, variable remuneration, other benefits and pension. The company's business strategy is presented in the company's Annual and Sustainability Report.

Variable remuneration

Variable remuneration shall be based on results relative to established shortterm (one year) and long-term financial targets, targets which contribute thereto or to the performance of the company's share. Remuneration shall be aimed at promoting the company's business strategy and long-term interests, including its sustainability. Furthermore, variable remuneration shall be paid as cash remuneration and shall not be included in the basis for pension computation. The short-term element shall not exceed 100% of annual fixed salary and the long-term element shall not exceed 50% of annual fixed salary.

Short-term performance targets shall include organic growth, product development, earnings, cash flow, capital efficiency, sustainability, return, individual targets or a combination thereof.

Long-term performance targets shall be linked to the performance of the company's class B share measured as TSR index (Total Shareholder Return) compared with MSCI Household products Index, Consumer staples, which includes shares of competing companies, over a three-year period, where maximum outcome requires that the performance of the Essity share exceeds the benchmark index by more than 5% over a multi-year period. Payment of cash remuneration for achieved long-term performance targets shall also be subject to a requirement that one-half of such paid remuneration after tax shall be used for investment by the recipient in Essity shares. Such shares may not be divested during a period of three years from the date of purchase; among other things, to create a shared ownership interest between the participants in the program and the shareholders.

The company shall have the possibility to withhold payment of variable remuneration where necessary and possible according to law, provided there are special reasons for so doing and such a measure is necessary to meet the company's long-term interests, including its sustainability. Furthermore, the company shall have the possibility provided by law to demand repayment of any variable remuneration paid based on erroneous grounds.

Pension and other benefits

Pension benefits shall be contribution-defined, and the annual premium shall not exceed 40% of the fixed annual salary. The retirement age shall be 65.

Other, lesser benefits may include medical insurance, company car, fitness allowance as well as membership and service fees, training/education and other support.

A notice of termination period of not more than two years shall apply upon termination of the employment relationship where the termination is initiated by the company, and of not more than one year where the termination is initiated by the executive. Severance pay should not exist.

Decision-making process and reporting

Matters relating to remuneration to senior executives shall be addressed by the Board's Remuneration Committee and, with respect to the President, decided upon by the Board. The duties of the Remuneration Committee shall also include preparing board decisions regarding proposals for guidelines for remuneration to senior executives, performing oversight as well as monitoring and assessing the application thereof. When the Board or the Remuneration Committee addresses and decides on remuneration-related matters, senior executives may not be present insofar as the matter relates to them and, with respect to the calculation of variable remuneration, an audit certificate must be obtained before any decision is taken regarding payment. In the preparation of the remuneration guidelines, consideration has been given to salary and employment conditions for the company's other employees, such as information regarding total remuneration, components of the remuneration as well as the increase in remuneration and the rate of increase over time, and the company's equality of opportunity policy. The Board shall prepare a remuneration report.

Application of, and deviation from, the guidelines

The Board may decide to temporarily deviate from the guidelines, wholly or in part, if there are special reasons for so doing in an individual case and deviation is necessary to satisfy the company's long-term interests, including its sustainability. The duties of the Remuneration Committee include preparing board decisions on remuneration issues, including decisions

C2. REMUNERATION OF SENIOR EXECUTIVES, CONT.

regarding deviations from the guidelines. With respect to employment relationships governed by rules other than Swedish rules, appropriate adjustments shall take place with respect to pension benefits and other benefits to ensure compliance with such rules or local practice, whereupon the overarching purpose of these guidelines shall be attained as far as possible.

The guidelines shall not take precedence over mandatory terms or employment law legislation or collective agreements. Nor shall they apply to already executed agreements.

Company's application of guidelines

The company applied the guidelines approved by the AGM in the following manner.

Fixed salary

The fixed salary is to be in proportion to the individual's position and the authority and responsibilities this entails, as well as performance. It is set individually at a level that, combined with other remuneration, is assessed as a market rate and competitive in the labor market in which the executive works.

Variable remuneration

Variable remuneration of the CEO, Executive Vice President and Business Unit Presidents and equivalents is maximized to a total of 100% of the fixed salary. For two Business Unit Presidents, stationed in the Americas, the maximum outcome is 110–130%. The corresponding limit for other senior executives is 90–100%. The program for variable remuneration is divided into short-term and long-term portions. The short-term portion ("Short Term Incentive", or STI) for the CEO, Executive Vice President and Business Unit Presidents and equivalents may amount to a maximum of 50% of fixed salary. For the Business Unit Presidents, stationed in the Americas, the maximum outcome is 60–80% of the fixed salary, while the corresponding limit for other senior executives is 40–50%. The STI goals set for the Business Unit Presidents are mainly based on organic sales growth, EBITA margin, operating cash flow for each business unit and Group-wide cash flow goals and sustainability goals.

The goal for the CEO and others reporting directly to him is based primarily on organic sales growth, EBITA margin, operating cash flow, the Group's profit and sustainability goals. Furthermore, for certain senior executives, goals for cost efficiency and innovation also apply, accounting for 21% of the variable remuneration. The sustainability target, Science Based Targets Scope 1 and 2, which aims to reduce emissions of carbon dioxide in energy utilization and purchased electricity, accounts for 9% of the variable remuneration.

The long-term portion ("Long Term Incentive", or LTI) may amount to a maximum of 50% of the fixed salary. The senior executive is to invest half of the variable LTI compensation, after tax withholdings, in Essity shares. The shares may then not be sold before the end of the third year after the purchase of shares in the relevant LTI program.

Outcome, variable remuneration

For the CEO, Executive Vice President and Central Staff Managers, STI resulted in 32–40% of fixed salary for 2020. STI resulted in variable remuneration corresponding to 24–51% of fixed salary for the Business Unit Presidents. With the salary situation prevailing in 2020 with 12 senior executives, the maximum outcome of variable remuneration would entail a cost for the Group, excluding social security costs, of approximately SEK 38m.

The LTI target was not achieved for 2018–2020, resulting in no outcome for the CEO and other senior executives.

Other benefits

Other benefits pertain, in some cases, to a company car, commuter reimbursement and health insurance.

TC2:1 Remuneration and other benefits during the year 2020

SEK	Fixed salary	Variable remuneration1)	Other benefits	Total salaries and remuneration
President and CEO Magnus Groth	15,000,000	5,670,0002)	112,291	20,782,291
Other senior executives (11 people)	55,964,618	20,833,7662)	5,611,119	82,409,503
Total	70,964,618	26,503,766	5,723,410	103,191,794
1) Variable remuneration covers the 2020 fiscal year but is paid in 2021.

2) Of which LTI program SEK 0.

Pension costs 20201)

Total	23,415,472
Other senior executives (11 people)3)	17,146,081
President and CEO Magnus Groth2)	6,269,391
SEK

1) The pension costs pertain to the costs that affected profit for 2020, excluding special payroll tax. 2) Outstanding pension obligations amount to SEK 25,707,004.

3) Outstanding pension obligations amount to SEK 95,565,302.

Pension

The CEO has a defined contribution pension based on an annual payment, to be paid by the company, amounting to 40% of the employee's fixed salary, in addition to the agreed contribution for the basic pension benefits in the ITP plan (supplementary pensions for salaried employees), with retirement pension benefits limited to a maximum salary income of 7.5 income base amounts. The retirement age for the CEO is 65. Four other executives are covered by corresponding defined contribution pension benefits with an annual premium of approximately 30–40% and pension age of 65. Two senior executives in Sweden have a combined defined benefit and defined contribution plan. Five senior executives that are employed in companies outside Sweden are encompassed by defined contribution pension plans on local market-based terms.

Notice period and severance pay

The agreement with the CEO stipulates a period of notice of termination of two years if such notice is given by the company. The CEO has a corresponding right with a period of termination of one year. If notice is given by the company, the CEO is not obligated to serve during the notice period. The agreement has no stipulations with regard to severance pay. Between the company and other senior executives, a period of notice of termination of one to two years normally applies, if such notice is given by the company. The executive has a corresponding right with a period of notice of termination of six months to one year. The executive is normally expected to be available to the company during the notice period. The agreements have no stipulations with regard to severance pay.

Preparation and decision process for remuneration

During the year, the Remuneration Committee submitted recommendations to the Board regarding the principles for remuneration of senior executives. The recommendations encompassed the ratio between fixed and variable remuneration and the size of any salary increases. In addition, the Remuneration Committee expressed an opinion on the criteria for assessing variable remuneration and pension terms. The Board discussed the Remuneration Committee's proposal and decided on the basis of the Committee's recommendations. The remuneration of corporate management for the fiscal year was based on the Remuneration Committee's recommendation and, with regard to the CEO, decided by the Board. The executives concerned did not participate in remuneration matters pertaining to themselves. When it was deemed appropriate, the work of the Remuneration Committee was carried out with the support of external expertise.

TC2:1 Remuneration and other benefits during the year 2019

SEK	Fixed salary	Variable remunera tion1)	Other benefits	Total salaries and remuneration
President and CEO Magnus Groth2)	13,800,000	13,800,0002)	110,732	27,710,732
Other senior executives (11 people)3)	55,608,750	54,523,5523)	3,156,703	113,289,005
Total	69,408,750	68,323,552	3,267,435	140,999,737

1) Variable remuneration covers the 2019 fiscal year but is paid in 2020.

2) Of which LTI program SEK 6,900,000.

3) Of which LTI program SEK 27,804,376.

C2. REMUNERATION OF SENIOR EXECUTIVES, CONT.

Pension costs 20191)

SEK
President and CEO Magnus Groth2)	5,751,678
Other senior executives (11 people)3)	15,176,118
Total	20,927,796
1) The pension costs pertain to the costs that affected profit for 2019, excluding special payroll tax.

2) Outstanding pension obligations amount to SEK 24,062,615.

3) Outstanding pension obligations amount to SEK 84,529,681.

TC2:1 Remuneration and other benefits during the year 2018

SEK	Fixed salary	Variable remunera tion1)	Other benefits	Total salaries and remuneration
President and CEO Magnus Groth	13,000,000	7,345,0002)	98,383	20,443,383
Other senior executives (13 people)3)	60,005,069	38,743,0134)	5,054,275	103,802,357
Total	73,005,069	46,088,013	5,152,658	124,245,740

1) Variable remuneration covers the 2018 fiscal year but is paid in 2019. 2) Of which LTI program SEK 6,500,000.

3) Includes remuneration to the former Senior Vice President, Group Function Sustainability and Public Affairs, who as a result of the restructuring of the Group is no longer a member of the Executive

Management Team.

4) Of which LTI program SEK 36,502,537.

Pension costs 20181)

Total	23,558,349
Other senior executives (13 people)3)	18,115,299
President and CEO Magnus Groth2)	5,443,050
SEK

1) The pension costs pertain to the costs that affected profit for 2018, excluding special payroll tax. 2) Outstanding pension obligations amount to SEK 19,933,280.

3) Outstanding pension obligations amount to SEK 80,261,840.

Obligations in relation to former presidents and CEOs

For former presidents and CEOs, Essity has outstanding, non-funded obligations amounting to SEK 190m. These costs were recognized in previous years and comprise pension obligations that Essity assumed from Svenska Cellulosa Aktiebolaget in conjunction with the split of the Group.

C3. FEES TO BOARD MEMBERS IN THE PARENT COMPANY DURING THE YEAR

Remuneration to non-executive Board members of Essity Aktiebolag (publ) refers to the fees approved at the AGM on April 2, 2020 for the period until the next AGM in March 2021. No remuneration is paid to the President and CEO and other employees.

		Board fee		Audit Committee fee		Remuneration Committee fee			Total
SEK	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Pär Boman (Chairman)	2,310,000	2,310,000	2,220,000	275,000	275,000	264,000	150,000	150,000	143,000	2,735,000	2,735,000	2,627,000
Ewa Björling	770,000	770,000	740,000							770,000	770,000	740,000
Maija-Liisa Friman	770,000	770,000	740,000							770,000	770,000	740,000
Annemarie Gardshol	770,000	770,000	740,000							770,000	770,000	740,000
Louise Svanberg	770,000	770,000	740,000				115,000	115,000	111,000	885,000	885,000	851,000
Bert Nordberg	770,000	770,000	740,000	275,000	275,000	264,000	115,000	115,000	111,000	1,160,000	1,160,000	1,115,000
Barbara Milian Thoralfsson	770,000	770,000	740,000	380,000	380,000	349,000				1,150,000	1,150,000	1,089,000
Lars Rebien Sørensen	770,000	770,000	740,000							770,000	770,000	740,000
Total	7,700,000	7,700,000	7,400,000	930,000	930,000	877,000	380,000	380,000	365,000	9,010,000	9,010,000	8,642,000

C4. REMUNERATION AFTER COMPLETION OF EMPLOYMENT

AP ACCOUNTING PRINCIPLES

Defined benefit pension plans

Defined benefit pension plans are characterized by the fact that payment is based on the period of employment and the employee's salary at, or just prior to, retirement. The actuarial and investment-related risks associated with defined benefit pension plans are carried by the company.

The defined benefit obligations are calculated annually by independent actuaries using the Projected Unit Credit Method. Calculations are based on actuarial assumptions. Actuarial assumptions comprise the company's best assessment of the variables that determine the final cost for providing the benefits. The obligation is measured at the present value of the anticipated future cash flows using a discount rate (see Key assessments and assumptions below). Actuarial gains and losses (remeasurements) are recognized directly in equity under other comprehensive income in the period in which they arise. The recognized cost for the defined benefit plans includes personnel costs, as well as net interest items. Net interest items comprise the discount rate calculated on the average net pension liability for the period, taking fee and remuneration payments into consideration. The difference between the calculated interest income (discount rate) on the plan assets and Essity's actual return on the plan assets is included in the remeasurement of the defined benefit net liability or net asset recognized in equity under other comprehensive income. Past service costs are recognized in profit or loss in the period in which they arise.

The liability recognized in the balance sheet for defined benefit pension plans is the present value of the obligation on the balance sheet date minus the fair value of the plan assets. Funded plans with net assets, meaning plans with assets exceeding obligations, are recognized as a financial non-current asset provided they are not limited by the "asset ceiling" under IAS 19. Other pension plans, which are not fully funded or unfunded, are recognized as Provisions for pensions.

In certain countries, pension payments are subject to taxes or fees. In such cases, these are included in the calculation of the obligation for the defined benefit pension plans. These taxes or fees are recognized as an expense in profit or loss, except in cases where they are attributable to actuarial gains or losses, in which case they are recognized directly in equity under other comprehensive income.

Defined contribution pension plans

Plans where the employer's obligation is limited to the premiums the company has undertaken to pay are classified as defined contribution plans. In these plans, it is the employee who bears the investment risk, meaning the risk that the invested assets could be insufficient to generate the anticipated compensation. The Group's payments relating to defined contribution plans are recognized as an expense during the period the employees carry out the service to which the payment relates.

Other post-retirement benefits

Some Group companies provide post-retirement healthcare benefits. The obligation and anticipated costs for these benefits have been calculated and recognized in a similar manner to the defined benefit pension plans.

Severance pay

Severance pay is recognized as a payroll expense when the Group has an obligation to compensate employees whose employment was terminated early.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

The calculation of recognized expenses and provisions for defined benefit pension plans, where the size of the future compensation is unknown and payment will occur far in the future, is dependent on assumptions and assessments. Key assumptions and assessments include the discount rate, future salary increases, inflation and life expectancy. Essity determines the discount rate based primarily on AA-rated corporate bonds issued in the currency in which the payments will be made that match the duration of the obligations. If no such corporate bonds are available, government bonds or mortgage bonds are used. Inflation assumptions are based on a combination of central bank targets, implicit market expectations and long-term analyst forecasts. Assumptions regarding salary increases are based on market expectations and market research forecasts. Key actuarial assumptions are presented in TC4:5 . The sensitivity of the recognized provision with respect to key actuarial assumptions is described in TC4:6 .

Provisions for pensions and similar obligations
SEKm	2020	2019	2018
TC4:2 Defined benefit obligations	32,717	38,510	33,082
TC4:3 Fair value of plan assets		–31,260 –36,372 –29,648
TC4:4 Effect of asset ceiling	1,054	887	707
TC4:1 Provision for pensions, net	2,511	3,025	4,141

Surpluses in funded plans recognized as financial non-current assets amounted to BS SEK 2,817m (2,841; 1,117) on the balance sheet date and provisions for pensions totaled BS SEK 5,328m (5,866; 5,258). Defined benefit obligations include obligations in an amount of SEK 2,908m (2,889; 2,380) pertaining to unfunded plans.

Essity has both defined contribution and defined benefit pension plans in a number of Group companies. The most significant defined benefit pension plans in the respective countries are described below.

TC4:1 TC5:1Provisions for pensions and similar obligations per country
SEKm Country	Active	Paid-up pension policies	Pensioners	Total obligation	Plan assets, fair value	Effect of asset ceiling	Net	Duration of obligation, years
UK	15	9,266	8,394	17,675	–19,251		–1,576	19
Sweden	2,058	1,257	1,393	4,708	–3,723	1,054	2,039	20
Germany	2,542	741	1,558	4,841	–4,993		–152	17
USA	474	1,056	1,983	3,513	–2,949		564	12
Other	1,609	12	359	1,980	–344		1,636	12
Total	6,698	12,332	13,687	32,717	–31,260	1,054	2,511

Netherlands

The plan was changed in 2020, thereby eliminating Essity's guarantees concerning funding levels for previous and future vesting. Elimination of the guarantees resulted in a reclassification of the pension commitment from defined benefit to defined contribution in accordance with IAS 19, and a gain from settlements of SEK 187m was recognized in items affecting comparability. Defined benefit obligations of SEK 5,488m and plan assets of SEK 5,301m have been deconsolidated after a one-off payment of SEK 167m was made to the pension fund.

UK

The plan is a defined benefit plan with contributions paid by the company. The plan is based on final salary and consists of retirement pension, beneficiaries' pension and disability pension. The plan was closed to new participants in July 2007 and closed for future accrual in September 2018. The plan is managed by an independent company and assets are held separately, according to UK law. Surpluses in the pension fund remain in the fund's assets but can be utilized in the form of premium discounts. The plan is obligated to meet the minimum funding level according to an agreement with the pension plan.

Costs for the period for defined benefit plans

SEKm	2020	2019	2018
Current service cost, after deduction for premiums paid by the employees	–428	–528	–589
Past service cost	–2	16	36
Pension-tax expense	–41	–36	–33
Remeasurement, net	–11	–26	9
Net interest income/expense	–34	–93	–83
Pension costs before effects of settlements	–516	–667	–660
Settlements	201	70	16
Pension costs after effects of settlements	–315	–597	–644

In 2020, the Dutch pension plan was changed, resulting in it being reclassified from defined benefit to defined contribution in accordance with IAS 19. A gain from settlements was recognized as an item affecting comparability in the amount of SEK 187m as a result of this.

Sweden

In Sweden, the defined benefit obligation is mainly covered by the ITP2 plan and executive pensions. The ITP2 plan (supplementary pensions for salaried employees) encompasses employees born before 1979 and is a defined benefit plan that provides retirement pension based on final salary, as a percentage of various salary intervals. The ITP2 plan is safeguarded by a fund, and the company may compensate itself using any surpluses in the plan assets. The pension plans for executives are largely retirement and beneficiaries' pension plans based on final salary and are closed to new participants and the liability largely comprises paid-up pension policies or pensions in payment. The pension plans for executives are largely unfunded and are credit-insured with PRI Pensionsgaranti.

Germany

In Germany, the defined benefit obligation comprises a number of different pension plans offering retirement pension, beneficiaries' pension and disability pension. Plans based on final salary exist but these are closed to new participants and the benefit depends on the length of service and final salary at retirement. Defined contribution plans are also offered in which the benefit depends on provisions made by the company and, in certain plans, even by the employee during the period of service, and guaranteed return on the provisions. The obligations are largely financed by two different funds and the company may, in certain instances, compensate itself using any surpluses in the plan assets. In 2020, minor pension obligations were settled through the payment of a one-off amount to the pension holders totaling SEK 9m, which reduced the pension liability by SEK 11m.

USA

In the USA, the defined benefit obligations comprise retirement pensions in which the premiums are paid by the company and the benefit is based on a standard amount per service year. Only one plan is still open for new accrual for about 200 employees. The benefits are financed via a pension fund that is obligated to meet the minimum legislated funding level. Surpluses in the pension fund can be utilized in the form of premium discounts. In 2020, healthcare benefits to pensioners have been settled in insurance by the company paying a one-off premium of SEK 17m, which reduced the pension liability by SEK 18m.

C4. REMUNERATION AFTER COMPLETION OF EMPLOYMENT, CONT.

TC4:2 Defined benefit obligations

SEKm	2020	2019	2018
Value, January 1	38,510	33,082	33,007
Current service cost	429	540	601
Interest expense	608	895	811
Past service cost	2	–16	–36
Pension-tax expense	41	36	33
Settlements and transfers	–57	–293	–251
Reclassification	–5,488	–	–
Acquisitions and divestments	–	–1	2
Benefits paid	–1,323	–1,398	–1,445
Pension taxes paid	–11	–10	–12
Remeasurement: financial assumptions	3,345	4,668	–1,102
Remeasurement: demographic assumptions	–248	37	–26
Remeasurement: experience-based assumptions	–567	–538	304
Pension taxes pertaining to remeasurement	–49	68	69
Translation differences	–2,475	1,440	1,127
Value, December 31	32,717	38,510	33,082

Reclassification of SEK 5,488m in 2020 pertains to the deconsolidation of the former defined benefit obligations attributable to the Dutch pension plan.

Remeasurements in the defined benefit obligations comprise changes in financial assumptions, such as changes to the discount rate, any changes in demographic assumptions and experience-based deviations. Experience-based deviations include for example unexpectedly high or low employee turnover or salary increases.

TC4:3 Plan assets

SEKm	2020	2019	2018
Fair value, January 1		–36,372 –29,648 –30,418
Interest income	–586	–818	–747
Contributions by plan participants	–1	–12	–12
Contributions by the employer	–1,048	–1,292	–1,019
Benefits paid, excluding settlements	1,312	1,396	1,368
Benefits paid for settlements	54	253	226
Reclassification	5,301	–	–
Return in excess of recognized interest income	–2,434	–4,881	1,909
Administrative expenses for pension obligations	36	44	42
Translation differences	2,478	–1,414	–997
Fair value, December 31		–31,260 –36,372 –29,648

Reclassification of SEK 5,301m in 2020 pertains to the deconsolidation of the plan assets attributable to the Dutch pension plan.

The plan assets are distributed according to the following classes of assets, 2020:

• Shares and mutual funds, 49%
• Interest-bearing securities, 45%
• Properties, real estate, 4%
• Other, 2%

The plan assets are distributed according to the following classes of assets, 2019:

• Shares and mutual funds, 53%
• Interest-bearing securities, 38%
• Properties, real estate, 6% Other, 3%

The plan assets are distributed according to the following classes of assets, 2018:

At the balance sheet date 94% (93;92) of the plan assets were traded on active markets for which market quotations were used for the valuation. As in the preceding year, no financial instruments issued by Essity are included in the fair value of plan assets at December 31, 2020.

TC4:4 Effect of asset ceiling

SEKm	2020	2019	2018
Value, January 1	887	707	804
Interest expense	12	16	19
Other changes to asset ceiling	155	164	–116
Value, December 31	1,054	887	707

Effect of asset ceiling pertains to funds in one Swedish foundation that can be used for possible future undertakings for early retirement for certain categories of employees.

TC4:5 Principal actuarial assumptions

	Sweden	UK	Germany	Nether lands1)	USA
2020
Discount rate	0.83	1.37	0.38	N/A	2.56
Expected salary increase rate	2.75	N/A	2.75	N/A	N/A
Expected inflation	1.75	3.00	1.50	N/A	N/A
Life expectancy, men2)	22	21	20	N/A	20
Life expectancy, women2)	25	24	24	N/A	21
2019
Discount rate	1.40	2.07	0.96	1.07	3.16
Expected salary increase rate	3.00	N/A	2.75	2.75	N/A
Expected inflation	2.00	3.00	1.50	1.50	N/A
Life expectancy, men2)	22	22	20	21	20
Life expectancy, women2)	25	24	24	24	22
2018
Discount rate	2.26	2.72	1.87	1.94	4.30
Expected salary increase rate	3.25	N/A	3.00	3.00	N/A
Expected inflation	2.00	3.00	1.75	1.75	N/A
Life expectancy, men2)	22	22	20	21	20
Life expectancy, women2)	25	24	24	24	22
1) As of 2020, the Dutch pension plan is recognized as a defined contribution pension obligation.

2) Life expectancy, expressed in years, for an individual currently aged 65.

The sensitivity of the defined benefit obligations with respect to changes in the principal actuarial assumptions is as follows:

TC4:6 Change of obligation, increased obligation (–)

SEKm
Discount rate +0.25%	1,333
Price inflation, incl. salary inflation +0.25%	–1,071
Life expectancy +1 year	–1,460

The above sensitivity analysis is calculated by changing one assumption while the others remain constant.

Multiemployer plans

Essity has obligations for disability and family pensions for salaried employees in Sweden, secured through insurance with the insurance company Alecta. The company also has employees in Finland who are covered by the country's statutory TyEL pension plan. These obligations are secured through the insurance company Varma. These benefits are reported as defined contribution plans, since there is no basis for allocating the obligations, plan assets and costs to the individual companies covered by the plan.

Budgeted contributions

The budgeted contributions for the company's defined benefit pension plans for 2021 are calculated at SEK 922m. Contributions for multiemployer plans for 2021 are calculated at SEK 46m.

D1. INTANGIBLE ASSETS

AP ACCOUNTING PRINCIPLES

Goodwill

Goodwill arises in connection with business combinations where the consideration transferred exceeds the fair value of the acquired net assets. Goodwill is measured at cost less accumulated impairment and is an intangible asset with an indefinite useful life. This means that goodwill is not amortized, but rather tested annually for impairment. All goodwill is allocated to the cash-generating units that are expected to benefit from the synergies from the business combination. In connection with the sale of Group companies, the remaining carrying amount of the goodwill attributable to the divested unit is included in the capital gain/loss. Goodwill that arises in acquisitions of associated companies or joint ventures is included in the carrying amount of the respective associate or joint venture.

Trademarks

Trademarks arise either in connection with company acquisitions or through agreements to purchase trademarks. Trademarks are measured at cost after any accumulated amortization and accumulated impairment. Trademarks that have an indefinite useful life are not amortized, but rather tested annually for impairment along with the impairment testing of goodwill. Trademarks with a limited useful life are amortized on a straight-line basis during their anticipated useful life, which varies between three and ten years.

Licenses, patents and similar rights

Intangible assets also include patents, licenses and other similar rights. Acquired assets of this type are measured at cost and are amortized on a straight-line basis during their anticipated useful life, which varies between three and 20 years.

Customer relations

Customer relations are measured at fair value at the time of the acquisition. The value of these customer relations is amortized over their useful life, which is considered to be between three and 15 years.

Research and development

Research expenditure is recognized as an expense as incurred. Identifiable expenditure for development of new products and processes is capitalized to the extent it is expected to provide future economic benefits. In cases in which it is difficult to separate the research phase from the development phase in a project, the entire project is treated as research and expensed immediately. Development costs for packing and packaging materials are expensed directly. In general, development projects are conservatively assessed due to the difficulty in determining what will lead to commercial success. Capitalized expenditure is amortized on a straight-line basis from the date when the asset starts to be used over the estimated useful life of the asset. The amortization period is between five and ten years.

Impairment testing

Goodwill is tested annually for impairment. When testing for impairment, the assets are grouped in cash-generating units. Essity has defined three cash-generating units for impairment testing, which coincide with the operating segments Consumer Tissue, Professional Hygiene and Personal Care. The test compares the carrying amounts of the cash-generating units with the recoverable amounts. The recoverable amount of each cash-generating unit is determined by discounting future cash flows in order to determine their value in use. The calculation of future cash flows is based on the strategic plans adopted by the Executive Management Team for the next three years. The carrying amount for the cash-generating unit includes goodwill, trademarks with indefinite useful lives and assets with definite useful lives, such as non-current assets, trademarks and working capital. Effects of expansion investments are excluded when calculating the value in use. The value of depreciated assets is tested for impairment whenever there are indications that the carrying amount might not be recoverable. In cases in which the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount, an impairment loss is recognized on the asset down to the recoverable amount. An impairment loss recognized earlier is reversed, if the reasons for the impairment no longer exist. The carrying amount after the reversal is limited to what it would have been had no past impairment been recognized. Impairment losses on goodwill are never reversed.

Emission allowances and costs for carbon dioxide emissions

Essity participates in the European system for emission allowances.

When emission allowances relating to carbon dioxide emissions are received from an individual EU state, they are recognized as an intangible asset and as deferred income (liability). Allowances are received free of charge and recognized at market value as of the date when the allocation is received. During the period, the intangible asset is expensed in proportion to carbon dioxide emissions made. At the same time as the deferred income is reversed by the corresponding amount thereby resulting in no net effect in profit or loss. If the emission allowances received do not cover emissions made, Essity makes a provision for the deficit valued at the market value on the balance sheet date. Sales of surplus emission allowances are recognized as income on the delivery date.

If the market price of emission allowances on the balance sheet date is less than recognized cost, any surplus emission allowances that are not required to cover emissions made are impaired to the market price applying on the balance sheet date. In conjunction with this, the remaining part of the deferred income is recognized as income by a corresponding amount and therefore no net effect occurs in profit or loss. The emission allowances are used as payment in the settlement with the state regarding liabilities for emissions.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

In connection with the annual impairment testing of goodwill, the recoverable amount is calculated. The recoverable amount for the cash-generating units is determined by calculating value in use. Calculation of the value in use is based on the three-year strategy plans adopted by the Executive Management Team, which in turn are based on assumptions and assessments. The most important assessments and assumptions pertain to forecasts for organic growth, the profit margin and the discount rate used. The discount rate used in the present value calculation of the anticipated future cash flows is the current weighted average cost of capital (WACC) established within the Group for the markets in which the cash-generating units conduct operations.

Profit margin assumptions are based on current market prices and costs adjusted for anticipated price and cost changes as well as assumed productivity development. The growth assumption follows the Group's target of annual organic growth of above 3%. The growth assumptions are in line with historic outcome and expected global market growth.

The expected sustained future cash flow for periods that are beyond the planning horizon of the strategy plan are extrapolated from the final year of the strategy plan using assumed sustained growth of 2% (2; 2).

D1. INTANGIBLE ASSETS, CONT.

Goodwill

SEKm	2020	2019	2018
Accumulated costs	32,324	34,846	33,887
Accumulated impairment	–	–265	–334
Total	32,324	34,581	33,553
Value, January 1	34,581	33,553	31,697
Company acquisitions	603	–	311
Company divestments	–36	–15	–
Reclassifications	–	–	–7
Impairment	–	–	–49
Translation differences	–2,824	1,043	1,601
BS Value, December 31	32,324	34,581	33,553

Intangible assets excluding goodwill

		Technologies, Customer Trademarks relations and similar rights			Capitalized development costs			Total Other intangible assets
SEKm	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Accumulated costs	13,401	14,686	14,438	10,963	12,305	11,863	532	513	447	24,896	27,504	26,748
Accumulated amortization	–506	–559	–446	–5,731	–5,301	–4,312	–180	–132	–87	–6,417	–5,992	–4,845
Accumulated impairment	–	–468	–446	–86	–94	–73	–51	–	–	–137	–562	–519
Total	12,895	13,659	13,546	5,146	6,910	7,478	301	381	360	18,342	20,950	21,384
Value, January 1	13,659	13,546	13,117	6,910	7,478	7,927	381	360	309	20,950	21,384	21,353
Investments	–	–	–	459	138	153	43	58	77	502	196	230
Sales and disposals	–	–44	–	–1	–	–4	–	–	–	–1	–44	–4
Company acquisitions	50	–	9	185	–	68	1	–	–	236	–	77
Company divestments	–	–	–	–2	–	–	–	–	–	–2	–	–
Reclassifications 2)	–	1	–	–1,161	88	–59	–1	–1	–	–1,162	88	–59
Amortization1)	–137	–109	–78	–946	–958	–929	–57	–44	–42	–1,140	–1,111	–1,049
Impairment	–	–	–56	–	–19	–	–54	–	–	–54	–19	–56
Translation differences	–677	265	554	–298	183	322	–12	8	16	–987	456	892
Value, December 31	12,895	13,659	13,546	5,146	6,910	7,478	301	381	360	18,342	20,950	21,384
TD1:1 Emission allowances, net value										232	232	91
BS Value, December 31 including emission allowances										18,574	21,182	21,475

1) Amortization of Trademarks and Customer relations is included in Sales, general and administration while amortization of Technologies and other intangible assets is included in Cost of goods sold. 2) In 2020, leases for land were reclassified from other intangible assets to right-of-use asset in the amount of SEK 1,206m.

Impairment testing

Annual testing for impairment of goodwill is carried out in the fourth quarter. The testing showed that no impairment was needed for 2020, 2019 or 2018. The WACC before tax used in the impairment testing of goodwill is presented in the table below. Sensitivity analyses show that reasonable changes to key parameters do not give rise to any impairment requirement. In addition to annual impairment testing of the cash-generating units, outlined above under the section Impairment testing, goodwill, trademarks with indefinite useful lives and individual assets are also tested when there is an indication of an impairment need. During the period, intangible assets, attributable to the operating segment Personal Care, were impaired by SEK –54m.

Distribution by operating segment

	Goodwill			Trademarks			WACC, before tax %
SEKm	2020	2019	2018	2020	2019	2018	2020	2019	2018
Personal Care	16,678	17,545	17,029	8,016	8,544	8,524	8.2	8.6	9.8
Consumer Tissue	9,264	9,894	9,625	4,879	5,108	5,016	8.2	8.1	9.4
Professional Hygiene	6,382	7,142	6,899	–	7	6	6.2	7.3	8.1
Total	32,324	34,581	33,553	12,895	13,659	13,546

TD1:1 Emission allowances

SEKm	2020	2019	2018
Accumulated costs	232	232	91
Accumulated revaluation of surplus	0	0	0
Total	232	232	91
Value, January 1	232	91	71
Emission allowances received	187	174	59
Purchases	30	51	25
Settlement with the government	–206	–84	–68
Translation differences	–11	0	4
Value, December 31	232	232	91

D2. PROPERTY, PLANT AND EQUIPMENT

AP ACCOUNTING PRINCIPLES

Property, plant and equipment

Property, plant and equipment is measured at cost less accumulated depreciation and any impairment. In cases where an investment in foreign currency has been recognized using hedge accounting, the gain/loss from the hedge is recognized as part of the acquisition cost. In major projects the cost of properties and production facilities include costs for running-in and start-up. Borrowing costs are included in the cost of investments exceeding SEK 250m that take more than 12 months to complete. Expenses for repairs and maintenance are expensed directly in profit or loss.

Depreciation and impairment

Land is not subject to depreciation. Buildings, machinery and equipment are depreciated on a straight-line basis over the expected useful lives of the assets. If, at the balance sheet date, there is an indication that property, plant and equipment has declined in value, impairment testing is carried out.

	Number of years
Pulp and paper mills	10–25
Converting machines, other machinery	7–18
Tools	3–10
Vehicles	4–5
Buildings	15–50
Energy plants	15–30
Computers	3–5
Office equipment	5–10
Land improvements	10–20

Property, plant and equipment

	Buildings			Land and land improvements			Machinery and equipment			Construction in progress
SEKm	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Accumulated costs	23,004	24,855	23,255	4,052	4,403	4,276	78,399	85,802	80,511	5,320	3,716	4,970
Accumulated depreciation		–10,776 –10,986 –10,010		–599	–649	–599		–48,672 –52,516 –48,983		–	–1	–
Accumulated impairment	–283	–258	–271	–23	–25	–51	–1,401	–1,261	–1,392	–2	–1	–33
Total	11,945	13,611	12,974	3,430	3,729	3,626	28,326	32,025	30,136	5,318	3,714	4,937
Value, January 1	13,611	12,974	12,063	3,729	3,626	3,446	32,025	30,136	28,328	3,714	4,937	4,645
Investments	124	208	102	9	34	22	1,127	1,808	1,601	4,882	3,629	4,950
Sales and disposals	–6	–37	–20	–4	–1	–46	–57	–89	–90	–4	–1	–18
Company acquisitions	28	–	79	9	–	71	42	–	145	–	–	86
Company divestments	–38	–	–	–18	–	–	–73	–81	–	–	–3	–
Reclassifications	235	818	1,134	11	–4	87	2,551	4,045	3,714	–2,844	–5,037	–4,895
Depreciation1)	–802	–841	–793	–41	–44	–42	–4,444	–4,597	–4,291	–	–	–
Impairment	–42	–6	–23	–	–2	–30	–234	–144	–372	–	–	–3
Reversal of impairment	–	70	–	–	22	–	8	27	–	–	–	–
Translation differences	–1,165	425	432	–265	98	118	–2,619	920	1,101	–430	189	172
Value, December 31	11,945	13,611	12,974	3,430	3,729	3,626	28,326	32,025	30,136	5,318	3,714	4,937

1) Included primarily in Cost of goods sold.

Total property, plant and equipment

SEKm	2020	2019	2018
Accumulated costs		110,775 118,776 113,012
Accumulated depreciation		–60,047 –64,152 –59,592
Accumulated impairment	–1,709	–1,545	–1,747
Total	49,019	53,079	51,673
Value, January 1	53,079	51,673	48,482
Investments	6,142	5,679	6,675
Sales and disposals	–71	–128	–174
Company acquisitions	79	–	381
Company divestments	–129	–84	–
Reclassifications	–47	–178	40
Depreciation1)	–5,287	–5,482	–5,126
Impairment	–276	–152	–428
Reversal of impairment	8	119	–
Translation differences	–4,479	1,632	1,823
Value, December 31	49,019	53,079	51,673
TG2:1 Right-of-use assets, net value	4,612	3,821	–
BS Value, December 31 including right-of-use assets	53,631	56,900	51,673

1) Included primarily in Cost of goods sold.

Impairment losses for the year totaling SEK 276m are related to restructuring measures mainly in Personal Care and Professional Hygiene in Russia and the USA, as well as ongoing measures in Consumer Tissue, primarily in Vinda.

Reversal of impairments totaling SEK 8m is mainly related to previous impairments at production facilities in Consumer Tissue in Spain and France.

During the period, interest was capitalized in machinery and equipment in an amount of SEK 18m (39; 24) and in construction in progress in an amount of SEK 1m (1; 0). The average interest rate used was 3% (4; 5).

Contract obligations relating to the acquisition of property, plant and equipment amounted to SEK 3,131m (3,836; 3,563) at year end.

D3. INVENTORIES

AP ACCOUNTING PRINCIPLES

Inventories are measured at the lower of cost and net realizable value. Cost is calculated mainly by applying the first-in, first-out (FIFO) principle or weighted average cost formula. The cost of inventories and work in progress includes raw material costs, direct labor, other direct expenses and production-related overheads, based on a normal capacity utilization.

The net realizable value is the calculated sales price received for normal business transactions less calculated sales costs.

Inventories

SEKm	2020	2019	2018
Raw materials and consumables	5,890	4,749	3,937
Spare parts and supplies	1,783	1,862	1,656
Products in progress	1,343	1,424	1,546
Finished products	7,363	7,717	8,090
Advance payments to suppliers	4	12	5
BS Total	16,383	15,764	15,234

Impairment of inventories amounted to SEK 302m (78; 85), of which SEK 9m (70; 61) was recognized in conjunction with restructuring as an item affecting comparability, refer to Note B3 Operating expenses on page 84.

D4. OTHER CURRENT RECEIVABLES

Other current receivables
SEKm	2020	2019	2018
VAT receivables	701	702	999
Prepaid expenses and accrued income	529	568	542
Suppliers with debit balance	123	56	43
Receivables for electricity and gas	207	137	134
Receivables from authorities	58	90	75
Derivatives	185	20	324
Other receivables	370	540	482
BS Total	2,173	2,113	2,599

D5. OTHER LIABILITIES

SEKm	2020	2019	2018
Other non-current liabilities
Derivatives	6	42	8
Other non-current liabilities	99	141	63
BS Total	105	183	71
Of which items that fall due for payment later than within five years	20	20	17
Other current liabilities
Derivatives	108	282	35
TD5:1 Accrued expenses and prepaid income	11,592	11,720	10,190
VAT liabilities	1,075	1,042	873
Other operating liabilities	1,770	1,954	1,694
BS Total	14,545	14,998	12,792
TD5:1 Accrued expenses and prepaid income
SEKm	2020	2019	2018
Bonus and discounts to customers	6,070	6,038	5,269
Accrued vacation pay liability	712	699	689

Total	11,592	11,720	10,190
Other items	3,068	3,005	2,871
Other liabilities to personnel	1,325	1,538	967
Accrued social security costs	417	440	394
Accrued vacation pay liability	712	699	689

D6. OTHER PROVISIONS

AP ACCOUNTING PRINCIPLES

Provisions are recognized in the consolidated balance sheet when there is a legal or informal obligation arising from past events and it is probable that payments will be required to settle the obligation. It must also be possible to reliably estimate the amount to be paid. The provision is valued at the present value of the anticipated future expenditure to settle the obligation.

A provision for restructuring measures is recognized when the Group has established a detailed plan and either implementation has begun or the main features of the measures have been communicated to the parties involved. Restructuring costs include, for example, costs for plant closures, impairment of production machinery and costs for personnel reductions.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

The amount of the provisions made relating to legal disputes is based on the company's best assessment, which was determined in consultation with local expertise in the field.

Other provisions 2020

SEKm	Efficiency programs	Environ ment	Legal disputes	Other	Total
Value, January 1	787	212	316	291	1,606
Provisions	52	208	113	56	429
Utilizations	–381	–208	–10	–97	–696
Reclassifications	–	–	–39	25	–14
Dissolutions	–40	–	–3	–21	–64
Translation differences	–18	–4	–37	–9	–68
Value, December 31	400	208	340	245	1,193
Provisions comprise:
BS Short-term component					748
BS Long-term component					445

Other provisions, previous periods

SEKm	2019	2018
Value, January 1	3,166	3,028
Provisions	912	1,526
Divestments of Group companies and other operations	–2	–
Utilizations	–1,403	–669
Reclassifications1)	–949	56
Dissolutions	–157	–853
Translation differences	39	78
Value, December 31	1,606	3,166

1) The reclassification in 2019 consists primarily of the reclassification of tax risks to tax liability, see Note B5 Income taxes on page 85.

Distribution of other provisions by maturity1)

1) The timing of provisions totaling SEK 197m cannot be assessed.

Of the Provisions for the period for Environment, SEK 208m pertains to a liability for carbon dioxide emissions, which will be settled in 2021. Provisions for the period for Legal disputes primarily relate to an expanded provision for a matter for which a provision has already been made.

Utilizations for the period concerning Efficiency programs are attributable to restructuring measures at the production facilities of Professional Hygiene and Consumer Tissue and the Group-wide cost-savings program. Utilizations for the period concerning Other provisions mainly relate to the payment of foreign tax of a non-recurring nature on non-current assets outside Sweden.

The provisions recognized at the end of the period attributable to Efficiency programs relate mainly to restructuring measures at production facilities of Professional Hygiene and Consumer Tissue. Provisions for Environment pertain mainly to a liability for carbon dioxide emissions. Provisions for Legal disputes mainly consist of reserves for cases relating to the Andean Community (CAN). Other provisions mainly comprise reserves in Italy in connection with, among other items, grants received for future investment commitments.

E. CAPITAL STRUCTURE AND FINANCING

E1. FINANCIAL INSTRUMENTS BY CATEGORY AND MEASUREMENT LEVEL

AP ACCOUNTING PRINCIPLES

Financial instruments recognized in the balance sheet include cash and cash equivalents, securities, other financial receivables, trade receivables, trade payables, loans and derivatives.

Current investments and derivatives are recognized on the trade date. Financial assets and loans are recognized on the settlement date. Trade receivables and trade payables are recognized in the balance sheet once the invoice has been sent or received, respectively.

Financial assets are initially recognized at cost, and transaction costs are included for certain instruments that are not measured at fair value. Financial assets are recognized in the balance sheet until the rights in the agreement have been realized or the company no longer has the rights to the asset. Financial assets measured at amortized cost are continuously reviewed according to the expected loss model to assess the need for credit loss provisions.

Financial liabilities are measured at amortized cost, except in cases where they are recognized at fair value using hedge accounting. Financial liabilities are derecognized from the balance sheet when Essity has met its commitments.

Essity recognizes financial instruments with a remaining maturity of less than 12 months as current assets and liabilities and those that exceed 12 months as non-current assets and liabilities.

Fair value measurement

For the financial instruments for which market quotations are available, actual prices are used for fair value measurement (Level 1). In the absence of market quotations for the instruments, Essity determines fair values with the aid of common valuation models, using quoted prices of similar assets or liabilities in active markets (Level 2).

The fair value of non-current loans measured at prevailing market interest rates is presented in Note E4 Financial liabilities on page 99. The fair value of current financial liabilities and investments is considered to correspond to the carrying amount, since a change in market interest rates does not have a significant effect on market value.

Classification and subsequent recognition

Under IFRS 9 Financial Instruments, financial assets are to be classified on the basis of the company's business model and the purpose of contractual cash flows.

Amortized cost

Financial assets held to collect contractual cash flows, and whose cash flows only consist of interest and the principal amount, are to be measured at amortized cost. The main rule is that financial liabilities are measured at amortized cost with the exception of the liabilities described in the measurement categories below. Since the majority of Essity's financial assets is held to collect contractual cash flows and are held to maturity, they are recognized at amortized cost according to the effective interest method. All liabilities, excluding derivatives, and the liabilities included in a hedging relationship, are measured at amortized cost.

Fair value through comprehensive income

Financial assets held to collect contractual cash flows, and which only consist of interest and the principal amount, and to sell the asset before maturity, are measured at fair value through other comprehensive income with the option to recirculate to profit or loss. Essity did not recognize any assets in this category during the year.

For financial assets comprising an equity instrument, the company can, on initial recognition, make an irrevocable choice to recognize the asset at fair value through comprehensive income without the option of recirculation to profit or loss. Essity has an asset valued at SEK 96m recognized in this category.

Fair value through profit or loss

Financial assets that do not fulfill the requirements as stated in the categories described above are to be measured at fair value through profit or loss. Financial assets and liabilities can, on initial recognition, irrevocably and under certain circumstances, be recognized at fair value through profit or loss if this leads to more relevant information. Derivatives are recognized at fair value through profit or loss. During the year, Essity did not recognize any financial assets or liabilities, except for derivatives and liabilities that are part of a hedging relationship, in this category. For more information, refer to Note E6 Derivatives and hedge accounting on page 100.

Accounting for derivatives used for hedging purposes

All derivatives are initially and continuously recognized at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recognized in accordance with the accounting principles stated in Note E6 Derivatives and hedge accounting on page 100.

E1. FINANCIAL INSTRUMENTS BY CATEGORY AND MEASUREMENT LEVEL, CONT.

Financial instruments by category and measurement level
		Measure ment
SEKm	Note	level	2020	2019	2018
Financial assets measured at fair value through profit or loss
Derivatives – Non-current financial assets	E2	2	90	52	36
Derivatives – Current financial assets	E2	2	450	302	198
Derivatives – Other current receivables	D4	2	31	12	59
Total			571	366	293
Financial liabilities measured at fair value through profit or loss
Non-current financial liabilities	E4	2	10,615	13,167	16,083
Current financial liabilities	E4	2	5,038	–	905
Derivatives – Non-current financial liabilities	E4	2	2	95	58
Derivatives – Current financial liabilities	E4	2	610	486	327
Derivatives – Other current liabilities	D5	2	70	48	14
Total			16,335	13,796	17,387
Loan and trade receivables measured at amortized cost
Non-current financial assets	E2	–	18	20	28
Current financial assets	E2	–	231	155	95
Trade receivables	E3	–	17,825	19,864	18,687
Cash and cash equivalents	E2	–	4,982	2,928	3,008
Total			23,056	22,967	21,818
Financial assets measured at fair value through other comprehensive income
Non-current financial assets	E2	1	96	96	87
Financial liabilities measured at amortized cost
Non-current financial liabilities	E4	–	24,861	26,796	27,359
Non-current lease liabilities	E4	–	2,724	3,021	–
Current financial liabilities	E4	–	2,206	7,560	9,580
Current lease liabilities	E4	–	807	851	–
Trade payables	–	–	14,791	15,802	15,911
Total			45,389	54,030	52,850
Derivatives used for hedge accounting
Non-current financial assets	E2	2	534	526	483
Other non-current assets	–	2	79	3	85
Other current receivables	D4	2	154	8	265
Current financial assets	E2	2	312	68	129
Total			1,079	605	962
Other non-current liabilities	D5	2	6	42	8
Current financial liabilities	E4	2	27	86	15
Other current liabilities	D5	2	38	234	21
Total			71	362	44

These financial instruments are measured at fair value, with the exception of loans and trade receivables and financial liabilities measured at amortized cost. According to Essity's assessment, the fair value essentially corresponds to the carrying amount, with the exception of non-current liabilities, the fair value of which is disclosed in Note E4 Financial liabilities on page 99.

Measurement levels

Level 1: Quoted prices on an active market for identical assets or liabilities, such as shares or bonds quoted on the stock exchange.

Level 2: Other observable inputs for the asset or liability than quoted prices included in Level 1, either directly (price quotations) or indirectly (obtained from price quotations), such as forward contracts or interest rate swaps.

Financial instruments in other notes to the balance sheet

		2020		2019		2018
SEKm	Note	Financial instru ments	Of which deriva tives	Financial instru ments	Of which deriva tives	Financial instru ments	Of which deriva tives
Assets
Financial assets, cash and cash equivalents	E2	6,713	1,386	4,147	948	4,064	846
Other non-current assets		79	79	3	3	85	85
Trade receivables	E3	17,825	–	19,864	–	18,687	–
Other current receivables	D4	185	185	20	20	324	324
Total		24,802	1,650	24,034	971	23,160	1,255
Liabilities
Financial liabilities	E4	46,890	639	52,062	667	54,327	400
Other non-current liabilities	D5	6	6	42	42	8	8
Trade payables		14,791	–	15,802	–	15,911	–
Other current liabilities	D5	108	108	282	282	35	35
Total		61,795	753	68,188	991	70,281	443

E2. FINANCIAL ASSETS, CASH AND CASH EQUIVALENTS

AP ACCOUNTING PRINCIPLES

Cash and cash equivalents are defined as cash and bank balances as well as current investments with a maturity of less than three months from the acquisition date. Restricted deposits are not included in cash and cash equivalents. Loan receivables are recognized at amortized cost.

Financial assets measured at amortized cost are continuously reviewed to assess the need for credit loss provisions.

Financial assets, cash and cash equivalents
Carrying amount
2020	2019	2018
96	96	87
18	20	28
624	578	519
738	694	634
165	155	22
66	–	73
762	370	327
993	525	422
4,074	2,315	2,611
908	613	397
4,982	2,928	3,008
6,713	4,147	4,064

Financial assets measured at fair value through comprehensive income relate to an equity instrument which was irrevocably classified without any option of recirculation due to the long-term nature of the holding. The holding relates to shares in pension assets attributable to certain pension obligations. These assets are not included in the normal pension calculations, as set out in Note C4 Remuneration after completion of employment on page 89. Changes in value excluding exchange gains and losses are recognized in equity under other comprehensive income, while exchange gains and losses are recognized in profit or loss.

Cash and cash equivalents at December 31, 2020 include SEK 2,737m (1,946; 2,260) that is not fully available for use by Essity or for which other limitations exist, primarily cash and cash equivalents in countries that are subject to exchange restrictions and other legal restrictions. Accordingly, it is not possible to immediately use these cash and cash equivalents in other areas of the Group, although it is normally possible to use them in the operations of the respective country. The cash and cash equivalents can also be used to repay local debts in these countries. Such liabilities in these countries amount to SEK 1,454m (1,254; 1,045).

E3. TRADE RECEIVABLES

AP ACCOUNTING PRINCIPLES

Trade receivables are measured at amortized cost after a provision is made for doubtful receivables. Provisions for doubtful receivables are made using the simplified impairment method in IFRS 9 Financial Instruments for trade receivables meaning the provision is measured at an amount that corresponds to the expected credit losses for the remaining terms of all outstanding trade receivables as per the balance sheet date.

An impairment of trade receivables due to a possible credit loss impacts Essity's operating profit as a selling cost in profit or loss and as a reduction of trade receivables by increasing the reserve for doubtful receivables in the balance sheet. When the credit loss has been confirmed, the trade receivable is written off against the provision to reserves for doubtful receivables. A credit loss is regarded as confirmed when it has been determined that the customer is unable to fulfill the legal obligation to pay Essity, when debt-collection measures are no longer cost efficient, the customer's operations have ceased or the customer has been declared bankrupt and this process has ended. Essity's trade receivables are generally current and are not discounted.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

The measurement of the provision for doubtful receivables is based on a combination of a collective and individual assessment. The collective assessment is based on the historical confirmed credit loss level in relation to net sales in the most recent five-year period, adjusted for changes in credit risk based on current and forward-looking information regarding macroeconomic factors that can impact the payment capacity of customers. These adjustments are made when necessary to take into account changed credit risk due to material changes in financial stability, GDP and employment in the countries where Essity conducts the majority of its sales. Individual assessment of the need to impair doubtful receivables is made in cases when it has been determined that the customer is experiencing financial problems, when no payment has been received for receivables that have long fallen due or because of other significant events, such as financial crises or natural disasters.

Trade receivables
SEKm	2020	2019	2018
Trade receivables, gross	18,063	20,177	18,963
Provision for doubtful receivables	–238	–313	–276
BS TE3:1 Total	17,825	19,864	18,687
TE3:1 Analysis of credit risk exposure in trade receivables
SEKm	2020	2019	2018
Trade receivables net after provision for doubtful receiv ables	17,825	19,864	18,687
Whereof: overdue
< 30 days	1,316	1,615	1,486
30–90 days	761	775	593
> 90 days	361	404	417
Trade receivables, overdue	2,438	2,794	2,496

Credit risk in trade receivables and provisions for doubtful receivables

Essity's customer structure is dispersed, with customers in many different areas of business. In 2020, Essity's ten largest customers accounted for 22.5% (23.7; 23.6) of Essity's sales. The single largest customer accounted for 2.7% (4.4; 4.4) of sales. Confirmed credit losses on trade receivables in 2020 amounted to 0.02% (0.01; 0.01) of net sales. Of the outstanding trade receivables on the balance sheet date 2020, the ten largest customers accounted for 23.9% (23.2; 24.5). Confirmed credit losses on trade receivables over the past five years amounted to an average of 0.02% (0.02; 0.02) of net sales. Essity's overall assessment, despite the ongoing COVID-19 pandemic, is that the credit risk within the customer segments in the countries where Essity conducts the majority of its sales has not changed materially during 2020; recognized bad debt losses remain at a low level. However, Essity continues to monitor development of GDP, financial stability and unemployment and will increase its provision for doubtful receivables if the situation deteriorates. Only one minor adjustment was therefore made in the collective assessment (see accounting principles and key assessment and assumptions above) regarding the expected impairment requirement for doubtful receivables in the 2020 year-end accounts.

In total, the Group has collateral mainly in the form of credit insurance taken out amounting to SEK 723m (1,251; 939). Of this amount, SEK 8m (13; 107) relates to the category trade receivables overdue.

Provision for doubtful receivables

SEKm	2020	2019	2018
Value, January 1	–313	–276	–257
Provision for expected credit losses	–38	–67	–52
Confirmed losses	25	14	15
Decrease due to divestments	22	–	–
Decrease due to reversal of provisions for expected credit losses	31	27	24
Translation differences	35	–11	–6
Value, December 31	–238	–313	–276

The expense for the period for doubtful receivables amounted to SEK –7m (–40; –28).

E4. FINANCIAL LIABILITIES

AP ACCOUNTING PRINCIPLES

The main principle for recognition of Essity's financial liabilities is that they are initially measured at fair value, net after transaction costs, and subsequently at amortized cost according to the effective interest method.

In cases where loans with fixed interest rates are hedged using derivatives, both the loan and the derivative are measured at fair value through a fair value hedge. Non-current loans that are subject to hedge accounting are discounted to the market interest rate without a credit spread. The cash flows from the interest rate derivatives are discounted to the market interest rate and the changes in value are recognized in profit or loss.

SEKm	2020	2019	2018
Non-current financial liabilities
Bond issues	28,486	31,690	34,247
Derivatives	2	95	58
Non-current lease liabilities	2,724	3,021	–
Other non-current loans with maturities > 1 year < 5 years	6,971	7,944	6,884
Other non-current loans with maturities > 5 years	19	329	2,311
BS Total	38,202	43,079	43,500
Current financial liabilities
Amortization within one year	219	255	347
Bond issues	5,037	–	3,005
Derivatives	637	572	342
Current lease liabilities	807	851	–
Loans with maturities of less than one year	1,833	7,137	6,948
Accrued financial expenses	155	168	185
BS Total1)	8,688	8,983	10,827
Total financial liabilities	46,890	52,062	54,327
Fair value of financial liabilities excluding leases	43,947	49,106	54,434

1) Fair value of current loans is estimated to be the same as the carrying amount.

Borrowing

Essity has a Euro Medium Term Note (EMTN) program with a program amount of EUR 6,000m (SEK 60,169m) for issuing bonds in the European capital market. As of December 31, 2020, a nominal EUR 3,440m (3,134; 3,728) was outstanding in public and bilateral issues with a remaining maturity of 3.4 years (3.8; 4.2).

Public bond issues

Issued1)	Maturity	Carrying amount, SEKm	Fair value, SEKm	Interest rate, %
Notes EUR 500m	2021	5,037	5,037	0.50
Notes EUR 600m	2022	6,005	6,078	0.63
Notes EUR 500m	2023	5,281	5,330	2.50
Notes EUR 600m	2024	6,000	6,234	1.13
Notes EUR 300m	2025	3,170	3,135	1.13
Notes EUR 500m	2027	4,985	5,373	1.63
Notes EUR 300m	2030	3,045	2,934	0.50
Total		33,523	34,121

1) In February 2021, a further EUR 700m was raised under the EMTN program, with a coupon of 0.25 percentage points and maturity of ten years .

Non-current financial liabilities	Carrying amount, SEKm	Fair value, SEKm
Other non-current loans with maturities > 1 year < 5 years	6,971	7,336
Other non-current loans with maturities > 5 years	19	19
Total	6,990	7,355

Essity has a Swedish and a Belgian commercial paper program that can be utilized for current borrowing.

Commercial paper program1)

Program size	Issued SEKm
Commercial paper SEK 15,000m	–
Commercial paper EUR 1,200m	–
Total	–

1) Included in Loans with maturities of less than one year in the Financial liabilities table.

Essity has syndicated bank facilities to limit the refinancing risk and maintain a liquidity reserve. Contracted bilateral credit facilities with banks are used to supplement these syndicated bank facilities.

Credit facilities

	Nominal	Maturity	Total SEKm	Utilized SEKm	Unutilized SEKm
Syndicated credit facilities	EUR 59m	2024	590	–	590
	EUR 941m	2025	9,438	–	9,438
	EUR 1,000m	20251)	10,028	–	10,028
Total			20,056	–	20,056

1) The syndicated credit facility expiring in 2025 was extended in January 2021 by EUR 937m until 2026. The remaining EUR 63m falls due in 2025.

Maturity profile of gross debt1) SEKm –12,000 –10,000 –8,000 –6,000 –4,000 –2,000 0 2021 2022 2023 2024 2025 2026 2027+ Bond issues Other loans

1) Gross debt includes accrued interest in the amount of SEK 277m.

After additions for net pension provisions and lease liabilities and with deductions for cash and cash equivalents, interest-bearing receivables and equity instruments, the net debt was SEK 42,688m (50,940; 54,404). For a description of the methods used by Essity to manage its refinancing risk, refer to the Risks and risk management section on page 41.

E5. LIQUIDITY RISK

The table below shows the Group's liquidity risk regarding financial liabilities (including interest payments), net settled derivatives that constitute financial liabilities and negative cash flows from gross settled derivatives. For a description of the methods used by Essity to manage its liquidity risk, refer to the Risks and risk management section on page 41.

Liquidity risk
SEKm	Less than 1 year	Between 1 and 3 years	Between 3 and 5 years	More than 5 years
2020
Loans including interest	7,602	16,590	11,910	8,153
Net settled derivatives	1	1	–	–
Energy derivatives	41	5	–	–
Lease liabilities	818	1,118	675	1,294
Trade payables	14,785	6	–	–
Total	23,247	17,720	12,585	9,447
Gross settled derivatives1)	59,168	2,135	104	–
2019
Loans including interest	8,003	18,438	14,325	8,850
Net settled derivatives	0	0	–	–
Energy derivatives	254	42	–	–
Lease liabilities	864	1,213	767	1,520
Trade payables	15,795	7	–	–
Total	24,916	19,700	15,092	10,370
Gross settled derivatives1)	60,735	1,057	591
2018
Loans including interest	10,998	14,864	13,686	16,975
Net settled derivatives	0	0	0	–
Energy derivatives	22	8	–	–
Trade payables	15,786	125	–	–
Total	26,806	14,997	13,686	16,975
Gross settled derivatives1)	57,937	2,101	466

1) The gross settled derivatives have, largely, corresponding positive cash flows and therefore, in the opinion of Essity, do not constitute any real liquidity risk.

E6. DERIVATIVES AND HEDGE ACCOUNTING

AP ACCOUNTING PRINCIPLES

Accounting for derivatives used for hedging purposes

All derivatives are initially and continuously measured at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recognized as described below. When using hedge accounting, the relationship between the hedging instrument and the hedged item is documented. Assessment of the effectiveness of the hedge is also documented, both when the transaction is initially executed and on an ongoing basis. Hedge effectiveness is the extent to which the hedging instrument offsets changes in value in a hedged item's fair value or cash flow. The ineffective portion is recognized directly in profit or loss.

Cash flow hedges

Gains and losses on remeasurement of derivatives intended for cash flow hedges are recognized in equity under other comprehensive income and reversed to profit or loss at the rate at which the hedged cash flow affects profit or loss. If a hedge relationship is interrupted and cash flow is still expected, the result is recognized in equity under other comprehensive income until the cash flow affects the result. If the hedge pertains to a balance sheet item, the result is transferred from equity to the asset or liability to which the hedge relates when the value of the asset or liability is determined for the first time. In cases in which the forecast cash flow that forms the basis of the hedging transaction is no longer assessed as probable, the cumulative gain or loss that is recognized in equity under other comprehensive income is transferred directly to profit or loss. Cash flow hedges relating to energy are recognized as energy costs, that is, cost of goods sold. Cash flow hedges related to transaction exposure are recognized in consolidated net sales and expenses.

Hedges of net investments in foreign operations

Gains and losses on remeasurement of derivatives intended to hedge Essity's net investments in foreign operations are recognized in equity under other comprehensive income. The cumulative gain or loss in equity is recognized in profit or loss in the event of divestment of the foreign operation.

Fair value hedges

The gain or loss from remeasurement of a derivative relating to fair value hedges is recognized in profit or loss together with changes in fair value of the hedged asset or liability. For Essity, this means that non-current loans that are subject to hedge accounting are discounted without a credit spread to the market interest rate and meet inherent interest rate derivatives' discounted cash flows at the same interest rate.

Economic hedges

When Essity conducts hedges and the transactions do not meet requirements for hedge accounting according to IFRS 9, changes in fair value of the hedging instrument are recognized directly in profit or loss.

Outstanding derivatives

		Of which
SEKm	Total	Currency1)	Interest rate	Energy
2020
Nominal	80,489	62,251	16,514	1,724
Asset	1,650	856	558	236
Liability	753	706	2	45
2019
Nominal	81,412	62,506	17,224	1,682
Asset	971	412	545	14
Liability	991	695	0	296
2018
Nominal	80,623	60,744	17,935	1,944
Asset	1,255	370	489	396
Liability	443	412	1	30

1) Nominal SEK 74,475m (64,183; 69,588) is outstanding before the right of set-off.

Balance sheet

Essity uses financial derivatives to manage currency, interest rate and energy price risks. For a description of how Essity manages these risks, refer to the section on Risk and risk management on page 36. The table above shows the derivatives that impacted the Group's balance sheet on December 31, 2020. For more information relating to derivatives in the balance sheet, see Note E1 Financial instruments by category and measurement level on page 97.

Offsetting of outstanding derivatives

SEKm	Assets	Liabilities
December 31, 2020
Gross amount	1,710	813
Offsettable amount	–60	–60
Net amount recognized in the balance sheet	1,650	753
ISDA agreements whose transactions are not offset in the balance sheet	–699	–699
Collateral received	–64	–
Net after offsetting in accordance with ISDA agreements	887	54
December 31, 2019
Gross amount	972	992
Offsettable amount	–1	–1
Net amount recognized in the balance sheet	971	991
ISDA agreements whose transactions are not offset in the balance sheet	–420	–420
Collateral paid	–	–26
Net after offsetting in accordance with ISDA agreements	551	545
December 31, 2018
Gross amount	1,275	463
Offsettable amount	–20	–20
Net amount recognized in the balance sheet	1,255	443
ISDA agreements whose transactions are not offset in the balance sheet	–347	–347
Collateral received	–98	–
Net after offsetting in accordance with ISDA agreements	810	96

Profit or loss

Hedges pertaining to transaction exposure had an impact of SEK –37m (–16; 92) on operating profit for the period. At year-end, the net market value amounted to SEK –39m (–17; 0). Currency hedges decreased the cost of non-current assets by SEK 2m (increased: 14; increased: 1). At year-end, the net market value amounted to SEK –4m (–3; –1). Energy derivatives had an impact of SEK –451m (–173; 396) on operating profit for the period. Energy derivatives had an outstanding market value of SEK 191m (–282; 366) at yearend. Derivatives impacted net interest items in an amount of SEK –169m (–381; –362). The net market value of outstanding interest rate derivatives amounted to SEK 556m (545; 489) at year-end. For further information relating to financial items, see Note E7 Financial income and expenses on page 103.

Sensitivity analysis

Essity has performed sensitivity analysis calculations on the financial instruments' risk at December 31, 2020 using assumptions on market movements that are regarded as reasonably possible in one year's time. If the Swedish krona had unilaterally weakened/strengthened by 5% against all currencies, outstanding financial hedges, trade payables and trade receivables would have decreased/increased profit for the period before tax by SEK 13m (8; 7).

If the Swedish krona had unilaterally weakened/strengthened by 5%, currency hedges relating to the cost of non-current assets would have increased/decreased equity by SEK 1m (0; 0). If energy prices had increased/ decreased by 20%, outstanding financial hedges relating to natural gas and electricity, all other things being equal, would have decreased/increased energy costs for the period by SEK 245m (174; 299). In addition to the earnings impact, equity would have increased/decreased by SEK 124m (90; 136). However, the total energy cost for the Group would have been affected differently if the price risk related to supply contracts was taken into account.

Derivatives with hedge accounting

The various risk management strategies are presented in the Risks and risk management section on page 36. The derivatives to which hedge accounting is applied are presented below. Essity also continuously hedges the transaction exposure and energy price risks for the risks that are recognized in the balance sheet and profit or loss. Hedge accounting is not

E6. DERIVATIVES AND HEDGE ACCOUNTING, CONT.

applied in respect of these risks. For currency derivatives, the revaluation from the risks meets derivatives in the financial positions. For energy derivatives, the result is recognized in profit or loss.

IFRS 9 provides the option of hedging risk components. In 2020, Essity did not utilize this option except for energy, where Essity in the Nordic region hedges the system price, which is a sub-component. The hedging ratio for the various risks for which hedge accounting is prepared is consistently 1:1.

On account of the ongoing Interest Rate Benchmark Reform, Essity has evaluated the potential impact on existing hedging relationships. Essity has a number of fair value hedges that use EURIBOR as basis for the variable interest rate in the derivative. In the event EURIBOR ceases to exist, the hedging relationships are covered by the exemption rules in IFRS 9, thus resulting in no material effects in connection with the transition to a new interest rate benchmark. The nominal amount of the hedging relationships in question is presented in the tables below. Essity is carefully monitoring the developments relating to the Interest Rate Benchmark Reform and the forthcoming changes to IFRS 9 and IFRS 7, which come into effect on January 1, 2021.

Cash flow hedges

Cash flow hedges for currency risk are prepared for transaction exposure, large investments and energy price risks in connection with purchases of electricity and gas. For cash flow hedges, hedges are prepared whereby critical terms match the hedged item. For the cash flow hedges prepared, this means that the change in fair value of the hedging instruments and the change in the hedged item are very highly correlated. Any ineffectiveness could, for example, be due to the time or the amount of the forecast cash flow mismatching with the cash flow of the derivative. In 2020, SEK 0m (0; 0) was recognized in profit or loss as ineffectiveness concerning the cash flow hedges. Currency derivatives mature until March 2023, while energy derivatives mature until December 2022.

Hedging of net investments

Essity has hedged net investments in a number of selected legal entities in order to achieve the desired currency distribution of net debt relative to assets so that key figures that are important to the company's credit rating can be protected in the long term. The result of hedging positions affected equity by a total of SEK 1,504m (–168; –122) during the year. This result is largely due to hedges of net investments in USD and EUR. In 2020, SEK 0m (0; 0) was recognized in profit or loss as ineffectiveness. The total market value of outstanding hedging transactions at the end of the period was SEK 374m (124; 353). In total at year-end, Essity hedged net investments outside Sweden amounting to SEK –12,854m. Essity's total foreign net investments at year-end amounted to SEK 71,222m. Currency derivatives and loans in foreign currency are used to hedge net investments.

Fair value hedges

For fair value hedges, the hedges have the same nominal amount, maturity dates and fixed interest as the hedged item. Hedge ineffectiveness is attributable, for example, to the various discount curves for the hedging instrument and the hedged item. Hedge ineffectiveness per maturity date is presented in the table below. Ineffectiveness is recognized in financial items under Fair value hedges, unrealized. See Note E7 Financial income and expenses on page 103.

	2020			2019		2018
Currency and energy derivatives, SEKm	Line in the Balance sheet	Nominal amount	Carrying amount	Nominal amount	Carrying amount	Nominal amount	Carrying amount
Currency derivatives – cash flow hedges	Other non-current assets	64	–	–	–	–	–
Currency derivatives – cash flow hedges	Other current receivables	99	3	47	1	270	3
Currency derivatives – cash flow hedges	Other non-current liabilities	62	1	28	0	–	–
Currency derivatives – cash flow hedges	Other current liabilities	185	6	283	4	179	4
Energy derivatives – cash flow hedges	Other non-current assets	559	79	36	3	588	85
Energy derivatives – cash flow hedges	Other current receivables	706	151	68	7	901	262
Energy derivatives – cash flow hedges	Other non-current liabilities	79	5	516	42	128	8
Energy derivatives – cash flow hedges	Other current liabilities	354	33	994	230	281	17
Currency derivatives – hedging of net investments	Non-current financial assets	–	–	–	–	–	–
Currency derivatives – hedging of net investments	Current financial assets	8,904	288	4,499	68	10,470	143
Currency derivatives – hedging of net investments	Non-current financial liabilities	–	–	–	–	–	–
Currency derivatives – hedging of net investments	Current financial liabilities	2,096	27	2,691	86	2,726	15

					Line in the balance sheet
Maturity date	Nominal amount	Change in fair value, hedged item	Change in fair value, derivatives	Ineffectiveness	Financial assets	Financial liabilities	Variable interest
2020
Current derivatives
2021	5,014	12	–10	2	24	–	Euribor 6m +0.5502–0.5527
Non-current derivatives
2022	68	2	–2	0	1	–	Euribor 3m +0.698
2023	4,011	57	–61	–4	280	–	Euribor 6m +0.7215–0.73165
2025	3,008	–18	18	0	164	–	Euribor 6m +0.514–0.5168
2030	3,008	–57	76	19	89	–	Euribor 6m +0.5077–0.5102
	15,109	–4	21	17	558	–
2019
Non-current derivatives
2021	5,213	–11	11	0	33	–	Euribor 6m +0.5502–0.5527
2022	127	3	–3	0	3	0	Euribor 3m +0.698
2023	4,170	8	–13	–5	343	–	Euribor 6m +0.7215–0.73165
2025	3,128	–71	73	2	147	–	Euribor 6m +0.514–0.5168
	12,638	–71	68	–3	526	0

Interest rate derivatives – hedging of fair value, SEKm

E6. DERIVATIVES AND HEDGE ACCOUNTING, CONT.

Interest rate derivatives – hedging of fair value, SEKm

Change in fair value, Change in fair value, Financial Financial Maturity date Nominal amount hedged item derivatives Ineffectiveness assets liabilities Variable interest 2018 Current derivatives 2019 900 7 –7 0 6 – Stibor +0.506 Non-current derivatives 2020 3,083 4 –4 0 29 – Euribor 6m +0.2827–0.2829 2021 5,139 –35 34 –1 22 – Euribor 6m +0.5502–0.5527 2022 180 3 –3 0 6 0 Euribor 3m +0.698 2023 4,111 –13 6 –7 355 – Euribor 6m +0.7215–0.73165 2025 3,083 –45 45 0 71 – Euribor 6m +0.514–0.5168 16,496 –79 71 –8 489 0 Derivatives with hedge accounting1) Hedge reserve Recirculated Line in the profit or loss/ SEKm Asset Liability Net Tax after tax before tax balance sheet 2020 Derivatives with hedge accounting in hedge reserve Cash flow hedges Energy risk 230 –38 192 –48 144 473 3) Currency risk 3 –7 –4 1 –3 –2 4) Total 233 –45 188 –47 141 Derivatives with hedge accounting without hedge reserve Hedges of net investments in foreign operations Currency risk2) 344 –32 312 Fair value hedges Interest rate risk 558 558 Total 1,135 –77 1,058 –47 141 2019 Derivatives with hedge accounting in hedge reserve Cash flow hedges Energy risk 10 –272 –262 58 –204 112 3) Currency risk 1 –4 –3 1 –2 14 4) Total 11 –276 –265 59 –206 Derivatives with hedge accounting without hedge reserve Hedges of net investments in foreign operations Currency risk2) 68 –87 –19 Fair value hedges Interest rate risk 526 526 Total 605 –363 242 59 –206 2018 Derivatives with hedge accounting in hedge reserve Cash flow hedges Energy risk 347 –25 322 77 245 –377 3) Currency risk 3 –4 –1 0 0 – 4) Total 350 –29 321 77 245 Derivatives with hedge accounting without hedge reserve Hedges of net investments in foreign operations Currency risk2) 143 –15 128 Fair value hedges Interest rate risk 489 489 Total 982 –44 938 77 245					Line in the balance sheet

1) Outstanding derivatives with hedge accounting are included in the table Outstanding derivatives.

2) Derivatives before offsetting. 3) Cost of goods sold.

4) Cost of goods sold, Net sales and Property, plant and equipment.

The results from hedging of net investments in foreign operations are recognized in the translation reserve, refer to Note E8 Equity on page 103. The results from fair value hedges are recognized directly in profit or loss.

Hedge reserve in equity

Currency derivatives relating to hedging of transaction exposure mature mainly during the first quarter of 2021. With unchanged exchange rates, profit after tax will be affected in an amount of SEK 0m (0; 0). Currency derivatives relating to hedging of the cost of non-current assets mature until March 2023. With unchanged exchange rates, the cost of non-current assets will increase by SEK 3m (increase by 2; increase by 1) after tax. The derivatives intended to hedge energy costs in the Group mature during 2021 and 2022. With unchanged prices, the Group's profit after tax will be affected positively in an amount of SEK 144m (negative 204; positive 245).

E7. FINANCIAL INCOME AND EXPENSES

Financial income and expenses

SEKm	2020	2019	2018
Result from non-current financial assets
Dividend	1	1	2
Interest income and similar profit items
Interest income, investments	107	105	85
Other financial income	0	–	4
IS Total financial income	108	106	91
Interest expenses and similar loss items
Interest expenses, borrowing	–762	–884	–836
Interest expenses, derivatives	–186	–378	–354
Interest expenses, lease liabilities	–98	–110	–
Fair value hedges, unrealized	17	–3	–8
Other financial expenses	–37	–40	–50
IS Total financial expenses	–1,066	–1,415	–1,248
OCF Total	–958	–1,309	–1,157

Other financial income and expenses include an exchange difference of SEK 0m (–4; 4).

E8. EQUITY

AP ACCOUNTING PRINCIPLES

Transaction costs directly relating to the issue of new shares or options are recognized, net after tax, in equity as a reduction in the issue proceeds. Expenditure for the purchase of own shares reduces retained earnings in equity in the Parent company and the portion of consolidated equity that pertains to owners of the Parent company. When these shares are sold, the sales proceeds are included in retained earnings in the equity pertaining to owners of the Parent company.

Equity totaled SEK 63,342m (62,801; 54,899) at December 31, 2020. Pages 65–66 show the Consolidated statement of change in equity.

The tables below show specifications of reserves and income tax attributable to components in other comprehensive income.

TE8:1 Equity, specification of reserves

		Revaluation reserve1)		Hedge reserve2)		Available-for-sale assets			Fair value through other comprehensive income			Translation reserve
SEKm	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018	2020	2019	2018
Value, January 1	107	107	107	–206	245	166	–	–	6	8	4	–	6,375	4,647	2,875
Reclassification									–6			6
Fair value through other comprehensive income										3	6	–5
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity				–9	–725	471
Transferred to profit or loss for the period				473	112	–378
Translation differences in foreign operations3)				–6	10	6				–	–	2	–7,246	1,859	1,868
Gains/losses from hedges of net investments in foreign operations													1,504	–168	–122
Tax on items recognized directly in/transferred from equity				–109	138	–21				–1	–2	1	–310	37	26
Other comprehensive income for the period, net of tax	–	–	–	349	–465	78	–	–	–6	2	4	4	–6,052	1,728	1,772
Transfer to cost of fixed assets concerning hedged investments, net of tax				–2	14	1
Value, December 31	107	107	107	141	–206	245	–	–	–	10	8	4	323	6,375	4,647

1) Revaluation reserve includes effect on equity of step acquisitions.

2) See also Note E6 Derivatives and hedge accounting on page 100 for details of when gains or losses are expected to be recognized.

3) Transfer to profit or loss of realized translation difference relating to divested and liquidated companies is included in the amount of SEK 4m (–178; 0).

Sensitivity analysis

If interest rate levels had been 1 percentage point higher/lower, with unchanged fixed-interest terms and volumes in the net debt, interest expenses for the period would have been SEK 87m (116; 123) higher/lower. Sensitivity analysis calculations have been performed on the risk to which Essity was exposed at December 31, 2020 using assumptions on market movements that are regarded as reasonably possible in one year's time.

For a description of the methods used by Essity to manage its interest rate risk, refer to the Risks and risk management section on page 41.

E8. EQUITY, CONT.

Total reserves in equity

SEKm	2020	2019	2018
Value, January 1	6,284	5,003	3,154
Reclassification	0	0	0
Fair value through other comprehensive income	3	6	–5
Cash flow hedges:
Result from remeasurement of derivatives recognized in equity	–9	–725	471
Transferred to profit or loss for the period	473	112	–378
Translation differences in foreign operations1)	–7,252	1,869	1,876
Gains/losses from hedges of net investments in foreign operations	1,504	–168	–122
Tax on items recognized directly in/transferred from equity	–420	173	6
Other comprehensive income for the period, net of tax	–5,701	1,267	1,848
Transfer to cost of fixed assets concerning hedged investments, net of tax	–2	14	1
Value, December 31	581	6,284	5,003

1) Transfer to profit or loss of realized translation difference relating to divested and liquidated companies is included in the amount of SEK 4m (–178; 0).

TE8:2 Specification of income tax attributable to components

in other comprehensive income		2020			2019			2018
SEKm	Before tax	Tax	effect After tax	Before tax	Tax	effect After tax	Before tax	Tax	effect After tax
Actuarial gains/losses on defined benefit pension plans	–202	280	78	482	54	536	–1,036	175	–861
Fair value through other comprehensive income	3	–1	2	6	–2	4	–5	1	–4
Cash flow hedges	464	–109	355	–613	138	–475	93	–21	72
Translation differences in foreign operations	–8,092	–	–8,092	2,095	–	2,095	2,080	–	2,080
Other comprehensive income from associated companies	–20	4	–16	–14	4	–10	23	–1	22
Gains/losses from hedges of net investments in foreign operations	1,504	–310	1,194	–168	37	–131	–122	26	–96
Other comprehensive income for the period	–6,343	–136	–6,479	1,788	231	2,019	1,033	180	1,213

At December 31, 2020, the debt/equity ratio amounted to 0.67 (0.81; 0.99). Changes in liabilities and equity are described in the Financial position section on page 35. Essity's target for capital structure is to establish an effective capital structure, while at the same time ensuring long-term access to loan financing. Cash flow in relation to net debt is to be taken into consideration with the aim of maintaining a solid investment grade rating.

Essity has a credit rating for long-term debt of Baa1 from Moody's and BBB+ from Standard & Poor's. Essity's financial risk management is described in the Risk and risk management section on page 36. The Essity share section on page 8 outlines Essity's dividend policy, while its capital structure is described in the Objectives, targets and outcomes section on page 22.

F1. GROUP COMPANIES

AP ACCOUNTING PRINCIPLES

Group companies

The companies over which Essity has control are consolidated as Group companies. Control means that Essity has sufficient influence to control the relevant activities of the Group company, and that Essity has the right to, and can influence, its variable returns from its participation in the Group company. Most of the Group's companies are wholly owned, which means that Essity has control over the companies. Essity owns 52% of Vinda, 50% of Familia and 49% of Unicharm Mölnlycke, over which Essity also considers itself in control.

Non-controlling interests

Non-controlling interests are recognized as a separate item in the Group's equity. Profit or loss and every component of other comprehensive income are attributable to the owners of the Parent company and to non-controlling interests. Losses attributable to non-controlling interests are recognized even if this results in a negative balance for the non-controlling interest. In connection with acquisitions of less than 100% when a controlling influence is achieved, non-controlling interests are determined either as a proportional share of the fair value of identifiable net assets excluding goodwill or at fair value. Subsequent acquisitions up to 100% and divestments of participations in a Group company that do not lead to a loss of controlling influence are recognized as an equity transaction.

List of major Group companies

The Group's participations in major Group companies at December 31, 2020 are presented below. The following selection of wholly owned Group companies or Group companies with significant non-controlling interests includes companies with external and internal sales in excess of SEK 500m in 2020.

Company name	Corp. Reg. No.	Domicile	Share of equity at December 31, 2020	Share of equity at December 31, 2019	Share of equity at December 31, 2018
Essity France SAS	509,395,109	Saint-Ouen, France	100	100	100
Essity Holding Netherlands B.V.	30-135 724	Zeist, Netherlands	100	100	100
Essity UK Ltd.	577,116	Dunstable, UK	100	100	100
Essity Professional Hygiene North America LLC	58-2494137	Delaware, USA	100	100	100
Vinda International Holdings Ltd1)	90235	Hong Kong, China	52	52	52
Essity Operations Wausau LLC	41-2218501	Wisconsin, USA	100	100	100
Essity Germany GmbH	HRB 713 332	Mannheim, Germany	100	100	100
Essity Hygiene and Health AB	556007-2356	Gothenburg, Sweden	100	100	100
Essity Spain S.L.	B28451383	Puigpelat, Spain	100	100	100
Essity Higiene y Salud Mexico, S.A. de C.V.	SCM-931101-3S5	Mexico City, Mexico	100	100	100
Productos Familia S.A. Colombia1)	8909001619	Medellin, Colombia	50	50	50
Productos Familia del Sancela Ecuador S.A.1)	179131437900	Quito, Ecuador	50	50	50
Productos Sancela del Peru 1)	20255172884	Lima, Peru	50	50	50
Essity Italy S.p.A.	3,318,780,966	Altopascio, Italy	100	100	100
Essity LLC	1024700877200	Moscow, Russia	100	100	100
Essity Poland Sp.z.o.o.	KRS No. 0000427360	Warsaw, Poland	100	100	100
Essity Austria GmbH	FN 49537 z	Vienna, Austria	100	100	100
Essity Belgium SA-NV	BE0405.681.516	Stembert, Belgium	100	100	100
Essity Professional Hygiene Germany GmbH	HRB 710 878	Mannheim, Germany	100	100	100
Essity Canada Inc.	421984	Ontario, Canada	100	100	100
OY Essity Finland AB	0165027-5	Espoo, Finland	100	100	100
Essity HMS North America Inc.	23-3036384	Delaware, USA	100	100	100
Essity Norway AS	915,620,019	Oslo, Norway	100	100	100
Essity Switzerland AG	CH-020.3.917.992-8	Schenkon, Switzerland	100	100	100
Essity Denmark A/S	DK20 638 613	Allerød, Denmark	100	100	100
Essity Chile SA	94.282.000-3	Santiago de Chile, Chile	100	100	100
Essity Hungary Kft	01-09-716945	Budapest, Hungary	100	100	100
Uni-Charm Mölnlycke KK	0104-01-046146	Tokyo, Japan	49	49	49
Essity Czech Republic s.r.o.	485 36 466	Prague, Czech Republic	100	100	100
Essity Operations Allo SL	B31235260	Allo, Spain	100	100	100
Essity Slovakia s.r.o.	36590941	Gemerska Horska, Slovakia	100	100	100
Essity Operations Mainz-Kostheim GmbH	HRB 5301	Mainz-Kostheim, Germany	100	100	100
Essity Operations France SAS	702,055,187	Saint-Ouen, France	100	100	100
Essity Operations Mannheim GmbH	HRB 3248	Mannheim, Germany	100	100	100
Essity Operations Neuss GmbH	HRB 14343	Neuss, Germany	100	100	100
Essity Operations Poland Sp.z.o.o.	KRS No. 0000086815	Olawa, Poland	100	100	100
Essity Operations Le Theil SAS	509,599,619	Saint-Ouen, France	100	100	100
Essity Operations Manchester Ltd	4119442	Dunstable, UK	100	100	100
BSN medical GmbH	HRB 124 187	Hamburg, Germany	100	100	100
BSN Radiante SAS	652,880,519	Le Mans, France	100	100	100
BSN Medical Inc.	3269728	North Carolina, USA	100	100	100
BSN-Jobst GmbH	HRB 3482	Emmerich, Germany	100	100	100
Essity Hijyen Ürünleri Sanayi ve Ticaret A.S.	640954	Istanbul, Turkey	100	100	100
Essity Centroamérica S.A.	3-101-211115	San José, Costa Rica	100	100	100
Essity do Brasil Indústria e Comércio Ltda.	72.899.016/0001-99	Jarinu, Brazil	100	100	100
Essity Ireland Ltd.	184359	Dublin, Ireland	100	100	100
Essity Distribution B.V.	75490080	Amsterdam, Netherlands	100	100	100

1) Essity has a small number of jointly owned Group companies with significant non-controlling interests, see Note F2 on page 106.

F2. JOINTLY OWNED GROUP COMPANIES WITH SIGNIFICANT NON-CONTROLLING INTERESTS

Vinda

Vinda International Holdings Ltd. (Vinda) is one of China's largest hygiene companies and listed on the Hong Kong stock exchange. Essity's holding in Vinda amounts to 52%. Vinda's market capitalization on the Hong Kong stock exchange was SEK 26,768m (20,266; 16,868) at the end of the period.

Familia

Productos Familia S.A., Colombia (Familia) is 50% owned by Essity and the remaining shares are primarily owned by the Gomez family. Essity is deemed to have a controlling influence of Familia since it has control over the activities with the most significant impact on Familia's return. Familia operates in the South American market and sells Personal Care, Consumer Tissue and Professional Hygiene products.

Financial information

Financial information is disclosed below for both Group companies. Financial information has not been disclosed for other Group companies with significant non-controlling interests since no other individual company had a material impact on the Group's earnings and financial position.

The income statements and balance sheets as shown below are included in Essity's consolidated financial statements and consider adjustments for surplus values in connection with acquisitions.

Group companies with significant non-controlling interests, 100% of operations1)

		Familia
SEKm	2020	2019	2018	2020	2019	2018
Condensed income statement
Net sales	19,521	19,355	16,543	6,950	7,603	7,047
Operating profit before amortization of acquisition-related intangible assets	2,980	1,889	1,133	1,1702)	1,0422)	7292)
Operating profit	2,900	1,882	1,127	1,1622)	1,0322)	9472)
Profit for the period	2,223	1,364	720	819	719	648
of which attributable to owners of the Parent company	1,151	709	374	410	371	334
Other comprehensive income for the period	–60	62	–13	–803	191	–39
of which attributable to owners of the Parent company	–31	32	–7	–409	86	–78
Comprehensive income for the period	2,163	1,426	707	16	910	609
of which attributable to owners of the Parent company	1,120	741	367	1	457	256
of which attributable to non-controlling interests	1,043	685	340	15	453	353
Dividend to non-controlling interests	212	146	125	187	151	227
Condensed balance sheet
Non-current assets	17,362	20,556	19,834	3,217	3,861	3,231
Current assets	8,799	7,043	6,552	3,466	3,616	3,101
Total	26,161	27,599	26,386	6,683	7,477	6,332
Equity attributable to owners of the Parent company	8,434	9,110	8,373	2,094	2,281	1,975
Equity attributable to non-controlling interests	5,941	6,397	5,753	2,018	2,190	1,888
Non-current liabilities	3,519	5,399	5,799	802	1,080	811
Current liabilities	8,267	6,693	6,461	1,769	1,926	1,658
Total	26,161	27,599	26,386	6,683	7,477	6,332
Cash flow from operating activities	2,371	3,031	1,474	1,274	8413)	7863)
Cash flow from investing activities	–2,041	–1,535	–1,310	–253	–2543)	–8923)
Cash flow from financing activities	–37	–1,625	–63	–468	–4603)	–2333)
Cash flow for the period	293	–129	101	553	1263)	–3393)

1) For more information about the companies, refer to the list of major Group companies on page 105.

2) For Familia, items affecting comparability in the amount of SEK –m (–22; –38) are included. Amounts for 2019 and 2018 have been adjusted.

3) Amounts for Familia regarding 2019 and 2018 have been adjusted.

F3. JOINT VENTURES AND ASSOCIATED COMPANIES

AP ACCOUNTING PRINCIPLES

Joint arrangements

Essity classifies its joint arrangements as joint ventures or joint operations, which are presented in Note F4 Joint operations on page 108.

Joint ventures

Joint ventures are defined as companies in which Essity together with other parties has shared control over operations. A joint venture entitles the joint owners to the net assets of the investment. Joint ventures are recognized in accordance with the equity method, meaning that a net item including the goodwill will be recognized for each joint venture in the balance sheet. A share in profits is recognized in the income statement as a component of "Share of profits of associated companies and joint ventures". Share of profits is calculated on the basis of Essity's share of equity in the respective joint venture. Joint arrangements recognized in accordance with the equity method are initially measured at cost. Measurement of acquired assets and liabilities is carried out in the same way as for Group companies.

Associated companies

Associated companies are companies in which the Group exercises a significant influence without the partly owned company being a Group company or a joint arrangement. Normally, this means that the Group owns between 20% and 50% of the votes. Accounting for associated companies is carried out according to the equity method and they are initially measured at cost. Valuation of acquired assets and liabilities is performed in the same manner as for Group companies and the carrying amount for associated companies includes any goodwill and other Group adjustments.

The Group's share of profit after tax arising in the associate after the acquisition is recognized in the consolidated income statement in the line "Share of profits of associated companies and joint ventures". Share of profits is calculated on the basis of Essity's share of equity in the respective associate.

F3. JOINT VENTURES AND ASSOCIATED COMPANIES, CONT.

Carrying amounts of joint ventures and associated companies

SEKm	2020	2019	2018
Joint ventures
Value, January 1	181	171	144
Net increase in joint ventures1)	17	8	19
Translation differences	–9	2	8
Value, December 31	189	181	171
Associated companies
Value, January 1	684	606	918
Company acquisitions	–	3	–
Company divestments	–	–	–3
Net change in associated companies1)	1	43	–21
Impairment of associated companies	–	–	–278
Reclassification between associated companies and Group companies	–	–	–6
Translation differences	–27	32	–4
Value, December 31	658	684	606
BS TF3:1 Value, December 31, joint ventures and associated companies	847	865	777

1) Net increase for the period includes the Group's share of the profit after tax of joint ventures and associated companies, as well as items recognized directly in equity (both after deductions for any non-controlling interests). In addition, an adjustment is included for dividends received during the period, which amounted to SEK 3m (8; 7) for joint ventures and SEK 28m (–; 79) for associated companies.

Joint ventures and associated companies

Asaleo Care

Asaleo Care Ltd (Asaleo Care) manufactures and markets Consumer Tissue, Professional Hygiene and Personal Care products. Essity has licensed its Tork and TENA brands to Asaleo Care for sale in Australia, New Zealand and Fiji. Essity's share of Asaleo Care amounts to 36%. In 2018, the company recognized an impairment loss of AUD 148.5m relating to assets in the Tissue business in Australia and the Personal Care business in New Zealand. During 2019, the company divested Consumer Tissue operations in Australia. In 2020, the company discontinued the Baby Care operations in New Zealand. Essity has recognized the effects of these transactions as items affecting comparability, see Note B3 on page 84.

Bunzl & Biach

Bunzl & Biach GmbH (Bunzl & Biach) Vienna, is Essity's single largest joint venture that operates in the recovered paper market and supplies raw materials to Essity's business.

TF3:1 Material joint ventures and associated companies, 100% of operations

		Joint ventures			Associated companies
	Bunzl & Biach			Asaleo Care				Total
SEKm	2020	2019	2018	2020	20191)	2018	2020	2019	2018
Condensed income statement
Net sales	1,134	1,424	1,471	2,655	2,795	2,645	3,789	4,219	4,116
Depreciation/amortization	–14	–13	–13	–171	–168	–169	–185	–181	–182
Operating profit	34	30	47	390	346	126	424	376	173
Interest income	–	–	–	1	3	3	1	3	3
Interest expenses	–	–	–	–52	–80	–98	–52	–80	–98
Other financial items	–	–	1	–1	–4	–3	–1	–4	–2
Tax expense	–7	–9	–14	–97	–73	–23	–104	–82	–37
Profit for the period, continuing operations	27	21	34	241	192	5	268	213	39
Profit/loss for the period, discontinued operations	–	–	–	–37	–9	–710	–37	–9	–710
Profit/loss for the period	27	21	34	204	183	–705	231	204	–671
Other comprehensive income for the period	–	–	–	–44	–13	63	–44	–13	63
Comprehensive income for the period	27	21	34	160	170	–642	187	191	–608
Condensed balance sheet
Non-current assets	160	163	147	1,929	2,041	1,728	2,089	2,204	1,875
Cash and cash equivalents	64	31	12	345	216	426	409	247	438
Other current assets	174	167	238	690	969	885	864	1,136	1,123
Assets held for sale	–	–	–	–	–	1,131	–	–	1,131
Total assets	398	361	397	2,964	3,226	4,170	3,362	3,587	4,567
Non-current financial liabilities	90	69	118	932	1,114	2,061	1,022	1,183	2,179
Other non-current liabilities	63	69	67	206	363	131	269	432	198
Current financial liabilities	–	–	–	48	9	4	48	9	4
Other current liabilities	26	31	34	544	513	639	570	544	673
Liabilities directly linked to assets held for sale	–	–	–	–	–	294	–	–	294
Total liabilities	179	169	219	1,730	1,999	3,129	1,909	2,168	3,348
Net assets	219	192	178	1,234	1,227	1,041	1,453	1,419	1,219
Group share of net assets	107	94	87	446	444	376	553	538	463
Surplus value	69	74	71	174	191	187	243	265	258
Carrying amount of the companies	176	168	158	620	635	563	796	803	721
Carrying amount of other joint ventures	13	13	13	–	–	–	13	13	13
Carrying amount of other associated companies	–	–	–	38	49	43	38	49	43
BS TF3:2 Carrying amount of joint ventures
and associated companies	189	181	171	658	684	606	847	865	777
Market value, December 31				4,690	3,745	3,144

1) Amount relating to 2019 has been adjusted with respect to the allocation between short and long-term liabilities and depreciation/amortization.

F3. JOINT VENTURES AND ASSOCIATED COMPANIES, CONT.

	TF3:2 Carrying amounts of joint ventures and associated companies

Company name	Corp. Reg. No.	Domicile	Share of equity at December 31, 2020, %	Share of equity at December 31, 2019, %	Share of equity at December 31, 2018, %	Carrying amount December 31, 2020, SEKm	Carrying amount December 31, 2019, SEKm	Carrying amount December 31, 2018, SEKm
Joint ventures
Bunzl & Biach GmbH	FN79555v	Vienna, Austria	49	49	49	176	168	158
Other						13	13	13
Associated companies
Asaleo Care Ltd	61 154 461 300	Melbourne, Australia	36	36	36	620	635	563
Other						38	49	43
BS TF3:1 Carrying amount, December 31						847	865	777

F4. JOINT OPERATIONS

AP ACCOUNTING PRINCIPLES

Joint operations are defined as companies in which Essity, together with other parties through an agreement, has shared control over operations. In joint operations, parties to the agreement have rights to the assets and obligations for the liabilities associated with the investment, meaning that the operator must account for its share of the assets, liabilities, revenues and costs according to the proportional method.

Measurement of acquired assets and liabilities according to the proportional method is carried out in the same way as for Group companies. Essity recognizes its proportional share of the company's assets, liabilities, income and expenses in its financial statements.

Joint operations

Company name	Corp. Reg. No.	Domicile	Share of equity at December 31, 2020	Share of equity at December 31, 2019	Share of equity at December 31, 2018
Uni-Charm Mölnlycke B.V.	02-330 631	Hoogezand, Netherlands	40	40	40
ProNARO GmbH	HRB 8744	Stockstadt, Germany	50	50	50
Nokianvirran Energia Oy (NVE)	213 1790-4	Kotipakka, Finland	27	27	27

Uni-Charm Mölnlycke

Uni-Charm is classified as a joint operation since the parties to the agreement purchase all products produced by the company. The products are priced in a manner that allows the operations to receive full cost recovery for their production and financing costs. This means that the company in the joint operation is operated with near-zero profit and thus is not exposed to commercial risk. This joint operation has operations in Hoogezand in the Netherlands, Veniov in Russia and Delaware in the USA. Uni-Charm Russia was divested in December 2020.

F5. SHARES AND PARTICIPATIONS

AP ACCOUNTING PRINCIPLES

Shares and participations pertain to holdings in other companies that are not classified as Group companies, joint arrangements or associated companies. Since these holdings are of an operating nature, the holdings are not classified as available-for-sale financial assets. Carrying amounts is deemed to concur with fair value.

Shares and participations

SEKm	2020	2019	2018
Value, January 1	8	29	32
Increase through acquisitions	–	–	4
Divestments	–1	–14	–8
Other reclassifications	–	–7	–
Translation differences	–	–	1
BS Value, December 31	7	8	29

ProNARO

A number of paper mills merged and formed the company ProNARO, whose main task is to negotiate favorable prices, optimize inventory levels, improve timber quality and reduce lead times and costs when purchasing timber. ProNARO's purchasing is based on forecast volumes from the paper mills. The company's production and administration costs are charged to the paper mills through the price set for the timber. Any budget or price deviations are charged to the paper mills for these additional costs, which means that ProNARO is not exposed to commercial risk.

Nokianvirran Energia

Essity has entered into an agreement with two other stakeholders to form a joint so-called mankala company in the Finnish energy market, where the joint parties produce heat and steam from biofuel. Each party in the joint operation is obligated to bear a portion of the fixed costs in proportion to its holding in the company and to pay for the raw materials used in the production of heat and steam in proportion to its consumption. Accordingly, the company is not profit-driven since the parties themselves bear their respective costs. The company is expected to generate near-zero profit and thus is not exposed to any commercial risk.

F6. ACQUISITIONS AND DIVESTMENTS OF GROUP COMPANIES AND OTHER OPERATIONS

AP ACCOUNTING PRINCIPLES

Acquisition of Group companies and other operations

Essity applies IFRS 3 Business Combinations for acquisitions. In business combinations, acquired assets and assumed liabilities are identified and measured at fair value on the date of acquisition (also known as purchase price allocation). The purchase price allocation also includes an assessment of whether there are any assets that are intangible in nature, such as trademarks, patents, customer relations or similar assets that are not recognized in the acquired unit. If the purchase consideration paid is higher than the net value of the acquired assets and assumed liabilities, the difference is recognized as goodwill. Any surplus value on property, plant and equipment is depreciated over the estimated useful life of the asset. Goodwill and strong trademarks with indefinite useful lives are not amortized; instead, they are subjected to annual impairment testing. Some trademarks and customer relations are amortized over their estimated useful lives. A purchase price allocation is considered preliminary until it is confirmed. A preliminary purchase price allocation is changed as soon as new information regarding assets/liabilities on the acquisition date is obtained, although the acquisition balance sheet must be confirmed not later than one year from the date of the acquisition.

If the transferred consideration is contingent on future events, it is measured at fair value and any changes in value are recognized in profit or loss.

Transaction costs in conjunction with acquisitions are expensed when they occur.

Companies acquired during the period are included in the consolidated financial statements as of the acquisition date. Divested companies are included in the consolidated financial statements until the divestment date.

Non-controlling interests

Acquisitions of non-controlling interests are measured on an acquisition-by-acquisition basis, either as a proportional share of the fair value of identifiable net assets excluding goodwill (partial goodwill) or at fair value, which means that goodwill is also recognized on non-controlling interests (full goodwill).

In step acquisitions in which a controlling influence is achieved, any net assets acquired earlier in the acquired units are remeasured at fair value and the result of the remeasurement is recognized in profit or loss. If the controlling influence is lost upon the divestment of an operation, the result is recognized in profit or loss and the portion of the divested operation that remains in the Group is measured at fair value on the divestment date, with the remeasurement effect recognized in profit or loss.

Increases in the stake of Group companies after controlling influence is achieved are recognized as an equity transaction, meaning the difference between the purchase consideration paid and the carrying amount of the non-controlling interests is recognized as an increase or decrease in equity attributable to the Parent company's shareholders. The same accounting procedure applies for divestments that take place without the loss of a controlling influence.

Acquisitions in 2020

On February 27, 2020, it was announced that an agreement had been signed to acquire 75% of the Swedish medical solutions company ABIGO Medical AB. ABIGO Medical AB develops, manufactures and markets products including the Sorbact® technology, which is a clinically established innovation for advanced wound care. The purchase price for the shares amounts to SEK 674m, and takeover of net debt to SEK 6m. The transaction, which was subject to the customary regulatory approvals, was finalized on April 30, 2020. The purchase price allocation has been established in the last quarter of 2020. Goodwill is justified since ABIGO Medical AB was already an important partner and supplier to Essity prior to the acquisition, with Essity already using Sorbact® in its wound care products to prevent and treat infections. The company has about 170 employees and net sales in 2019 amounted to SEK 403m.

Since the acquisition, ABIGO Medical AB's recognized net sales amounted to SEK 163m, adjusted EBITDA to SEK 6m and adjusted EBITA to SEK –3m.

If the acquisition had been consolidated as of January 1, 2020, the anticipated sales would have amounted to SEK 272m, adjusted EBITDA to SEK 15m and adjusted EBITA to SEK 3m.

On April 1, 2020, Essity acquired 100% of the shares in Novioscan B.V., a Dutch company that develops a wearable ultrasound technology that monitors the bladder and enables continence control. The purchase price for the shares was EUR 4m and the takeover of net debt was EUR 3m. The company has ten employees. Net sales for 2019 and for the last three quarters of 2020 were negligible in relation to those of the Essity Group. The purchase price allocation indicated goodwill of SEK 71m. The purchase price allocation has been established in the last quarter of 2020.

Transaction costs for both acquisitions amounted to SEK 7m and are recognized in items affecting comparability in profit or loss.

Acquisitions in 2019

Other than a minor acquisition of the associate China-Euro Healthcare Management of SEK 3m, no new acquisitions were carried out. Payments pertaining to earlier acquisitions mainly concern the final settlement of SEK 129m after the acquisition price was finalized for the compulsory redemption of shares in Essity Hygiene Products SE in Germany, former

PWA, most of which was recognized as a liability in 2013. In addition to this, earn-out payments of SEK 11m were paid in accordance with the conditions of the purchase agreement from the acquisition of Sensassure in Canada in 2016.

Acquisitions in 2018

During the first quarter of 2018, the preliminary purchase price allocation from 2017 was established for BSN medical.

Familia, in which Essity has a 50% stake, completed three acquisitions. On February 16, the outstanding 50% of Productos Sancela del Peru, with operations in Peru and Bolivia, was acquired. The consideration transferred amounted to SEK 310m. Following the acquisition, Essity consolidated the acquisition of the company as a Group company with non-controlling interest. Prior to the acquisition, the company was consolidated as an associated company according to the equity method. Remeasurement was carried out of the previously recognized equity portion at fair value in the amount of SEK 225m, which is recognized as an item affecting comparability in profit or loss. The acquisition did not have any material impact on Essity's net sales since the acquired company's operations are based on the onward sale of products from Familia, which prior to the acquisition recognized sales to Peru and Bolivia as external sales. The impact on Essity's earnings of the acquisition was not material. In February, a building was acquired that was supplemental to the share acquired at the end of 2017 in Continental de Negocias S.A. with operations in the Dominican Republic. The consideration transferred amounted to SEK 85m. On April 3, Industrial Papelera Ecuatoriana S.A. (INPAECSA) was acquired with operations in Ecuador. The consideration transferred amounted to SEK 68m. The acquisition did not have any material impact on Essity's net sales or earnings in 2018.

F6. ACQUISITIONS AND DIVESTMENTS OF GROUP COMPANIES AND OTHER OPERATIONS, CONT.

Acquisition of Group companies and other operations

The table below shows the fair value of acquired net assets recognized on the acquisition date, recognized goodwill and the effect on the Group's cash flow statements.

Acquisition balance sheets

SEKm	2020	2019	2018
Intangible assets	236	–	77
Property, plant and equipment	92	–	381
Other non-current assets	–	3	1
Operating assets	184	–	313
Cash and cash equivalents	47	–	26
Provisions and other non-current liabilities	–69	–	–45
Net debt excl. cash and cash equivalents	–79	–	–233
Operating liabilities	–76	–	–134
Fair value of net assets	335	3	386
Goodwill	603	–	311
Non-transferred consideration, recognized as a liability	–225	–	–
Consolidated value of share in associated companies	–	–	–8
Revaluation of previously owned shares in associated companies	–	–	–225
Non-controlling interests	1	–	–
Acquisition of non-controlling interests recognized in equity attributable to owners of the Parent company	1	–	–
Consideration transferred	715	3	464
Consideration transferred	–715	–3	–464
Earn-out payment	–	–22	–
Settled debt pertaining to acquisitions in earlier years	–	–118	–23
Cash and cash equivalents in acquired companies	47	–	26
CF Effect on Group's cash and cash equivalents, acquisitions of Group companies and other operations	–668	–143	–461
of which recognized as acquisitions of holdings in investing activities	–668	–143	–461
Acquired net debt excl. cash and cash equivalents	–79	–	–233
OCF Acquisitions of Group companies and other operations during the period, including net debt assumed	–747	–143	–694

Divestments of Group companies and other operations

In December 2020, Essity divested its 49% stake in Sancella Tunisia to the other owner Sotupa. Sancella Tunisia offers a range of Essity's products and brands in Tunisia, Algeria, Morocco, and Libya. Essity will retain a presence on these markets through license and distribution agreements. In 2019, Sancella Tunisia reported net sales of SEK 575m. The divestment gave rise to a capital gain of SEK 46m excluding the reclassification of realized translation differences of SEK –17m.

In December 2020, Essity divested part of its Baby Care operation in Russia, giving rise to a capital gain of SEK 24m excluding the reclassification of realized translation differences of SEK –11m. In addition, a previously shutdown operation in Morocco and India was concluded and a minor operation included in the Abigo acquisition was divested with a capital loss of SEK 5m excluding the reclassification of realized positive translation differences of SEK 33m.

The total capital gain for all divestments amounted to SEK 65m excluding reclassification of realized translation differences. Including the reclassification of realized positive translation differences of SEK 4m for divested and liquidated Group companies, the net gain amounts to SEK 69m.

In 2019, Essity divested its holding in the jointly owned company SCA Yildiz in Turkey and a minor operation in Medical Solutions in Brazil.

No divestments were carried out in 2018. Gain/losses and cash flow relate to earn-out payments for previously divested companies primarily in the US.

All earnings were recognized in items affecting comparability in profit or loss.

Assets and liabilities included in divestments

of Group companies and other operations
SEKm	2020	2019	2018
Intangible assets	38	59	–
Property, plant and equipment	129	130	–
Other non-current assets	24	1	–
Operating assets	322	93	–
Cash and cash equivalents	38	0	–
Net debt excl. cash and cash equivalents	–284	–215	–
Other non-current liabilities	–	–7	–
Operating liabilities	–268	–87	–
Non-controlling interests	57	27	–
Gain/loss on sale1)	65	19	68
Compensation received	121	20	68
Deduct:
Receivable for unpaid purchase consideration	–	–15	–
Financial receivable for unpaid purchase consideration	–18	–	–
Cash and cash equivalents in divested companies	–38	–	–
CF Impact on Group's cash and cash equivalents, divestments of Group companies and other operations	65	5	68
Add:
Financial receivable for unpaid purchase consideration	18	–	–
Divested net debt excl. cash and cash equivalents	284	215	–
OCF Divestments of Group companies and other operations during the period, including net debt transferred and financial receivable for unpaid purchase consideration	367	220	68

1) Excluding reversal of realized translation differences in divested companies to profit or loss. Gain/loss on divestment is included in items affecting comparability in profit or loss.

G. OTHER

G1. NON-CURRENT ASSETS HELD FOR SALE

AP ACCOUNTING PRINCIPLES

Assets are classified as held for sale if their value, within one year, will be recovered through a sale and not through continued use in the operations. On the reclassification date, the assets and liabilities are measured at the lower of fair value minus selling costs and the carrying amount. The assets are no longer depreciated after reclassification. Any gain from remeasurement is limited to the amount equivalent to previously made impairment charges. Gains and losses recognized on remeasurement and divestment are recognized in profit or loss for the period.

When an independent business segment or a significant operation within a geographic area is divested, it is classified as a discontinued operation. The divestment date, or the point in time when the operation fulfills the criteria for classification as held for sale, determines when the operation should be classified as a discontinued operation.

Profit/loss after tax from discontinued operations is recognized on a separate line in the income statement. The income statement is adjusted for the comparative period as though the discontinued operation had already been disposed of at the start of the comparative period.

Non-current assets held for sale and discontinued operations
SEKm	2020	2019	2018
Buildings	–	28	31
Land	–	14	24
Machinery and equipment	–	–	14
BS Total	–	42	69

Non-current assets held for sale are attributable to:

• 2019: closure of a production plant in the USA
• 2018: closure of a production plant in the USA totaling SEK 30m and the closure of an operation in India totaling SEK 39m

G2. LEASES

AP ACCOUNTING PRINCIPLES

When a contract is signed it is assessed, if the contract is or contains a lease. A contract is or contains a lease if:

• it contains an identified asset
• the lessee is entitled to essentially all economic benefits arising from the use of the identified asset
• the lessee is entitled to control the use of the asset

If any of the above conditions are not met, the contract is not regarded as a lease or containing a lease and is therefore classified as a service contract.

On the commencement date of the lease, meaning when the asset becomes available for use by Essity, a right-of-use asset and a financial liability are recognized in the balance sheet.

• The right-of-use asset is measured at cost and includes the following:
• the value of the amount of the lease liability
• lease payments made on or before the commencement date, after deductions for any benefits received in conjunction with signing the lease
• initial direct fees
• an estimate of expenses expected to be paid to restore the asset to the condition as stipulated in the terms of the lease

The right-of-use asset is recognized in the balance sheet under the heading Property, plant and equipment and is depreciated on a straight-line basis over the shorter period of the asset's anticipated useful life and the lease term. The lease term is assessed on the basis of the length of the underlying contract taking into consideration the cancellation and renewal options.

The lease liability is measured at the present value of the following lease payments:

• fixed fees, less any incentive receivables
• variable lease payments due to an index or rate
• amounts expected to be paid in accordance with residual value guarantees
• the exercise price for a purchase option, if the lessee is reasonably certain of exercising the option
• financial penalties to be paid on termination of the lease, if the lease term reflects that the lessee will utilize this option.

Lease payments are normally discounted using Essity's incremental borrowing rate as the implicit rate of the lease cannot be readily determined in most cases. The incremental borrowing rate used is determined on the basis of the contract currency of the agreement and the length of the lease.

The lease liabilities are recognized under the headings Non-current financial liabilities or Current financial liabilities. Lease liabilities are measured at amortized cost according to the effective interest method. The liability is remeasured when future payments are amended by index or by other means, such as a new assessment of future residual value commitments, or the exercise of purchase, renewal or cancellation options. When the lease liability is remeasured as described above, a corresponding adjustment of the value of the right-of-use asset is made. When making lease payments, the contribution is allocated between interest expense and amortization of the lease liability outstanding. In the consolidated cash flow statement, payments pertaining to the amortization of lease liability are recognized in financing activities and payments pertaining to interest expenses are recognized as interest paid. In profit or loss, depreciation of the right-of-use asset is recognized in operating profit while interest expense is recognized in financial expenses.

Essity has decided to apply the exemption rules for short-term leases and leases where the underlying asset has a low value. These leases are not included in the right-of-use asset or the liability. Lease payments for these contracts are expensed on a straight-line basis over the lease term. For 2018, IAS 17 Leases was applied as operating lease payments were expensed.

KAA KEY ASSESSMENTS AND ASSUMPTIONS

Assessments and assumptions must be used when reporting leases in accordance with IFRS 16 Leases. The two most significant assessments concern the length of the lease term and the discount rate to be used. The implicit rate of the leases cannot be readily determined and lease payments are therefore discounted over the expected lease term using Essity's incremental borrowing rate. The incremental borrowing rate corresponds to what Essity would need to pay to use a loan to finance the purchase of an equivalent asset for a similar duration in the contract currency of the lease. The length of the lease is determined as the non-cancellable lease term together with terms that may be covered by an option to extend a lease if it is reasonably certain that the contract will be renewed and periods covered by an option to terminate the lease if it is reasonably certain that a possibility to cancel the lease will not be utilized. When assessing if it is reasonably certain that a renewal option or cancellation option will be used, all relevant facts and circumstances that create economic incentives or deterrents are taken into account. The assessment of the lease term is reviewed in cases where facts and circumstances have significantly changed.

G2. LEASES, CONT.

Essity enters into leases on a continuous basis for office buildings, distribution centers and vehicles, such as trucks, forklifts and passenger cars.

Lease terms for properties are generally between 3 and 15 years, while lease terms for vehicles are generally between 3 and 5 years. Essity also has leases with a shorter lease term than 12 months and leases pertaining to assets of low value, such as office equipment. For these, Essity has chosen to apply the exemption rules in IFRS 16 Leases, meaning the value of these contracts is not part of the right-of-use asset or lease liability. There are no significant extension periods not taken into account in the lease liability.

TG2:1
SEKm	Properties	Vehicles	Other	Total	Lease liabilities
Value, January 1, 2020	3,446	358	17	3,821	3,872
Additional right-of-use assets, net	630	176	2	808	808
Leases included in acquisitions	9	4	–	13	13
Reclassification	1,206	–	–	1,206	–
Depreciation	–706	–210	–6	–922
Interest expenses					98
Payments					–1,014
Translation differences	–284	–29	–1	–314	–246
Value, December 31, 2020	4,301	299	12	4,612	3,531

In addition to the expenses in the table above, Essity recognized SEK 286m (255) relating to costs for short-term leases, leases of low-value assets and variable lease payments. The total earnings impact of leases, including depreciation and interest expenses, was SEK 1,306m (1,249) in 2020. Lease payments totaled SEK 1,300m (1,203).

The maturity structure concerning undiscounted future lease payments during future lease terms is presented in Note E5 Liquidity risk on page 99.

Essity has entered into binding leases regarding office properties where the lease term has yet to begin, future lease payments for these contracts are SEK 53m distributed over 7 years.

In 2020, leases for land were reclassified from other intangible assets to right-of-use asset in the amount of SEK 1,206m.

TG2:2	Right-of-use assets
SEKm	Properties	Vehicles	Other	Total	Lease liabilities
Value, January 1, 2019	3,357	410	14	3,781	3,786
Additional right-of-use assets, net	716	159	10	885	885
Leases included in divest ments	–46	–	–	–46	–46
Depreciation	–656	–221	–7	–884
Interest expenses					110
Payments					–948
Translation differences	75	10	0	85	85
Value, December 31, 2019	3,446	358	17	3,821	3,872

G3. CONTINGENT LIABILITIES AND PLEDGED ASSETS

AP ACCOUNTING PRINCIPLES

A contingent liability is recognized when there is a potential or actual obligation arising from past events that is not recognized as a liability or provision, either because it is improbable that an outflow of resources will be required to settle the obligation or because the amount cannot be calculated in a reliable manner.

Contingent liabilities
SEKm	2020	2019	2018
Guarantees for
associated companies	1	1	3
customers and others	47	45	44
Other contingent liabilities	39	50	333
Total	87	96	380

With reference to infringements of competition rules, claims for damages have been brought against the company. The company contests its responsibility and does not expect the claim to have a material impact.

Pledged assets

			Total
SEKm	Pledged assets related to financial liabilities	Other	2020	2019	2018
Real estate mortgages	300	–	300	21	27
Chattel mortgages	103	–	103	39	34
Other	49	234	283	284	277
Total	452	234	686	344	338

Liabilities for which some of these assets were pledged as collateral amounted to SEK 302m (0; 0).

G4. TRANSACTIONS WITH RELATED PARTIES

Essity owns 36% of Asaleo Care Ltd, listed on the stock market in Australia (ASX). Sales to Asaleo Care mainly concern products in Professional Hygiene and Incontinence Products. Transactions and dealings are outlined in table TG4:1 below.

Essity owns 49% of Bunzl & Biach GmbH. Purchases from Bunzl & Biach relate mainly to raw materials in the form of recovered paper. Transactions and dealings are outlined in table TG4:2 below.

TG4:1 Transactions and dealings with associated companies, Asaleo Care
SEKm	2020	2019	2018
Sales	396	424	448
Purchases	–	–	8
Other income	28	36	41
Trade receivables	64	52	110
Trade payables	–	–	0

TG4:2 Transactions and dealings with joint ventures, Bunzl & Biach

SEKm	2020	2019	2018
Purchases	260	319	316
Trade payables	22	23	57

Financial statements, Parent company

Income statement IS

SEKm	Note	2020	2019
Administrative expenses		–705	–663
Other operating income		265	209
Operating loss	PC2	–440	–454
Financial items	PC10
Result from participations in Group companies		4,170	5,445
Interest income and similar profit items		231	277
Interest expenses and similar loss items		–1,356	–1,170
Total financial items		3,045	4,552
Profit after financial items		2,605	4,098
Appropriations	PC4	–1	–3
Income taxes	PC4	32	27
Profit for the period		2,636	4,122
Statement of comprehensive income
SEKm		2020	2019
Profit for the period		2,636	4,122
Other comprehensive income		–	–
Total comprehensive income		2,636	4,122
Cash flow statement CF
SEKm		2020	2019
Operating activities
Profit after financial items		2,605	4,098
Adjustment for non-cash items T:1		–1,244	536
Paid tax		0	–7
Cash flow from operating activities before changes in working capital		1,361	4,627
Change in operating receivables		–383	650
Change in operating liabilities1)		278	–71
Cash flow from operating activities		1,256	5,206
Investing activities
Acquisition of subsidiaries		–	–826
Acquisition of fixed assets		–1	–14
Cash flow from investing activities		–1	–840
Financing activities
Proceeds from borrowings		6,305	4,265
Repayment of borrowings		–3,171	–4,592
Dividend paid		–4,389	–4,039
Cash flow from financing activities		–1,255	–4,366
Cash flow for the period		0	0
Cash and cash equivalents, January 1		0	0
Cash and cash equivalents, December 312)		0	0
T:1 Adjustment for non-cash items		2020	2019
Depreciation of fixed assets		3	2
Change in accrued items		–1,238	549
Payments relating to efficiency program already recognized		0	–3
Change in provisions		–9	–12
Total		–1,244	536

1) Dealings of the Parent company with the Swedish Group companies relating to Group contributions and internal tax are recognized as Change in operating receivables or Change in operating

liabilities, respectively. 2) The company's current account is a sub-account and is recognized in the balance sheet as liabilities to Group companies.

Supplementary disclosures

Interest and dividends paid and received	2020	2019
Dividends received	2,586	4,044
Group contribution received	1,466	2,145
Group contribution paid	–57	–
Interest paid	–1,340	–1,112
Interest received	212	232
Total	2,867	5,309

Change in liabilities attributable to financing activities
SEKm	Value, January 1	Cash flow	Translation difference	Value, December 31
Non-current interest-bearing
liabilities	36,386	–3,019	–1,657	31,710
Current interest-bearing
liabilities	5,022	–152	143	5,013
Current liabilities to Group companies	44,580	6,311	–1	50,890
Current receivables from
Group companies	–	–6	–	–6
Total	85,988	3,134	–1,515	87,607
Balance sheet BS
SEKm		Note	2020	2019
Assets
Non-current assets
Capitalized development costs			0	0
Intangible assets		PC5	0	0
Machinery and equipment			14	16
Property, plant and equipment		PC6	14	16
Participations in subsidiaries		PC7	175,447	175,448
Receivables from Group companies		PC8	542	545
Other non-current receivables			234	227
Deferred tax assets		PC4	178	132
Financial non-current assets			176,401	176,352
Total non-current assets			176,415	176,368
Current assets
Receivables from Group companies		PC8	2,108	1,762
Current tax assets		PC4	–	11
Other current receivables		PC9	32	21
Total current assets			2,140	1,794
Total assets			178,555	178,162
Equity, provisions and
liabilities Equity		PC12
Share capital			2,350	2,350
Statutory reserve			0	0
Total restricted equity			2,350	2,350
Retained earnings			83,553	83,820
Profit for the period			2,636	4,122
Total non-restricted equity			86,189	87,942
Total equity			88,539	90,292
Untaxed reserves		PC4	5	4
Provisions
Provisions for pensions		PC3	872	875
Other provisions			2	2
Total provisions			874	877
Non-current liabilities
Non-current interest-bearing liabilities		PC10	31,710	36,386
Total non-current liabilities			31,710	36,386
Current liabilities
Liabilities to Group companies		PC8	51,910	45,054
Current tax liabilities		PC4	3	–
Current interest-bearing liabilities		PC10	5,013	5,022
Accounts payables			20	16
Other current liabilities		PC11	481	511
Total current liabilities			57,427	50,603
Total equity, provisions and
liabilities			178,555	178,162

Change in equity (Refer also to Note PC12)

SEKm	Share capital	Statutory reserve	Retained earnings and profit for the period	Total equity
Equity at December 31, 2018	2,350	0	87,859	90,209
Profit for the period			4,122	4,122
Dividend, SEK 5.75 per share			–4,039	–4,039
Equity at December 31, 2019	2,350	0	87,942	90,292
Profit for the period			2,636	2,636
Dividend, SEK 6.25 per share			–4,389	–4,389
Equity at December 31, 2020	2,350	0	86,189	88,539

PC. PARENT COMPANY NOTES

PC1. BASIS FOR PREPARATION OF PARENT COMPANY'S ANNUAL ACCOUNTS

The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act (1995:1554) and RFR 2 Accounting for Legal Entities. According to RFR 2, the Parent company is to apply all the International Financial Reporting Standards adopted by the EU as far as this is possible within the framework of the Swedish Annual Accounts Act.

The same accounting principles are usually applied in both the Parent company and the Group. In some cases, the Parent company applies principles other than those used by the Group and, in such cases, these principles are specified under the respective note in the section about the Parent company.

The changes in RFR 2 applicable to the fiscal year beginning January 1, 2020 related to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. Temporary relief concerning rent concessions in IFRS 16 Leases was introduced for fiscal years commencing June 1, 2020 though early adoption is permitted.

PC2. OPERATING PROFIT/LOSS

Operating profit/loss by type of cost

SEKm	Note	2020	2019
Other operating income		265	209
Other external costs		–373	–302
Personnel and Board costs		–329	–359
Depreciation of equipment	PC6	–3	–2
IS Total		–440	–454

The item "Other external costs" includes primarily consultancy fees, travel expenses, lease expenses and management costs.

AUDITING EXPENSES

Remuneration to auditors can be specified as follows:

SEKm	2020	2019
EY
Audit assignments	–11	–13
Auditing activities other than the audit assignment	0	0
Tax consultancy services	0	0
Other assignments	–1	–2
Total	–12	–15

Leasing

AP ACCOUNTING PRINCIPLES

IFRS 16 Leases came into effect on January 1, 2019. RFR 2 contains an exception allowing all leases to be recognized in profit or loss.

Future payment commitments for non-cancellable operating leases are as follows:

SEKm	2020	2019
Within 1 year	31	31
Between 2 and 5 years	116	117
Later than 5 years	114	142
Total	261	290

Cost for the period for leasing of assets amounted to SEK –33m (–26). Leased assets comprise means of transportation and office premises.

PC3. PERSONNEL AND BOARD COSTS

Salaries and remuneration

SEKm	2020	2019
Board of Directors1), President, Executive Vice Presi dent and senior executives (4 (4))	–63	–77
of which variable remuneration	–15	–35
Other employees	–125	–137
Total	–188	–214

1) Board fees decided by the Annual General Meeting amounted to SEK –9m (–9). For further information, see Notes C1–C4 on pages 87–91.

Social security costs

SEKm	2020	2019
Total social security costs	–136	–141
of which pension costs1)	–78	–75

1) Of the Parent company's pension costs, SEK –17m (–14) pertains to the Board, President, Executive Vice President and senior executives. Former Presidents and Executive Vice Presidents and their survivors are also included. The company's outstanding pension obligations to these individuals amount to SEK 71m (59).

Pension costs

SEKm	2020	2019
Self-administered pension plans
Costs excluding interest expense	–50	–52
Interest expense (recognized in personnel costs)	–2	–6
Sub-total	–52	–58
Retirement through insurance
Insurance premiums	–22	–21
Other	16	23
Sub-total	–58	–56
Policyholder tax	0	0
Special payroll tax on pension costs	–16	–16
Cost of credit insurance, etc.	–4	–3
Pension costs for the period	–78	–75

Premiums during the year for disability and family pension insurance with Alecta amounted to SEK –2m (–2). Premiums for 2021 are expected to amount to SEK 2m, see also Provisions for pensions in this note. Personnel costs also include other personnel costs in the amount of SEK –5m (–4).

PC3. PERSONNEL AND BOARD COSTS, CONT.

Average number of employees

	2020	2019
Sweden	106	106
of whom women, %	54	52

Breakdown of employees by age groups, %

2020	21–30 years	31–40 years	41–50 years	51–60	years 61– years
	3	22	37	32	6

Women comprised 50% (50) of Board members and 25% (25) of senior executives.

Provisions for pensions

AP ACCOUNTING PRINCIPLES

The Parent company applies the regulations in the Pension Obligations Vesting Act (Tryggandelagen). Recognition complies with the simplification rule for defined benefit pension plans in accordance with the voluntary exception in RFR 2 regarding IAS 19. The main difference compared with IAS 19 is that Swedish GAAP disregards future increases in salaries and pensions when calculating the present value of the pension obligation. This present value includes, however, a special reserve for future payments of pension supplements indexed for inflation. Both defined contribution and defined benefit plans exist in the Parent company.

PRI Pensions

Pension liabilities pertaining to PRI pensions have been secured through a common Swedish Essity pension fund. The market value of the Parent company's portion of the foundation's assets at December 31, 2020, amounted to SEK 267m (236). In 2020, compensation was received in the amount of SEK 6m (6). The capital value of the pension obligations at December 31, 2020 amounted to SEK 182m (171). Pension payments of SEK –6m (–6) were made in 2020. In 2020, the assets exceeded pension obligations by SEK 85m (65).

Other pension obligations

The Group's Note C2 Remuneration of senior executives on page 87 describes the other defined benefit pension plans of the Parent company. The table below shows the change between the years.

Capital value of pension obligations relating to self-administered pension plans

SEKm	2020	2019
Value, January 1	875	873
Costs excluding interest expense	50	52
Interest expense (recognized in personnel costs)	2	6
Payment of pensions	–55	–56
BS Value, December 31	872	875

External actuaries have carried out capital value calculations pursuant to the provisions of the Swedish Act on Safeguarding of Pension Obligations. The discount rate is 0.3% (0.7). The defined benefit obligations are calculated based on salary levels valid on the respective balance sheet dates. Next year's expected payments for the above defined benefit pension plans amount to SEK 53m. Part of the pension obligations are covered by endowment insurances. The endowment insurances are reported as other non-current receivables in the balance sheet.

PC4. INCOME TAXES

AP ACCOUNTING PRINCIPLES

Due to the links between accounting and taxation, the deferred tax liability on untaxed reserves is recognized in the company's annual accounts as a component of untaxed reserves.

Tax expense

Tax expense (+), tax income (–)
SEKm	2020	2019
Deferred tax	–46	–27
Current tax	14	0

Explanation of tax expense

The difference between the recognized tax expense and expected tax expense is explained below. The expected tax expense is calculated based on profit before tax multiplied by the current tax rate.

IS Total –32 –27

2020		2019
Reconciliation	SEKm	%	SEKm	%
IS Profit before tax	2,604		4,095
IS Tax expense/income	–32	–1.2	–27	–0.7
Expected tax	557	21.4	876	21.4
Difference	–589	–22.6	–903	–22.1
The difference is due to:
Taxes related to prior periods	0	0.0	4	0.0
Non-taxable dividends from subsidiaries	–555	–21.3	–865	–21.1
Non-taxable Group contributions from Group companies1)	–283	–10.9	–174	–4.2
Non-deductible interest expenses	234	9.0	129	3.1
Other non-taxable/non-deductible items	15	0.6	3	0.1
Changed tax rate	0	0.0	0	0.0
Total	–589	–22.6	–903	–22.1

1) Non-taxable Group contributions relate to repayment from the Group company that pays the majority of the Group's total Swedish taxes, which amount to 78.6% (78.6) of the Group contribution.

The Parent company participates in the Group's tax pooling arrangement. Group contributions paid were treated as a tax deductible expense and received Group contributions were treated as non-taxable revenue. The net of paid and received Group contributions amounts to 21.4% (21.4) and is the amount of the company's tax cost for the Group. In addition, the Parent company has received Group contributions from another Swedish Group company, part of which was accounted for as non-taxable income in 2019.

Current tax expense (+), tax income (–)

SEKm	2020	2019
Income tax for the period	0	–
Adjustments for prior periods	14	–
Total	14	–

Current tax liability (+), tax asset (–)

SEKm	2020	2019
Value, January 1	–11	–4
Current tax expense	14	0
Paid tax	0	–7
BS Value, December 31	3	–11

Deferred tax expense (+), tax income (–)

SEKm	2020	2019
Changes in temporary differences	–33	–31
Adjustments for prior periods	–13	4
Total	–46	–27

Deferred tax assets (–)

SEKm	Value, January 1	Deferred tax expense	Value, December 31
Provisions for pensions	–179	0	–179
Other	47	–46	1
BS Total	–132	–46	–178

Appropriations and untaxed reserves

Accumulated depreciation in excess of plan totaling SEK 5m (4) is included in the Parent company's untaxed reserves.

PC5. INTANGIBLE ASSETS

Capitalized development costs

SEKm	2020	2019
Accumulated costs	0	0
Accumulated amortization	0	0
Residual value according to plan	0	0
Value, January 1	0	0
Investments	–	–
Sales and disposals	–	–
Amortization for the period	–	0
BS Value, December 31	0	0

PC6. PROPERTY, PLANT AND EQUIPMENT

AP ACCOUNTING PRINCIPLES

Essity Aktiebolag's property, plant and equipment are recognized in accordance with the Group's accounting principles.

Equipment
SEKm	2020	2019
Accumulated costs	22	21
Accumulated depreciation	–8	–5
Residual value according to plan	14	16
Value, January 1	16	5
Investments	1	13
Sales and disposals	0	0
Depreciation for the period	–3	–2

PC7. PARTICIPATIONS IN SUBSIDIARIES

AP ACCOUNTING PRINCIPLES

Essity Aktiebolag recognizes all holdings in subsidiaries at cost after deduction of any accumulated impairment losses. Impairment testing occurs annually.

Participations in subsidiaries

	Subsidiaries
SEKm	2020	2019
Accumulated costs	175,500	175,508
Accumulated impairment	–53	–60
Carrying amount	175,447	175,448
Value, January 1	175,448	174,622
Investments	–	834
Divestments	–8	0
Reversal of impairment	7	–
Impairment for the period	–	–8
BS TPC7:1 Value, December 31	175,447	175,448

During the fiscal year, SCA Hygiene Products India Private Limited was liquidated and the company thus no longer recognizes a carrying amount for the holding in the balance sheet.

TPC7:1 Essity Aktiebolag's holdings of shares and participations in subsidiaries, December 31, 2020

Company name	Corp. Reg. No.	Domicile	No. of shares	Share of equity, %	Carrying amount, SEKm
Swedish subsidiaries:
Fastighets- och Bostadsaktiebolaget FOBOF	556047-8520	Stockholm, Sweden	1,000	100	0
Essity Försäkringsaktiebolag	516401-8540	Stockholm, Sweden	140,000	100	14
Essity TC AB	556643-7298	Stockholm, Sweden	1,000	100	826
Foreign subsidiaries:
Essity Group Holding BV	33181970	Amsterdam, Netherlands	246,347	100	174,328
Essity Italy S.p.A	3318780966	Capannori, Italy	125,000	25	279
Total carrying amount of subsidiaries					175,447

German Group companies that are subject to disclosure exemptions

The following German companies are fully consolidated and subject to disclosure exemptions pursuant to Sec. 264 para. 3 of the German Commercial Code ("HGB").

• 1. Essity GmbH, domicile in Mannheim, Germany
• 1. Essity Holding GmbH, domicile in Ismaning, Germany
• 1. Essity Operations Neuss GmbH, domicile in Neuss, Germany
• 1. Essity Operations Mannheim GmbH, domicile in Mannheim, Germany
• 1. Essity Operations Mainz-Kostheim GmbH, domicile in Wiesbaden, Germany
• 1. Essity Professional Hygiene Germany GmbH, domicile in Mannheim, Germany
• 1. Essity Germany GmbH, domicile in Mannheim, Germany
• 1. Essity Operations Witzenhausen GmbH, domicile in Witzenhausen, Germany
• 1. Essity Hygiene Holding GmbH, domicile in Mannheim, Germany
• 1. BSN medical GmbH, domicile in Hamburg, Germany
• 1. BSN medical IP GmbH, domicile in Hamburg, Germany
• 1. BSN-Jobst GmbH, domicile in Emmerich am Rhein, Germany

PC8. RECEIVABLES FROM AND LIABILITIES TO GROUP COMPANIES

Receivables from and liabilities to Group companies

SEKm	2020	2019
Non-current assets
Derivatives	542	545
BS Total	542	545
Current assets
Interest-bearing receivables	6	–
Financial derivatives	24	56
Trade receivables	138	239
Other receivables	1,940	1,467
BS Total	2,108	1,762
Current liabilities
Interest-bearing liabilities	50,890	44,580
Financial derivatives	637	396
Accounts payables	22	20
Other liabilities	361	58
BS Total	51,910	45,054

PC9. OTHER CURRENT RECEIVABLES

Other current receivables

SEKm	2020	2019
TPC9:1 Prepaid expenses and accrued income	23	17
Other receivables	9	4
BS Total	32	21
TPC9:1 Prepaid expenses and accrued income
Prepaid lease of premises	8	7
Prepaid financial expenses	1	1
Prepaid insurance premiums	0	0
Other items	14	9
Total	23	17

PC10. FINANCIAL INSTRUMENTS

AP ACCOUNTING PRINCIPLES

The Parent company's financial instruments are recognized in accordance with the Group's accounting principles. Refer to Notes E1–E4 on pages 96–99. Hedge accounting was not applied by the Parent company.

SEKm	2020	2019
Result from participations in Group companies
Dividends from subsidiaries	2,593	4,044
Gain/loss on sales of shares in subsidiaries	–7	–
Group contributions received from Group companies	1,937	1,466
Group contributions paid to subsidiaries	–360	–57
Impairment of shares in subsidiaries	–	–8
Reversal of impairment of shares in subsidiaries	7	–
Interest income and similar profit items
Interest income, external	1	11
Interest income, Group companies	230	266
Interest expenses and similar loss items
Interest expenses, external	–485	–523
Interest expenses, Group companies	–847	–614
Other financial expenses1)	–24	–33
IS Total	3,045	4,552

1) The item other financial expenses includes financial fees and exchange rate differences. Exchange rate differences amounted to SEK 7m (–1), net.

Interest-bearing liabilities

Non-current interest-bearing liabilities

	Carrying amount		Fair value
SEKm	2020	2019	2020	2019
Bond issues	27,968	31,164	29,084	32,299
Other non-current loans with a term > 1 yr < 5 yrs	3,742	5,222	3,766	5,238
BS Total	31,710	36,386	32,850	37,537

Current interest-bearing liabilities

	Carrying amount		Fair value
SEKm	2020	2019	2020	2019
Bond issues	5,013	–	5,037	–
Loans with maturities of less than one year	–	5,022	–	5,022
BS Total	5,013	5,022	5,037	5,022

Bond issues

Issued	Maturity	Carrying amount, SEKm	Fair value, SEKm	Interest rate %
Notes EUR 500m	2021	5,013	5,037	0.50
Notes EUR 600m	2022	6,006	6,078	0.63
Notes EUR 500m	2023	4,999	5,330	2.50
Notes EUR 600m	2024	6,000	6,234	1.13
Notes EUR 300m	2025	3,004	3,135	1.13
Notes EUR 500m	2027	4,985	5,373	1.63
Notes EUR 300m	2030	2,974	2,934	0.50
Total		32,981	34,121

Financial instruments by category

AP ACCOUNTING PRINCIPLES

In 2020, the categories of financial instruments in the Parent company comprise in accordance with IFRS 9 financial assets and liabilities measured at fair value through profit or loss and amortized cost. All of the Parent company's financial assets and liabilities measured at fair value through profit or loss are assessed according to measurement level 2. A definition is provided in Note E1, page 97. Financial assets measured at amortized cost are continuously reviewed to assess the need for credit loss provisions. If there is a material need for credit loss provisions, a provision is made in accordance with the expected credit loss model.

PC10. FINANCIAL INSTRUMENTS, CONT.

SEKm	Note	2020	2019
Financial assets measured at fair value through profit or loss
Derivatives with Group companies – Non-current financial assets	PC8	542	545
Endowment insurances – Other non-current receivables		234	227
Derivatives with Group companies – Current financial assets	PC8	24	56
Total		800	828
Financial liabilities measured at fair value through profit or loss
Derivatives with Group companies – Current financial liabilities	PC8	637	396
Total		637	396
Loan and trade receivables measured at amortized cost
Current interest-bearing receivables with Group companies	PC8	6	–
Trade receivables with Group companies	PC8	138	239
Trade receivables – other current receivables		5	1
Total		149	240
Financial liabilities measured at amortized cost
Non-current interest-bearing liabilities		31,710	36,386
Current interest-bearing liabilities to Group companies	PC8	50,890	44,580
Current interest-bearing liabilities		5,013	5,022
Accounts payables to Group companies	PC8	22	20
Accounts payables		20	16
Other current liabilities to Group companies	PC8	1	1
Other current liabilities		275	274
Total		87,931	86,299

The nominal value of the derivatives before the right of set-off is SEK 75,256m (52,915). The nominal value of the derivatives after the right of set-off is SEK 51,184m (40,309).

PC11. OTHER CURRENT LIABILITIES

Other current liabilities
2020	2019
432	460
49	51
481	511

TPC11:1 Accrued expenses and prepaid income
SEKm	2020	2019
Accrued interest expenses	275	274
Accrued social security costs	59	69
Accrued vacation pay liability	16	14
Other liabilities to personnel	45	80
Other items	37	23
Total	432	460

PC12. SHARE CAPITAL

The change in equity is shown in the financial report relating to Equity presented on page 114. The company was formed in 1988. The share capital and number of shares have increased since the formation via new issues and bonus issue as set out below:

YEAR	Event	No. of shares	Increase in share capital	Cash payment, SEKm
1988	Number of shares issued in connection with formation	500	0.1	0.1
1995	New issue 1:1, issue price SEK 100	500	0.1	0.1
2016	New issue 1:4, issue price SEK 100	4,000	0.4	0.4
2017	Bonus issue	702,337,489	2,349.9	0.0
2020	Number of shares, December 31, 2020	702,342,489	2,350.4	0.5

The quotient value of the company's shares amounts to SEK 3.35 (3.35).

PC13. CONTINGENT LIABILITIES AND PLEDGED ASSETS

Contingent liabilities
SEKm	2020	2019
Guarantees for Group companies	12,141	16,890
Other contingent liabilities	40	60
Total	12,181	16,950

Pledged assets

SEKm	2020	2019
Other	234	227
Total	234	227

PC14. ADOPTION OF THE ANNUAL ACCOUNTS

The annual accounts are subject to adoption by Essity Aktiebolag's Annual General Meeting and will be presented for approval at the Annual General Meeting on March 25, 2021.

PC15. EVENTS AFTER THE BALANCE SHEET DATE

At the beginning of February 2021, Essity raised EUR 700m in the bond market under its Euro Medium Term Note (EMTN) program with a coupon of 0.25 percentage points and with a maturity on February 8, 2031. The purpose was to refinance maturing bond issues and to finance the operations.

No other significant events occurred after the balance sheet date that impacted the financial statements.

H1. GENERAL ACCOUNTING PRINCIPLES

Reporting principles

The social and environmental data reported pertains to the 2020 calendar year unless otherwise specified. The figures included comply with relevant reporting and consolidation principles in accordance with the principles in the financial statements. The figures cover the Essity Group's wholly owned subsidiaries and subsidiaries in which Essity owns at least 50%. If ownership in the Group company is at least 50% or more, the entire company is included in the reporting.

For Group companies with significant non-controlling interests (see Note F2), such as the Chinese company Vinda and the Colombian company Familia, social data, such as employee figures, employee turnover and health and safety data is reported in notes H12 and H13. Some other social data is not included, for example Note H2 Code of Conduct data, as these companies have their own Codes of Conduct. Environmental data includes, as a general rule, Familia and Vinda's Personal Care operations. Vinda publishes an Environmental, Social and Governance (ESG) report, which is available at vinda.com. Familia reports in accordance with the GRI Reporting Standards. For more information, visit grupofamilia.com.co.

Newly acquired businesses are included in the reporting as soon as possible, though not later than when they have been part of the Group for one calendar year. The data from divested companies is excluded in its entirety as of the divestment date. Historic data for discontinued units is retained.

The section on Sustainability governance on pages 44–51 describes how Essity ensures that the company delivers on its sustainability targets. The H-notes present the results in recent years.

Data collection

Data provided in the report is compiled through various systems, primarily Essity's reporting system for non-financial data and the Group's financial consolidation system. The data in this report includes, as a general rule, all companies. The targets in the report apply, as a general rule, to wholly owned companies. Environmental reporting encompasses 74 production sites, covering virtually the entire company's environmental impact and resource utilization from production. Data from stand-alone tissue converting sites is included in data for the tissue plant.

Each unit reports the following data to the system:

• raw material consumption
• incoming and outgoing shipments
• production volumes
• energy use broken down by electricity, steam and fuel
• fuel consumption broken down by biofuels and fossil fuels
• air emissions, including data on fossil and biogenic carbon dioxide
• water emissions
• production waste

The calculation of greenhouse gas emissions for Scope 1, 2 and 3 of Science Based Targets encompasses carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O). Conversion factors used:

• Greenhouse gas emissions from incineration are calculated using emission factors for the fuel's thermal value. Source: IPCC Guidelines 2006. (Scope 1 emissions)
• Greenhouse gas emissions from purchased electricity are calculated using the country's emission factor published by the International Energy Agency (IEA), 2017. (Scope 2 emissions, location-based)

Comparability

This is Essity's fourth integrated Annual and Sustainability Report. The previous year's report is from February 20, 2020. Figures from previous years are reported in parenthesis. Certain adjustments have taken place of environmental data for previous years, notes H9–H11, to adjust for acquisitions, divestments and updated location-based emission factors in line with the GHG protocol. Minor updates also took place following the integration of earlier acquisitions into Essity's global reporting system for non-financial data.

Environmental impact

Essity conducts operations requiring a permit through its production facilities. Such operations impact the environment through emissions to air and water, solid waste and noise.

GRI reporting

Essity reports sustainability information in accordance with the Global Reporting Initiative (GRI) guidelines for GRI Reporting Standards: Core. The Report has been structured in accordance with GRI principles, meaning that the content is determined by the issues that are most material to Essity and its stakeholders, and that the content provides a complete overview of the operations. Essity's 21 subject areas in the materiality analysis are matched against GRI indicators, and they form the selection of the indicators that Essity presents in this report. Essity reports on all GRI indicators that are identified as material and on a relevant level. In addition, Essity reports a number of general standard disclosures according to the GRI Standards: Comprehensive option as this clarifies the information in the report. Any omissions or incomplete data are commented on directly in the GRI index. The Sustainability Report has been reviewed by EY. Additional information about Essity's work on social and environmental issues is available at essity.com/sustainability. The index can be found on pages 133–134.

The UN Guiding principles

Essity uses the reporting framework for the United Nations Guiding Principles on Business and Human Rights and has reported on the overarching aspects contained in the framework.

TCFD

The Task Force on Climate-related Financial Disclosures (TCFD) draws up voluntary, consistent climate-related financial risk disclosures for companies that make information available to investors, creditors, insurers and other stakeholders. Essity is publishing its first TCFD index in this report to allow investors and other stakeholders easy access to TCFD-related information for comparisons or decision-making. The index is presented on page 133.

SASB

The Sustainability Accounting Standards Board (SASB) Foundation establishes and maintains sector-specific standards that help companies to publish financially relevant sustainability information that may be useful in investor decisions. Since 2020, Essity has applied the standards applicable for the Household and Personal Products sectors. A detailed index with references to sections where Essity reports in relation to specific disclosures is available on page 133.

H2. BUSINESS ETHICS

Code of Conduct

Essity's target is for all new employees to receive training in the Code of Conduct as part of their onboarding program. Training is mainly conducted online. The courses are held through classroom instruction at production facilities. In 2020, a total of 92% of Essity's new employees underwent this mandatory course.

Risk analysis

About 36% of Essity's revenue comes from sales to countries with a relatively high risk of corruption. In the 2019 Sedex assessment, all of Essity's main facilities received a low to medium risk classification relating to human rights and corruption. In 2020, work with the COVID-19 pandemic was prioritized ahead of updating Sedex.

H2. BUSINESS ETHICS, CONT.

Reported breaches of the Code of Conduct

Essity encourages employees to always report suspected breaches of the Code of Conduct. Essity provides a whistleblower system where employees can submit reports anonymously, if permitted by local legislation. The summary below presents reports submitted to the whistleblower system and to Essity's Compliance & Ethics department. In 2020, five people were dismissed for breaches of the Code of Conduct. No one was dismissed on suspicion of corruption. The 45 HR-related reports include accusations of discrimination and harassment. Of 61 reported cases in 2020, 56 were closed and 5 cases are still under investigation.

Reports submitted to the whistleblower system and to Essity's Compliance & Ethics department by category

Category1)	2020	2019	2018
Regulatory breach, Fraud and Corruption	11	17	20
Security Incidents	2	–	–
Operations	1	6	3
Sustainability	–	–	–
Human Resources	45	65	58
Other	2	–	–
Total	61	88	81

1) Essity's Compliance & Ethics department allocates the submitted reports into the relevant category. The category may be changed during the course of an investigation.

Ongoing anti-trust cases

In early 2020, the Supreme Court in Chile rejected the company's appeal against the Chilean competition authority's decision to impose a fine in December 2017.

Internal audits conducted of the Code of Conduct

Travel restrictions due to COVID-19 have limited the number of audits of the Code of Conduct. The method used for the audits was adapted to allow these to take place remotely. In 2020, an internal audit took place at the facility in Slovakia. The facility fulfilled 5 of 9 parts of SA8000, but can with minor improvements fulfill all parts. An action program is in place and has commenced or will be carried out in 2021.

Internal audits conducted of business ethics

Travel restrictions due to COVID-19 have limited the number of audits conducted. The method used for the audits was adapted to allow these to take place remotely. In 2020, an audit was conducted of business ethics in the Health and Medical Solutions operation in Poland. Essity Health and Medical Solutions in Poland must improve its control of marketing services and increase compliance with Essity's internal guidelines. An action program is in place and has commenced or will be carried out in 2021.

Read more about how Essity works with business ethics on page 50.

H3. INNOVATION

Essity wants to improve well-being for consumers and customers while reducing its impact on the environment with focus on More from less and Circularity. Essity's target is that at least 33% of the company's innovations are to yield social and/or environmental improvements. In 2020, 64% (69; 59) of Essity's innovations yielded social and/or environmental improvements. This refers to the percentage of sales of innovations measured over 36 months. Variations between the years are a natural result of the product categories' various launches. Examples of innovations in 2020 include packaging made from recycled or renewable plastic, face masks and washable absorbent underwear.

Sustainable innovations

A product range's life cycle assessment (LCA) encompasses most of the products sold in a region. This allows Essity to measure environmental performance for innovations and gradual improvements in the company's daily operations for entire product ranges over several years.

Lower climate impact through the use of innovation

Products	Year	Carbon footprint reduction %
Incontinence Products	2008–2019
TENA Flex		–18
TENA Pads and Liner		–33
TENA Comfort		–19
TENA Men		–20
TENA Pants and Underwear		–33
TENA Slip		–20
TENA Bed		–11
Feminine Care	2008–2019
Feminine Ultra towels		–17
Baby Care	2008–2017
Libero and Lotus open diaper		–25
Libero and Lotus pant diaper		–16
Professional Hygiene
Tork napkins	2011–2019	–9
Tork paper hand towels	2011–2017	–18
Consumer Tissue	2011–2018
Toilet paper		–10
Household towels		–19
Handkerchiefs and facial tissues	2011–2020	–8

The life cycle assessments performed by Essity have been subject to thirdparty reviews. A product range's LCAs are updated every second or third year.

Read more about how Essity works with innovation on pages 45–47.

H4. CUSTOMERS AND CONSUMERS

Customer surveys

Essity conducts systematic customer and consumer follow-up, which includes external reports, independent surveys and global systems for feedback. Essity places high value on opportunities for direct customer contact. Customer feedback enables Essity to offer better products and services.

Every business unit has processes to investigate customer satisfaction. Essity also offers expertise and support for the development of operations in, for example, nursing homes and professional environments, where the company can help make a difference and create value for its customers and users.

The retail trade accounts for a significant part, 61%, of Essity's net sales. The company uses external comparison reports in which the largest retail chains assess their suppliers based on customer service, logistics, sales support, marketing and product development. Consumers who purchase retail products are followed up through general brand and product recognition surveys.

Complaints have remained at a low and stable level in recent years. For Personal Care products, the complaint frequency is lower than 1 in a million supplied products. In the Tissue operations, the corresponding figure is 2.1 per thousand tons.

Product safety

Essity ensures that all products are safe for their intended purpose throughout their entire life cycle. Essity sold no products containing substances on the California DTSC Candidate Chemicals List above 0.1%. The only exception was the use of isopropyl alcohol where this is important for the products' functionality, for example as biocide ingredient in hand sanitizer, an important hygiene product during the COVID-19 pandemic. Essity's sales of products containing chemicals on the REACH SVHC candidate list were below 0.1% of total sales.

Read more about how Essity works with Customers and consumers on page 45.

H5. ROLE IN SOCIETY AND COMMUNITY RELATIONS

Essity strives to be a dedicated partner in the local communities in which it operates. In 2020, Essity reached out to people in several countries who were particularly vulnerable during the COVID-19 pandemic through a collaboration with the Red Cross. Essity also increased the company's commitment in the Global Handwashing Partnership, under the leadership of the WHO and UNICEF. As part of a collaboration with UNICEF in Mexico, Essity launched a virtual initiative to educate thousands of girls, boys, teachers and parents about hand hygiene and hygiene in relation to menstruation.

Essity invested approximately SEK 49m (38; 18) and about 764 work hours (including staff management) in over 300 projects in 2020. Most of the projects were related to hygiene and health.

Essity's steering documents for community relations state that Essity shall be politically and religiously neutral. The company must not make payments or product donations to political parties or candidates, or their institutions, agencies or representatives. Essity did not support any organizations or projects with political or religious aims in 2020.

Read more about Essity's role in society and community relations on pages 45 and 141.

Community relations by focus area 2020

H6. PACKAGING

The packaging target for 2025 is that Essity is striving for 100% recyclability and 85% renewable or recycled material in the company's packaging. This target applies to both paper and plastic packaging for Essity's brands. Most of Essity's packaging comprises corrugated board and board for paper packaging and bags and flexible plastic film from polyethylene (PE) or polypropylene (PP) for plastic packaging.

In 2020, Essity's packaging volume for its brands amounted to 171,000 tons. 83% of this volume was recyclable in 2020. For plastic packaging, 77% was recyclable. The proportion of renewable or recycled materials was 77%. 3% of plastic packaging was manufactured from renewable or recycled material, of which the share of recycled plastic was 2%.

In 2020, Essity estimated the technical recyclability of a large portion of the company's packaging. Essity has thereby improved packaging design to facilitate recycling using existing infrastructures. Essity will continue to assess the technical recyclability of the remaining packaging in 2021 and 2022. Fossil-based plastic in the company's plastic packaging can be replaced with renewable plastic, recycled plastic or paper. When Essity designs new packaging, it assesses function, safety and environmental performance.

Read more about how Essity works with packaging on pages 46–47.

Share of packaging manufactured from renewable or recycled material

H7. SUPPLY CHAIN AND HUMAN RIGHTS

Share of technical recyclability

To ensure responsible business methods and respect for human rights in Essity's supply chain, Essity's target is that all sourcing is to be from suppliers that share the company's values. The target for 2020 was that 100% of all strategically important sourcing categories and sourcing from high-risk areas, which corresponds to 90% of Essity's total purchase cost, is to be from suppliers that comply with Essity's Global Supplier Standard. In 2020, 92% (85; 71) of the procurement spend was sourced from suppliers who fulfill these criteria.

The COVID-19 situation had an adverse impact on work to ensure that the company's suppliers fulfill the requirements of Essity's Global Supplier Standard, and required Essity to instead concentrate on securing deliveries and minimizing delivery risks. The continuous work linked to Sedex and ethical audits, as described below, was also impacted by COVID-19 and could not be carried out to the same extent as in previous years.

H7. SUPPLY CHAIN AND HUMAN RIGHTS, CONT.

Risk analysis

Essity has an established process to perform continuous risk assessments of the company's suppliers and sourcing categories. Approximately 60% of Essity's strategic suppliers for raw materials and finished products are located in Europe, 32% in North and South America and 8% in Asia and Africa. Many of the strategic suppliers' production facilities located in Asia and Latin America are part of large multinational corporations based in Europe and the US. This is a conscious choice by Essity to reduce the social and ethical risks within the supply chain.

23% (19; 21) of strategic suppliers' manufacturing units are located in high-risk countries according to the Sedex definition. These suppliers are in scope for ethical audits with a focus on health and safety, human rights, employment conditions and corruption. At the end of 2020, Essity had a total of 1,008 (929; 694) suppliers that share data via Sedex.

Certain materials, such as cotton and wood fiber, are considered to primarily have risks lower down in the value chain. Essity takes further measures here, such as audits of subcontractors, or chooses certified raw materials that guarantee more sustainable extraction and production.

Geographical distribution of strategic suppliers 2020

• Suppliers in North and South America, 32% Suppliers in Europe, 60%
• Suppliers in Asia and Africa, 8%

Note: The geographical location of the suppliers' production facilities is a conscious choice by Essity to reduce the social and ethical risks within the supply chain.

Ethical audits conducted

The preferred audit format is SMETA, which is the most popular method in the world for social and ethical audits.

Travel restrictions related to COVID-19 have limited the number of audits conducted. During 2020, Essity evaluated the outcome from 37 (52; 59) ethical supplier audits, of which 31 (45; 30) were carried out in Sri Lanka, Turkey, Colombia, China, Malaysia, Brazil, South Africa, Thailand, Mexico, Russia and Peru. Of these audits, 12 were carried out by Essity using an independent audit firm. The other 25 (19; 29) ethical audits, which meet Essity's requirements, were carried out by other customers to suppliers and were approved by Essity.

Essity is informed within 24 hours in cases of critical observations. No agreements with strategic suppliers were terminated on the grounds of sustainability-related non-compliance in 2020.

Ethical audits conducted

	2020	2019	2018
Audits initiated by Essity1)	12	33	30
Audits initiated by customers2)	25	19	29
Total number of audits	37	52	59

1) Audits initiated by Essity were conducted by Essity's independent audit firm in accordance with SMETA's 4-pillar format.

2) Audits initiated by customers were carried out by other customers to suppliers and were approved by Essity.

Read more about how Essity works with the supply chain and human rights on page 50.

H8. FIBER SOURCING

Renewable raw materials, wood-based fresh fiber and recycled fiber, account for the largest share of the total volume of material in Essity's products. In 2020, Essity purchased 3.5 million tons of wood-based fresh fiber and 2.0 million tons of recycled fiber. Wood-based fresh fiber mainly comprises pulp, 98%, and the remainder comprises packaging, externally sourced mother reels and products manufactured by third parties. Of the 2.0 million tons of recycled fiber sourced, 92% is used in tissue manufacturing. The remainder consists of recycled fiber, which is found in sourced packaging material and sourced mother reels.

Fiber use, pulp and recovered paper

	2020	2019	2018	2017
Fiber used, million tons	5.1	5.3	5.1	5.3
of which, pulp consumption	3.2	3.1	3.0	3.1
share of total fiber use, %	62	60	60	59
of which, recovered paper consumption	1.9	2.1	2.1	2.2
share of total fiber use, %	38	40	40	41

Fiber sourcing

In 2019, Essity introduced a new target that all raw materials derived from wood-based fresh fiber in the company's products and packaging are to be certified in accordance with the Forest Stewardship Council® (FSC®) or the Programme for the Endorsement of Forest Certification (PEFC™). Target fulfillment in 2020 was 95% (79; 76). All wood-based fresh fiber must fulfill the FSC®'s Controlled Wood standard, as a minimum, to be eligible for purchasing.

Fiber sourcing wood-based fresh fiber by certification1), %

	2020	2019	2018	2017
FSC®	59	57	48	39
PEFC™	36	22	29	26
FSC® Controlled Wood standard2)	5	21	23	35
Total	100	100	100	100

1) The distribution applies to sourcing by wholly owned companies.

2) Includes sourcing of fresh fiber to three of Essity's facilities in 2020 as FSC® Controlled Wood and evaluated against the standard for Controlled Wood (in accordance with Essity's policy). Due to COVID-19, the facilities have not yet implemented FSC® Chain of Custody at the end of 2020. A small share of mother reels and packaging purchased in 2020 from suppliers was not FSC® Controlled Wood.

In 2020, new data collection systems were introduced for packaging and mother reels to obtain information from suppliers about their capacity to deliver certified packaging and mother reels and, if possible, certify existing deliveries. In 2021, action plans will be agreed with suppliers to certify the remaining small volumes of fresh fiber-based mother reels and packaging, with Essity's support where necessary. Essity prefers to cooperate with suppliers and to introduce FSC® or PEFC™ Chain of Custody to deliver certified and controlled material instead of changing supplier. This approach helps to promote certification throughout the supply chain, for existing and future suppliers.

Recycled and alternative fibers

The proportion of recycled fiber in Essity's products varies between regions due to differences in quality, user preferences and fiber supply and demand. Access to recycled paper was substantially affected by COVID-19 restrictions in Europe and North and South America in 2020. Nonetheless, Essity continued to use recycled fiber, which meant operations in North and South America used 84% recycled fiber, while the proportion of recycled fiber in Europe was 36%.

Essity has continued to study new methods for collecting and recycling, such as the collaboration regarding the circular service Tork PaperCircle®. This service collects used paper hand towels for reuse as new tissue products.

In 2020, Essity continued to develop and test new products made using alternative fibers from wheat straw, cotton, bamboo and sugar cane. One example is Essity's tissue plant in Mannheim, Germany that will start manufacturing tissue from wheat straw in 2021.

Audits conducted of pulp suppliers

The eight largest pulp suppliers to Essity's wholly owned companies represent 81% the volume sourced. Due to COVID-19 restrictions, no on-site audits were carried out in 2020. New questions concerning traceability have been added to the questionnaire, which will continue to be used. This will be sent to all suppliers in 2021. In addition, a new COVID-19 assessment was added to identify delivery and health risks at all suppliers. Essity is examining opportunities to conduct audits online. The company has also carried out a number of third-party audits based on information collected without being present on-site at potential new suppliers.

Read more about how Essity works with fiber and other materials on page 46.

H9. AIR EMISSIONS: SCOPE 1 AND 2

Energy efficiency and emissions reductions have been a major focus for Essity for many years. Essity's production facilities for tissue products had already in 2005 a program to reduce CO2 emissions per ton of tissue products produced. The reduction in CO2 emissions per ton produced between 2005 and 2020 was 19%.

Since 2010, Essity's production facilities have a target to reduce energy consumption by 14% per ton of tissue products produced by 2020. This was within the framework of the ESAVE program. The accumulated energy savings in the 2010–2020 period amounted to 8%.

Essity's targets to reduce absolute greenhouse gas emissions were approved by the Science Based Targets initiative in 2018. In terms of energy consumption within the company and purchased electricity (Scope 1 and 2), Essity has undertaken to reduce greenhouse gas emissions by 25% by 2030 compared with 2016. The target applies to wholly owned companies. The outcome for 2020 was –11% (–5, –5) for Scope 1 and 2. The reduction in 2020 was the result of lower production volumes in Professional Hygiene and Personal Care due to COVID-19 and continued improvements in energy efficiency.

Greenhouse gas emissions

Essity's greenhouse gas emissions are divided into three different Scopes depending on origin. Scope 1 and 2 are directly linked to Essity's production facilities and are dependent on production volumes. This also includes direct emissions from fuel consumption and indirect emissions from the use of purchased energy. Scope 3 reports indirect emissions in Essity's value chain (see separate Note, H10). Scope 1 consists of emissions from burning of fuels at Essity's production facilities. The reported data is based on energy use with associated emission factors. Scope 2 consists of emissions from purchased energy and is primarily linked to the use of electricity and also purchased thermal energy in the form of steam. The calculation of emission data uses country and region-specific emission factors.

Energy utilization

Energy efficiency, new technology and the greater use of renewable energy are required to achieve Essity's stated targets. Energy use calculations include purchased energy, use of fuel and biomass and electricity generated on site. The energy generated is used in production. The surplus heat created is mainly used by Essity. A minor share is sold externally. Most of Essity's energy, both fuel and electricity, is used in tissue production. The focus for tissue production is therefore on improving energy efficiency. Energy savings as specified above amounted to 8% between 2010 and 2020. These savings were achieved through a number of major investment projects in technical upgrades of the company's paper machines. Best practice is also continuously identified and implemented in terms of energy efficiency and energy savings at the company's production facilities. Essity's energy efficiency program will remain a cornerstone of Essity's work to reduce energy use and emissions and is strongly linked to its commitment to Science Based Targets. The production of Personal Care products primarily uses electricity. In 2020, Essity increased its share of renewable electricity at facilities in Europe.

The EU Emissions Trading Scheme (EU ETS)

Essity had 23 production facilities included under the EU ETS in 2020. During the third phase of EU ETS (2013–2020), Essity's operations have had a deficit of emission allowances. The deficit involves an average of approximately 0.2 million tons of carbon dioxide equivalents per year during the period. The average market price for emission rights in 2020 was about EUR 24.8 (24.8; 15.9) per ton and Essity purchased 225,000 (240,000; 240,000) emission rights to cover the year's deficit.

Read more about how Essity works with air emissions on page 47.

Energy efficiency

MWh per ton

Air emissions, Scope 1 and 2

million tons, CO2 e

Air emissions: Science Based Targets, ktons

	2020	2019	2018	2017	2016
Scope 1, CO2e	1,367	1,452	1,453	1,472	1,474
Prior year adjustment1)		0	10	12	–1
Scope 2,CO2e2)	1,285	1,368	1,383	1,398	1,518
Prior year adjustment1)		31	45	–39	62

1) Acquisitions/divestments, updates of emission factors (location based) according to the GHG

protocol. 2) Derived from location-based emission factors.

Other air emissions1)

	Essity – wholly owned companies				Group companies with significant non-controlling interests				Essity Group
	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016
NOx as NO2, tons	1,787	1,545	1,753	1,809	1,833	27	27	22	23	25	1,814	1,572	1,775	1,832	1,858
SOx, tons	489	563	663	775	752	0	23	13	14	16	489	586	676	789	768
Dust, tons	100	123	117	122	136	4	5	5	5	5	104	128	122	127	141
CO2 biogenic, ktons	493	512	497	477	527	–	–	–	–	–	493	512	497	477	527

1) Other air emissions from use of fuel in production facilities include nitrogen oxides and sulfur oxides (NOx and SOx).

Energy and air emissions (Scope 1 and 2)

						Group companies with significant non-controlling interests
			Essity – wholly owned companies										Essity Group
	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016
Production, ktons	3,377	3,508	3,549	3,641	3,626	293	288	282	299	300	3,670	3,796	3,831	3,940	3,926
Energy utilization
Purchased electricity, GWh	3,928	4,098	4,184	4,222	4,259	303	291	271	269	286	4,231	4,389	4,455	4,491	4,545
Heating/steam
Purchased heating/steam, GWh	181	257	264	208	207	–	–	–	–	–	181	257	264	208	207
Fuels
Biofuel, GWh	1,129	1,181	1,197	1,227	1,368	–	–	–	–	–	1,129	1,181	1,197	1,227	1,368
Fossil fuel, GWh	6,615	6,978	6,982	7,020	7,028	304	357	346	337	317	6,919	7,335	7,328	7,357	7,345
Total fuels, GWh	7,744	8,159	8,179	8,247	8,396	304	357	346	337	317	8,048	8,516	8,525	8,584	8,713
Total energy, GWh	11,853	12,514	12,627	12,677	12,862	607	648	617	606	603	12,460	13,162	13,244	13,283	13,465
Energy intensity (specific energy used), GWh per ktons	3.5	3.6	3.6	3.5	3.5	2.1	2.3	2.2	2.0	2.0	3.4	3.5	3.5	3.4	3.4
Greenhouse gas emissions
Scope 1, CO2e, ktons	1,367	1,452	1,453	1,472	1,474	68	79	75	72	68	1,435	1,531	1,528	1,544	1,542
Scope 2, CO2e (location based), ktons	1,285	1,368	1,383	1,398	1,518	24	23	22	22	39	1,309	1,391	1,405	1,420	1,557
Scope 2, CO2e (market based), ktons	1,400	1,575	1,767	1,808	1,805	73	71	66	65	85	1,473	1,646	1,833	1,873	1,890

H10. AIR EMISSIONS: SCOPE 3

Essity's target is to reduce greenhouse gas emissions by 18% within Science Based Targets' Scope 3, which applies to the most important suppliers of raw materials, transportation and waste, until 2030 and starting in 2016. The target applies to wholly owned companies.

An inventory of all greenhouse gas emissions from 2016 found that Scope 3, meaning indirect emissions generated upstream and downstream in the value chain, accounted for 54% of all emissions. The most important categories were emissions from production of Essity's suppliers, transportation (upstream and downstream), waste from the company's own production and product waste after use. The categories represent the majority of total Scope 3 emissions in the value chain. Remaining emissions were assessed but are not included in Essity's Science Based Targets as these are not deemed material. Essity is also striving to reduce other emissions such as emissions from business travel and commuting to work.

Essity calculates these emissions using data from several providers in the company's value chain. To ensure that Essity has complete and reliable data, Scope 3 emissions are reported with a one-year delay.

Read more about how Essity works with air emissions on page 47.

Sourced raw material

Essity purchases raw materials from suppliers in order to manufacture hygiene and health products. Most of the raw material is from wood-based fresh or recycled pulp for tissue and fresh wood-based pulp, super absorbents and non-woven for Personal Care products. Essity collaborates with the company's largest suppliers to jointly reduce environmental impact.

Read more about how Essity works with fiber in Note H8.

Transport

Raw materials are transported to Essity's production plants and finished products are delivered to Essity's customers. Transportation is carried out by external suppliers. Sea freight accounts for the greatest portion of Essity's inbound transportation and most of the outbound consists of road and rail. Essity's total transportation amounted to 13 (13; 14) billion ton-kilometers in 2020.

Distribution of transport modes 2020

Scope emissions, Science Based Targets, 2016 inventory Scope 3 – Indirect emissions, 54% Scope 2 – Electricity, 23% Scope 1 – Energy, 23% Emissions by Scope Scope 3 emissions by category Production waste, 5% Product waste after use, 37% Other, 6% Sourced raw material, 40% Transportation, inbound and outbound, 12%

Scope 3 emissions, Science Based Targets, results

Waste in production and after use

Essity's target is that all production waste will be subject to material and energy recovery by 2030. By reducing the amount of production waste sent to landfill and instead recycling the waste or extracting energy from it, greenhouse gas emissions can be reduced, thereby helping Essity to achieve its Science Based Targets (Scope 3).

H10. AIR EMISSIONS, SCOPE 3, CONT.

In 2020, Essity's production waste amounted to a total of 1.49 (1.68; 1.65) million tons. In Essity's production process, particularly when recycled fiber is used as input goods, waste is generated in the form of ash, sludge, organic waste and plastic. The production sites work to reduce waste and to find alternative solutions for their waste. Waste that cannot be recovered, is sent to landfill or composted. In 2020, 65% (63; 60) of Essity's waste was recovered.

A small proportion, 0.2% or 3,159 tons, is hazardous waste, which is primarily waste oil, but also includes organic solvents, batteries and strip lights. Waste from products after use is managed in various ways. Toilet paper is flushed into the sewer system. Other products are sent to municipality waste facilities where the used products are composted, incinerated or sent to landfill. In order to reduce waste from products after use and thereby reduce its climate footprint, Essity aims to increase the use of renewable materials and study new reusable concepts and recycling. One example of new methods introduced by Essity is Tork PaperCircle®, where used paper hand towels are collected and recycled.

Production waste, ktons

	Group companies with significant
		Essity – wholly owned companies						non-controlling interests					Essity Group
	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016
Eliminations	489	567	659	627	671	5	6	8	7	10	494	573	667	634	681
of which landfill	485	543	634	601	640	2	2	7	6	9	487	545	641	607	649
of which other eliminations	4	24	25	26	31	3	4	1	1	1	7	28	26	27	32
Recycling	895	978	875	938	1,013	103	125	112	102	100	998	1,103	987	1,040	1,113
Total waste	1,384	1,545	1,534	1,565	1,684	108	131	120	109	110	1,492	1,676	1,654	1,674	1,794

H11. WATER

Essity's Group target for water is that the company's tissue operations will improve water quality by reducing the level of suspended solids and organic content (BOD), and to reduce the quantity of discharged water by 10% by 2020, with 2014 as reference year.

In 2020, levels of suspended solids decreased 26.9% (25.8; 18.5), the amount of organic content (BOD) by 21.0% (28.5; 25.0) and the quantity of discharged water by 3.5% (1.9; 2.9) compared with 2014. Essity's main focus has been to improve water quality during these years. In 2021, Essity will draw up new targets for the company's water management.

Extraction, use and discharge of water

Essity's reporting of water extraction states totals for surface water, groundwater and municipal water systems. Surface water, which represents the largest share of water extraction, as a general rule must be purified from dissolved and solid content before use in the production process. Most of Essity's water is used to transport fibers during production processes. The remainder is mainly used as cooling water. In 2020, 73% (74; 75) of the water used was drawn from surface sources. Essity's water discharge is divided into cooling water and process water. Cooling water has simply been heated and is not contaminated in any way. Process water is treated using mechanical and biological treatment systems before it is discharged.

In 2020, six of Essity's wholly owned production facilities were located in so-called water-stressed areas. The sites accounted for 7% of Essity's total water consumption, distributed between 37% from surface sources, 37% from groundwater and the remainder from recycled water from municipal water systems. Total water extraction from these facilities in 2020 was 6.9 million m3, water discharges 4.4 million m3 and water consumption 2.5 million m3..

Any environmental incidents are registered in a central incident-reporting system. In 2020, a small number of incidents relating to temporary exceedances of permitted limit values for waste water were registered. No incident was of such a magnitude that it posed a threat to an emissions permit.

Read more about how Essity works with water on page 47.

Breakdown of water extraction 2020

Breakdown of discharged water 2020

Water

			Essity – wholly owned companies			Group companies with significant non-controlling interests				Essity Group
Water, mm3	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016	2020	2019	2018	2017	2016
Water extraction	90	102	100	101	102	3	3	3	3	3	93	105	103	104	105
Discharges of water	81	94	93	93	93	2	3	2	2	2	83	97	95	95	95
Water consumption1)	9	7	7	8	9	1	1	1	1	1	10	8	8	9	10
Water emissions, tons
COD	5,897	6,021	6,316	6,578	6,773	630	739	733	900	967	6,527	6,760	7,049	7,478	7,740
BOD	632	614	666	646	877	227	199	185	229	262	859	813	851	875	1,139
Suspended solids	660	719	815	818	1,018	196	193	186	242	250	856	912	1,001	1,060	1,268
AOX	4	3	3	5	4	–	–	–	–	–	4	3	3	5	4
P	33	38	43	34	38	0	1	1	3	4	33	39	44	37	42
N	150	186	198	235	375	1	1	1	3	5	151	187	199	238	380

1) Water consumption is water extraction less discharged water.

H12. EMPLOYEES

Essity's employees are the company's main asset and the company strives continuously to develop corporate culture, competence and leadership.

	2020	2019	2018	2017
Personnel data
Average number of employees			46,084 45,980 47,222 46,385
of which in wholly owned companies			27,881 27,956 28,696 28,035
of which in jointly-owned companies			18,203 18,024 18,526 18,350
Permanent staff/ temporary employees, %1)	81/19	82/18	81/19	80/20
Full-time/part-time, %	97/3	96/4	97/3	97/3
Total number of part-time staff	1,194	1,614	1,052	1,362
of whom women	875	1,210	980	930
Total number on parental leave	449	451
of whom women	369	297
Staff mobility
Number of employees who joined the Group	6,891	5,516		6,945 13,585
of whom, through acquisitions	190	23	36	5,518
Number of employees who left the Group	7,402	6,485	7,815	7,321
due to divestments	9452)	109	–	21
due to restructuring	260	345	544	584
due to retirement	443	524	383	418
of which temporary employees	1,939	1,420	1,799	1,857
Personnel turnover, excl. restructuring, retirements, divestments, temporary employees, %	8	9	11	10
of whom in wholly owned companies, %	5	5	5
of whom in jointly-owned companies, %	13	13	18

1) Fixed-term employees in China with three or six-year contracts are classified as temporary

employees. 2) Since the divestment occurred at the end of the year, these are included in the "average number of employees" in 2020.

Diversity and equal opportunities

Essity continuously and actively strives to increase diversity and inclusion. The company's diversity and inclusion strategy aims to continuously increase employees' sense of belonging and inclusion of different perspectives, and also seeks to attract and recruit employees motivated by the company's objective of breaking barriers to well-being in society. This work is followed up in Essity's diversity study, which is held every year and relates to nationalities, age structure and distribution of gender in general and in managerial roles.

	2020	2019	2018	2017
Gender1)
Women/men, %	35/65	34/66	34/66	34/66
Women (total number Board members)	6 (12)	6 (12)	6 (12)	5 (13)
Women (total number Executive Management Team)	3 (12)	3 (12)	3 (12)	5 (14)
Women (total number senior management)	30 (98)	30 (98)	25 (101)	30 (117)
Women (total number middle management)	177 (607)	163 (580)	177 (641)	183 (696)
Age, %
Employees under 20 years of age	1	1	1	1
21–30 years	18	22	21	22
31–40 years	34	32	33	33
41–50 years	26	25	25	25
51–60 years	18	17	17	16
Employees over 60 years of age	3	3	3	3
Nationalities1)
Total number of nationalities	117	112	105	102
Number of nationalities in Executive Management Team (number of members)	6 (12)	6 (12)	6 (12)	5 (14)
Number of nationalities in senior man agement (number of senior managers)	18 (98)	20 (98)	17 (101)	18 (117)
Number of nationalities in middle man agement (number of middle managers)	44 (607)	39 (580)	39 (641)	36 (696)

1) Refers to Essity's wholly owned companies.

Salary

No unjustified pay differences should exist due to gender, age or background. This is regularly monitored and any unjustified differences are corrected on an annual basis.

Average combined salary1), %	2020	2019	2018	2017
Women's median wage compared with men's (men's wage 100%)	91	92	94	95
Women's median wage compared with men's in senior management (men's wage 100%)	80	82	79	78
Women's median wage compared with men's in middle management (men's wage 100%)	95	97	92	92

1) Applies to salaries from Sweden, Germany, France, the US and Mexico (countries where Essity has most employees). Salaries for the President, Executive Vice President and CFO are excluded.

A higher number of men in senior leadership positions has contributed to the total pay difference between women and men. Essity is continuously striving to improve the gender balance in leadership positions when recruiting and through succession planning.

Performance and individual development

In 2020, Essity launched a global HR system for individual goals and development that is available to all employees. The system is not yet fully implemented in the company's production facilities, but the aim is to include all employees.

Employee development plans are important for commitment, performance and continuous learning, and play an important role in enabling Essity to achieve its goals and continuously evolve. The development activities are decided through discussions between line managers and employees and are documented in a system platform. Essity identifies the skills required in leadership, the functional area, the "Beliefs & Behaviors" set of values or other development areas. The company applies a 70-20-10 model for learning and development that combines formal training with learning in day-to-day work and through co-workers.

In 2020, many of Essity's development activities became digital, which gave more employees access to them. Essity has a new framework for leadership development activities, mandatory courses, the digital workplace and a framework for functional training.

Number of internal training hours (thousand)	2020	2019	2018	2017
Total number of internal training sessions	166.8	114.0	81.2	140.8
of which digital training sessions	93.6	39.5	23.8	24.6
of which virtual sessions	40.9	1.9	0.9	0.0
of which physical training sessions	32.3	72.7	56.5	116.2
The number of training hours per employee	6	4	3	5

Investments in skills-enhancement activities	2020	2019	2018	2017
Total, SEKm	115	117	141	152
per employee, SEK	2,500	2,500	3,000	3,300
Value added (SEK) per employee	826	800	661	666
Return (SEK) on human capital	1.73	1.61	1.50	1.59

Employee goals and commitment

Essity's winning culture is based on the company's "Beliefs & Behaviors" and followed up through an employee survey, whereby the company continuously monitors employee engagement. Due to the situation with the COVID-19 pandemic, the 2020 Pulse Survey only included employees with a work computer. It had a particular focus on engagement with regard to working from home.

Internally appointed vacancies, %	2020	2019	2018	2017
1) Refers to employees with work computer.
Employee engagement	90	79	79	>85
Individual goals	93	83	84	100
Individual development plans	65			100
Culture and development, %	20201)	2019	2018	Long term goals

Vacancies appointed through internal candidates1) 23 23 28 26 1) Refers to Essity's wholly owned companies.

Employee relations

Union involvement varies among Essity's countries of operation. On average 68% (68; 63) of Essity's employees are covered by collective agreements. There are health and safety committees on which representatives of 84% (85; 82) of employees served. The notice period in connection with organizational changes in the Group varies, but averaged about five weeks.

Read more about how Essity works with employees on pages 48–49.

H13. HEALTH AND SAFETY

In 2020, Essity conducted a global survey to measure and evaluate how Essity facilitates and supports the physical, mental and social health of employees. The survey also shows the distribution of reactive, proactive and preventive health programs and health initiatives. The aim is to encourage continuous improvements and share best practices worldwide. This survey was conducted at 80 of Essity's larger facilities, both production facilities and offices, in 2020.

Due to COVID-19, work with health and safety was intensified in 2020. For instance, Essity has made training material and activities available to ensure healthy remote working and taken steps to ensure the best possible health and safety practices at the company's production facilities and offices.

Sickness absence

	2020	2019	2018	2017
Sickness absence, %1)	5.34	5.20	4.92	4.86
Scope of reporting, % of wholly owned
companies	56	54	55	57

1) Sickness absence is calculated using the number of hours absent (excluding planned and longterm illness), divided by the number of work hours.

Essity's Group target is to decrease the accident frequency rate by 50% in the 2014–2020 period. In 2020, the accident frequency rate declined by 17% year-on-year to 2.7 (3.3; 3.8) accidents per million hours worked and 56% compared with the base year of 2014. The reduction is the result of purposeful and systematic work with safety issues at all of Essity's production facilities.

In 2020, Essity updated its health and safety strategy and global Health and Security Policy as part of the company's journey toward a risk-free safety culture. Key initiatives within this strategy include controls and reviews by Essity's Health and Safety Committee and studies of the safety climate at the company's production facilities. To further increase the focus on "near misses", from 2021 Essity will expand the measurement of confirmed accidents and the accident frequency rate to form a Total Recordable Injury Frequency Rate. The term "potential consequences" will thus be introduced to identify potential incidents that, in a worst-case scenario, could result in injury or fatality.

Essity's safety functions include procedures that apply to all production facilities. The safety functions are examined and quality assured every year. One of the most important processes is risk assessment, which includes risk identification, evaluation of exposure, potential consequences and risk reduction based on a hierarchy of control. Following this risk assessment process, Essity has identified critical tasks and using these the company's global experts have developed safety standards that include clear preventive countermeasures for several specific operations, such as "Yankee cylinder safety", "Working at height", "Traffic safety" and "Machinery safety".

As stated in Essity's global Health and Security Policy and incident response procedure, the company always encourages employees to set a good example when it comes to work safety and to share and use the tools available to report any dangerous conditions and unsafe behavior. In parallel, the management groups of the facilities review, manage, conclude and provide feedback to this reporting in a systematic manner.

Accidents1)

	2020	2019	2018	2017
Lost Time Accidents, LTA	137	177	214	210
Contractor Lost Time Accidents, CLTA	30	34	50	34
Days Lost due to Accidents, DLA	3,704	4,615	5,230	4,877
Accident Severity Rate (ASR): The DLA / LTA	27.0	26.1	24.4	23.2
Accident Frequency Rate, FR (LTA/1,000,000 WH)	2.7	3.3	3.8	3.8
Incident Rate, IR (LTA/200,000 WH)	0.5	0.7	0.8	0.8
Fatalities (employees)	–	–	–	–
Number of zero-accident sites	29	29	27	26
Number of sites included in reporting	81	86	85	85
Work hours, (1,000,000)	50.4	54.1	56.7	54.8

1) 100% cover for production facilities, excluding sales and administration offices.

Accident frequency rate (FR)

Number of accidents ("LTA") per million hours worked

Read more about how Essity works with health and safety on pages 48–49. Read more about how the company works with health in relation to COVID-19 on page 19.

H14. CERTIFICATIONS

Reliable management systems, which are certified by a third party, play an important role in Essity's sustainability work. Essity uses ISO 14001 and EMAS (the EU's Eco Management and Audit Scheme) as certified environmental management systems. A large number of production units are certified in accordance with ISO and/or EMAS. ISO 9001 is the most important quality management system used by Essity. Essity implements the international standard OHSAS 18001 (Occupational Health and Safety Assessment Series) to ensure the use of uniform processes within the entire company and that Essity's units continuously improve workplace-related health and safety.

Certified volumes, Essity's main sites1), %

	2020	2019	2018	2017
ISO 9001	77	80	77	76
ISO 14001	81	75	80	85
OHSAS 18001	79	80	71	71

1) A main site is a production facility that is wholly owned by Essity and that has at least 100 employees.

Annual accounts 2020

Disposition of earnings Essity Aktiebolag (publ)
Non-restricted equity in the Parent company:
retained earnings	83,552,076,909
net profit for the year	2,636,400,430
Total	86,188,477,399
The Board of Directors and the President propose:
to be distributed to shareholders, a dividend of SEK 6.75 per share	4,740,811,801
to be carried forward	81,447,665,5381)
Total	86,188,477,339

1) The company's equity would have been SEK 55,345,381 higher if assets and liabilities had not been measured at fair value in accordance with Chapter 4, Section 14a of the Swedish Annual Accounts Act.

The Board of Directors and President declare that the consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards adopted by the EU and that disclosures herein give a true and fair view of the Group's position and results of operations. The Parent company's annual accounts have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent company's position and results of operations. The statutory Board of Directors' Report provides a fair review of the Parent company's and Group's operations, position and results of operations and describes material risks and uncertainties facing the Parent company and the companies included in the Group.

Stockholm, February 18, 2021

Ewa Björling Board member

Pär Boman Chairman of the Board Maija-Liisa Friman Board member

Annemarie Gardshol Board member

Magnus Groth President, CEO and Board member

Susanna Lind Board member, employee representative

Bert Nordberg Board member Louise Svanberg Board member

Örjan Svensson Board member, employee representative Lars Rebien Sørensen Board member

Barbara Milian Thoralfsson Board member

Niclas Thulin Board member, employee representative

Our audit report was submitted on February 18, 2021 Ernst & Young AB

Hamish Mabon Authorized Public Accountant Auditor in charge

Auditor's report

To the general meeting of the shareholders of Essity AB (publ), corporate identity number 556325-5511

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

Opinions

We have audited the annual accounts and consolidated accounts of Essity AB (publ) except for pages 51–61 and 119–127 for the year 2020. The annual accounts and consolidated accounts of the company are included on pages 8–10 and 24–132 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Parent company as of 31 December 2020 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of 31 December 2020 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover pages 51–61 and 119–127. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the Parent company and the Group.

Key Audit Matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the Parent company's audit committee in accordance with the Audit Regulation (537/2014) Article 11.

Basis for Opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the Parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its Parent company or its controlled companies within the EU.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

VALUATION OF GOODWILL AND OTHER INTANGIBLES ASSETS (TRADEMARKS)

Description

How our audit addressed this key audit matter

The value of goodwill and other intangibles (including trademarks) with an indefinite useful life as of 31 December 2020 amounted to 45.2 bil lion SEK. The company performs annual impairment tests as well as whenever impairment indicators have been identified. The recover able amount for each cash-generating unit is determined as the value in use, which is calculated based on the discounted present value of future cash flows. Key assumptions in these calculations include future growth rates, gross profit development and the discount rate applied and are presented in Note D1 ("Intangible assets"). An impairment test is a complex process and contains a high degree of judgment regarding future cash flows and other assumptions, not least because it is based on estimates of how the company´s business will be affected by future market developments and by other economic events. In addition, the underlying calculations are in themselves complex. Therefore, we have assessed valuation of goodwill and other intangibles assets with an indefinite useful life to be a key audit matter.

In our audit we have evaluated and reviewed key assumptions, the appli cation of recognized valuation practices, discount rate (referred to as WACC – "Weighted Average Cost of Capital") and other source data that the company has applied. Our evaluation has included comparing to external data sources, such as forecasts of inflation or assessment of future market growth and by evaluating the sensitivity in the company´s valuation model. We have specifically focused on the sensitivity in the calculations and have made an independent evaluation of whether there is a risk that reasonably probable events would give raise to a situation where the value in use would be lower than the carrying amount. In order to assess the company´s historical precision in its estimates and assess ments we have also evaluated the company´s historical estimates with actual amounts that were subsequently reported. We have as appropriate included valuation experts in the team performing our review. Finally, we have evaluated if disclosures provided in Note D1 ("Intangible assets") in the company´s notes are appropriate, specifically with regards to the disclosure of which of the stated assumptions that are most sensitive in calculating the value in use and the sensitivity analysis for those key

assumptions.

REVENUE RECOGNITION AND RELATED SALES INCENTIVES

Description	How our audit addressed this key audit matter
Revenue recognition and accounting for related sales incentives (bonuses and rebates) are areas with a greater degree of estimation and assessment. Incentives related to sales are reported as reduction of the company´s revenue. We have noted that bonuses, rebates and other adjustments of sales prices in some cases can be material. Incen tives can for example be structured as a percentage reduction of sales volumes, discounts per item, fixed amounts with or without thresholds or in other ways. The company calculates an estimate of final incen tives based on the information available the end of the period. We have therefore assessed revenue recognition and related sales incentives to be a key audit matter.	In our audit we have reviewed the company's revenue recognition with focus on bonuses and rebates. We have evaluated the company's reve nue process and tested the company's controls within the process. We have also on a sample basis reviewed the accrued costs related sales incentives (bonuses and rebates) to customers as of 31 December 2020 which amounted to 6.1 billion SEK to underlying customer agreements and performed a retrospective analysis of the accruals per 31 December 2020. Our audit has also included review of credit invoices and other adjustments to trade receivables that have taken place after 31 Decem ber 2020. We have also reviewed a sample of revenue recognition for non-standard customer agreements. In our audit we have tested larger payouts to the company´s customers that have taken place during 2020 in order to confirm that they are in accordance with signed agreements and also accrued correctly in the accounting. Finally, we have audited manual journal entries related to bonus and rebates to confirm that suf ficient documentation and suitable attestations exist for these entries.

Other Information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–7, 11–23 and 133–141. The Board of Directors and the Managing Director are responsible for this other information.

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company's and the group's ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director's responsibilities and tasks in general, among other things oversee the company's financial reporting process.

Auditor's responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.

• We also:
• Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of the company's internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director.
• Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast

significant doubt on the company's and the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause a company and a group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified.

We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor's report unless law or regulation precludes disclosure about the matter.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Essity AB (publ) for the year 2020 and the proposed appropriations of the company's profit or loss.

We recommend to the general meeting of shareholders that the profit be appropriated (loss be dealt with) in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

A separate list of loans and collateral has been prepared in accordance with the provisions of the Companies Act.

Basis for opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the Parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and the group's type of operations, size and risks place on the size of the Parent company's and the group's equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company's organization and the administration of the company's affairs. This includes among other things continuous assessment of the company's and the group's financial situation and ensuring that the company's organization is designed so that the accounting, management of assets and the company's financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors' guidelines and instructions and among other matters take measures that are necessary to fulfill the company's accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor's responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:

• has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company's profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company's profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional skepticism throughout the audit. The examination of the administration and the proposed appropriations of the company's profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company's situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

The auditor's examination of the corporate governance statement

The Board of Directors is responsible for that the corporate governance statement on pages 52–61 has been prepared in accordance with the Annual Accounts Act.

Our examination of the corporate governance statement is conducted in accordance with FAR´s auditing standard RevU 16 The auditor´s examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2–6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act.

The auditor´s opinion regarding the statutory sustainability report

The Board of Directors is responsible for the statutory sustainability report on pages 36–51 and 119–127, and that it is prepared in accordance with the Annual Accounts Act.

Our examination has been conducted in accordance with FAR's auditing standard RevR 12 The auditor´s opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinion.

A statutory sustainability report has been prepared.

Ernst & Young AB with Hamish Mabon as auditor in charge, Box 7850, 103 99 Stockholm, was appointed auditor of Essity AB by the general meeting of the shareholders on April 2, 2020 and has been the company's auditor since May 27, 2016.

Stockholm, February 18, 2021 Ernst & Young AB

Hamish Mabon Authorized Public Accountant

Statutory sustainability report

The report includes requirements placed on sustainability reporting as stated in the Annual Accounts Act.

Disclosure	Page	Disclosure	Page	Disclosure	Page	Disclosure	Page
GENERAL		SOCIAL		RESPECT FOR HUMAN		ANTI-CORRUPTION
Business model	15	CONDITIONS		RIGHTS
ENVIRONMENT		Policy on social issues	44–45, 48–49	Policy for human rights	44, 48–50	Policy for work in anti-corruption 50
Policy on environmental issues	44–47	Risks and risk management on social issues	38, 48–49	Risks and risk management on human rights issues	36, 38, 44, 48–50	Risks and risk management in anti-corruption	36, 38
Risks and risk management on environmental issues	36, 42–43	Targets and outcomes related	21, 23,	Targets and outcomes related to human rights issues	119–120, 126	Targets and outcomes related to anti-corruption	119–120
Targets and outcomes related to environmental issues	21–23, 120–125	to social issues	119–120, 126

Index

Essity's 2020 Annual and Sustainability Report has been prepared in accordance with Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) standards, in addition to the Task-force on Climate related Financial Disclosures (TCFD) framework. The following index shows which indicators are reported and where the information can be found. The Sustainability Report in accordance with GRI Standards has been reviewed by Ernst & Young AB.

GRI index

General Standard Disclosures

	Disclosure	Page
	GRI 101: Foundation 2016
	GRI 102: General disclosures 2016
	ORGANIZATIONAL PROFILE
102–1	Name of the organization	Back cover
102–2	Activities, brands, products, and services	1, 24–29
102–3	Location of headquarters	Back cover
102–4	Countries in which operations are located	82–83
102–5	Nature of ownership and legal form	8–9
102–6	Markets served	11–13, 24–29
102–7	Scale of the organization	3, 33–35, 69, 82–83
102–8	Information on employees and other workers	87, 119–120, 126
102–9	Supply chain	46–47
102–10	Significant changes to the organization and its supply chain	30–31, 109–110
102–11	Addressing the precautionary approach or principle	32
102–12	External initiatives	Inside cover
102–13	Membership of associations	Inside cover
STRATEGY
102–14	CEO's message	6–7
	ETHICS AND INTEGRITY
102–16	Values, principles, standards, code of conduct and code of ethics 48–49, 50
GOVERNANCE
102–18	Governance structure	32
102–19	The process for delegating authority for sustainability topics	42, 44–50
	Executive-level positions with responsibility for sustainability
102–20	topics	44, 61
	Processes for consultation between stakeholders and the highest
102–21	governance body	51, 53
102–22	Composition of the highest governance body and its committees 52–53, 58–59
102–23	Position of the chair of the board of directors	52–53, 58
102–24	Nomination and selection processes for the highest governance body and its committees	52–53
102–25	Report processes for the highest governance body to ensure conflict of interest is avoided and managed	52–53
102–26	Highest governance body's role in setting purpose, values, and strategy	52–54
	STAKEHOLDER ENGAGEMENT
102–40	List of stakeholder groups engaged	51
102–41	Collective bargaining agreements	126
102–42	Identification and selection of stakeholders	51
102–43	Approaches to stakeholder engagement	15, 44, 51
102–44	Key topics and concerns raised by stakeholders	51
	REPORTING PRACTICE
102–45	Entities included in the financial statements	105–108, 119
102–46	Defining report content and topic boundaries	51
102–47	List of material topics	51
102–48	Restatements of information	119
102–49	Changes in reporting	119
102–50	Reporting period	119
102–51	Date of most recent report	119
102–52	Reporting cycle	119
102–53	Contact point for questions regarding the report	Back cover
102–54	Claims of reporting in accordance with the GRI Standards	119
102–55	GRI content index	133–134
102–56	External assurance	119

TCFD Index

The following index shows where Essity provides information on climate-related risks and opportunities in accordance with the recommendations of the TCFD framework.

Disclosure	Page
GOVERNANCE
a) The Board's oversight of climate-related risks and opportunities	30, 36, 42–43
b) Management's role in assessing and managing climate-related risks and opportunities	30, 36, 42–43
STRATEGY
a) Identified climate-related risks and opportunities	36, 42–43, 51
b) Impact of climate-related risks and opportunities on operations, strategy, and financial planning	36, 42–43
c) Resilience of strategy, taking into consideration different climate-related scenarios	36, 42–43
RISK MANAGEMENT
a) Processes for identifying and assessing climate-related risks	36, 42–43, 51
a) Processes for managing climate-related risks	42–43
c) Integration of the aforementioned processes into the organization's overall risk man agement	30, 36, 42–43
METRICS AND TARGETS
a) Metrics used to assess climate-related risks and opportunities	123–125
b) Scope 1, Scope 2 and Scope 3 emissions under the Greenhouse Gas Protocol and related risks	42–43, 123–125
c) Targets used to manage climate-related risks and opportunities and performance against targets	22–23, 123–125

SASB Index

Sustainability disclosure topics & accounting metrics

Code	Disclosure	Page
	WATER MANAGEMENT
CG–HP– 140a.1	(1) Total water withdrawn, (2) total water consumed, (thousand m³), percentage of each in regions with High or Extremely High Baseline Water Stress	125
CG–HP– 140a.2	Description of water management risks and discussion of strategies and practices to mitigate those risks	125
	PRODUCT ENVIRONMENTAL, HEALTH, AND SAFETY PERFORMANCE
CG–HP– 250a.1	Revenue from products that contain REACH substances of very high concern (SVHC) (SEK)
	Comments: Reporting does not include Essity's medical products as these are outside the scope of the SASB Standard for Household and Consumer Products. Products from Essity's companies with significant non-controlling interests are excluded.	120
CG–HP– 250a.2	Revenue from products that contain substances on the California DTSC Candidate Chemicals List (SEK) Comments: Reporting does not include Essity's medical products as these are outside the scope of the SASB Standard for Household and Consumer Products. Products
	from Essity's companies with significant non-controlling interests are excluded.	120
CG–HP– 250a.3	Discussion of process to identify and manage emerging materials and chemicals of concern	45, 120
CG–HP– 250a.4	Revenue from products designed with green chemistry principles Comments: Not reported.	–
	PACKAGING LIFECYCLE MANAGEMENT
CG–HP– 410a.1	(1) Total weight of packaging, (2) percentage made from recycled and/or renewable materials, and (3) percentage that is recyclable, reusable, and/or compostable	121
CG–HP– 410a.2	Discussion of strategies to reduce the environmental impact of packaging throughout its lifecycle	121
	ENVIRONMENTAL & SOCIAL IMPACTS OF PALM OIL SUPPLY CHAIN
CG–HP– 430a.1	Amount of palm oil sourced, percentage certified through the Roundtable on Sustain able Palm Oil (RSPO) supply chains as (a) Identity Preserved, (b) Segregated, (c) Mass Balance, or (d) Book & Claim Comments: In 2019, Essity sourced 970 tons of palm oil, of which 99.7% as c) mass-balance. Reported with a one-year delay.	–
CG–HP– 000.A	Units of products sold, total weight of products sold (tons) Comments: Not reported	–
CG–HP– 140a.2	Number of manufacturing facilities	119

GRI index, cont. Specific Standard Disclosures

GRI Standard		Description	Page	Comment/Omission	Topic in Essity's materiality analysis
ECONOMIC
Indirect Economic Impacts GRI 203: Indirect Economic	103–1/2/31)	Disclosure on management approach (DMA)	44		Risk management
Impacts 2016	203–2	Significant indirect economic impacts	22–23, 45–49
Anti-corruption	103–1/2/31)	Disclosure on management approach (DMA)	50		Business ethics
GRI 205: Anti-corruption 2016	205–1	Operations assessed for risks related to corruption and the transparency-significant risks identified	119		Transparency
	205–3	Actions taken in response to confirmed incidents of corruption	119
Anti-competitive Behavior GRI 206: Anti-competitive	103–1/2/31)	Disclosure on management approach (DMA)	50		Business ethics Transparency
Behavior 2016	206–1	Anti-trust and monopoly court cases	120
ENVIRONMENT
Energy	103–1/2/31)	Disclosure on management approach (DMA)	22, 47		Climate change,
GRI 302: Energy 2016	302–1	Energy consumption within the organization	123–124		Waste/circularity and plastics
	302–4	Reduction of energy consumption	123–124
Water GRI 303: Water and Effluents	103–1/2/31) 303–1/2	Disclosure on management approach (DMA)	47		Water
2018	303–3	Water extraction	125
Emissions	103–1/2/31)	Disclosure on management approach (DMA)	47		Climate change, Water,
GRI 305: Emissions 2016	305–1	Direct greenhouse gas (GHG) emissions (Scope 1)	123–124		Waste/circularity and plastics, Fiber sourcing
	305–2	Energy indirect greenhouse gas (GHG) emissions (Scope 2)	123–124
	305–3	Other indirect greenhouse gas (GHG) emissions (Scope 3)	124–125
	305–4	Greenhouse gas (GHG) emissions intensity	123
	305–7	NOx, SOx, and other significant air emissions	123
Effluents and Waste	103–1/2/31)	Disclosure on management approach (DMA)	46–47		Water, Waste/circularity
GRI 306: Effluents and Waste 2016	306–2	Total weight of waste by type and disposal method	125		and plastics
SOCIAL PERFORMANCE INDICATORS
Employment GRI 401: Employment 2016	103–1/2/31)	Disclosure on management approach (DMA)	44, 48–49		Human capital
	401–1	New employee hires and employee turnover	126
Labor/Management Rela tions	103–1/2/31)	Disclosure on management approach (DMA)	44, 48–49		Human capital
GRI 402: Labor/Management Relations 2016	402–1	Minimum notice periods regarding operational changes	126
Health and safety GRI 403: Occupational Health	103–1/2/31) 403–1 to 7	Disclosure on management approach (DMA)	48–49, 127		Health and safety
and Safety 2018	403–9	Work-related injuries	127
Training and Education GRI 404: Training and	103–1/2/31)	Disclosure on management approach (DMA)	44, 48–49, 126		Human capital
Education 2016	404–3	Percentage of employees receiving regular performance and career development reviews	126
Diversity and equal oppor tunities	103–1/2/31)	Disclosure on management approach (DMA)	44, 48–49		Human capital
GRI 405: Diversity and Equal	405–1	Composition of governance bodies and employee breakdown	48, 52–53, 58–59, 126
Opportunity 2016	405–2	Ratio of basic salary and remuneration of women to men	126
Non-discrimination	103–1/2/31)	Disclosure on management approach (DMA)	48, 50		Business ethics
GRI 406: Non-discrimination 2016	406–1	Actions taken in incidents of discrimination	120		Transparency
Freedom of Association and	103–1/2/31)	Disclosure on management approach (DMA)	49–51		Business ethics
Collective Bargaining GRI 407: Freedom of Association and Collective	407–1	Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk		No Essity sites were identified as high-risk sites by Sedex.	Transparency
Bargaining 2016
Child Labor GRI 408: Child Labor 2016	103–1/2/31)	Disclosure on management approach (DMA)	50		Business ethics Transparency
	408–1	Measures taken to eliminate child labor in risk areas	119–120	No Essity sites were identified as high-risk sites by Sedex.
Forced or Compulsory Labor	103–1/2/31)	Disclosure on management approach (DMA)	50		Business ethics
GRI 409: Forced or Compulsory Labor 2016	409–1	Measures taken to eliminate forced or compulsory labor in risk areas	119–120	No Essity sites were identified as high-risk sites by Sedex.	Transparency
Human rights	103–1/2/31)	Disclosure on management approach (DMA)	50		Human rights
GRI 412: Human Rights Assessment 2016	412–2	Employee training on human rights	119–120	Work in the area of human rights takes many different forms via training sessions, for example, through the Code of Conduct.	Business ethics Transparency
Supplier Social Assessment	103–1/2/31)	Disclosure on management approach (DMA)	50		Human rights
GRI 414: Supplier Social Assessment 2016	414–2	Significant potential and actual negative impacts in the supply chain and actions taken	121–122		Business ethics Transparency
Marketing and Labeling GRI 417: Marketing and	103–1/2/31)	Disclosure on management approach (DMA)	16		Customer and consumer
Labeling 2016	417–1	Product information required by procedures	46–47, 121		satisfaction, Safe products

1) GRI 103: Management Approach 2016

AUDITOR'S REPORT ON THE LIMITED REVIEW AND AUDIT OF THE SUSTAINABILITY REPORT OF ESSITY AKTIEBOLAG (PUBL)

This is the translation of the auditor's report in Swedish.

To Essity Aktiebolag (publ), org.nr 556325-5511

INTRODUCTION

We have been engaged by the Board of Essity Aktiebolag (publ) to undertake a combined assurance engagement of the Sustainability Report for Essity Aktiebolag (publ) for the year 2020. The scope of the Sustainability Report has been defined on pages 133–134.

RESPONSIBILITIES OF THE BOARD AND EXECUTIVE MANAGEMENT FOR THE SUSTAINABILITY REPORT

The Board of Directors and Executive Management are responsible for the preparation of the Sustainability Report in accordance with the applicable criteria, as defined on page 119, and are part of the Sustainability Reporting Guidelines published by GRI (The Global Reporting Initiative) that are applicable to the Sustainability Report, as well as the accounting and calculation principles that the Company has developed. This responsibility includes the internal control relevant to the preparation of a Sustainability Report that is free from material misstatements, whether due to fraud or error.

RESPONSIBILITIES OF THE AUDITOR

Our responsibility is to express a conclusion on the Sustainability Report based on the assurance procedures we have performed. Our engagement is limited to historical financial information and does therefore not include future oriented information.

We conducted our engagement in accordance with ISAE 3000 Assurance engagements other than audits or reviews of historical financial information. The engagement includes a limited assurance engagement on the complete Sustainability Report and audit on fossil fuels and grid supply data on page 124. The objective of an audit is to obtain reasonable assurance that the information is free of material misstatements. A reasonable assurance engagement includes examining, on a test basis, evidence supporting the quantitative and qualitative information in the Sustainability Report. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainability Report, and applying analytical and other limited assurance procedures. A limited assurance engagement is different from and substantially less in scope than reasonable assurance conducted in accordance with IAASB's Standards on Auditing and other generally accepted auditing standards in Sweden.

The firm applies ISQC 1 (International Standard on Quality Control) and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We are independent of Essity Aktiebolag (publ) in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

The conclusion based on our limited assurance procedures does not provide the same level of assurance as the conclusion of our reasonable assurance procedures. Since this engagement is combined, our conclusions regarding reasonable assurance and limited assurance are presented separately below.

Our procedures are based on the criteria defined by the Board of Directors and the Executive Management as described above. We consider these criteria suitable for the preparation of the Sustainability Report.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion below.

CONCLUSIONS

Based on the limited assurance procedures we have performed, nothing has come to our attention that causes us to believe that the Sustainability Report is not prepared, in all material respects, in accordance with the criteria defined by the Board of Directors and Executive Management.

In our opinion the information in the Sustainability Report which has been subject to our reasonable assurance procedures have, in all material respects, been prepared in accordance with the criteria defined by the Board of Directors and Executive Management.

Stockholm, 18 February 2021 Ernst & Young AB

Hamish Mabon Authorized Public Accountant

Outi Alestalo Expert member of FAR

Remuneration report 2020

Essity Aktiebolag (publ) to be presented at the 2021 AGM

INTRODUCTION

This report describes how the guidelines for remuneration of senior executives of Essity AB, as adopted by the 2020 AGM, were applied in 2020. The report also provides information about the remuneration of the President and the Executive Vice President and a summary of the company's variable remuneration programs and other benefits. The report has been prepared in accordance with the Swedish Companies Act and the Swedish Corporate Governance Code. More information about remuneration of senior executives is available in Note C (Employees) on pages 87–89 in the Annual and Sustainability Report for 2020. Information about the work of the Remuneration Committee in 2020 is presented in the Corporate Governance Report on pages 52–61 in the Annual and Sustainability Report for 2020.

The Board's remuneration is not covered in this report. Such remuneration is approved each year by the AGM and is reported in Note C3 on page 89 of the 2020 Annual Report.

1. Key events and key figures in 2020

The President summarizes the company's overall performance in his statement on pages 6–7 in the Annual and Sustainability Report for 2020.

2. The company's guidelines for remuneration of senior executives: purpose, scope and deviations

The remuneration guidelines, as unanimously adopted by the 2020 AGM, and the application of these are described on pages 87–88 of the Annual and Sustainability Report.

A prerequisite for the successful implementation of the company's business strategy and the protection of its long-term interests, including its sustainability, is that the company can recruit and retain qualified staff. To this end, the company must offer competitive and market-based remuneration and benefits.

According to the guidelines, total remuneration and benefits to senior executives, Total Reward, is to correspond to market practice and be competitive in the senior executive's field of profession. The remuneration is offered as fixed salary, variable remuneration, other benefits such as company car, pension and healthcare benefits.

The total remuneration is to be proportionate to the senior executive's position and authority and the responsibility these entail based on the financial scope and business impact, as well as market complexity. Total remuneration is decided on an individual basis at a level that, in combination with the various remuneration components, is considered to correspond to market practice and is competitive and takes into account performance. For the President and the Executive Vice President, a market comparison is therefore conducted with Swedish global industrial companies.

Table 1 below shows the total remuneration of senior executives in 2020 and the relationship between fixed and variable remuneration. Remuneration was not received from other Group companies.

3. Variable remuneration

Variable remuneration is divided into short and long-term portions that are related to financial or non-financial targets. The criteria are designed to contribute to the company's business strategy and long-term interests, including its sustainability. The sustainability targets are primarily focused on the Science Based Targets Scope 1 and 2, which aim to reduce emissions of carbon dioxide in energy utilization and purchased electricity.

3.1 Short-term incentive program

The program aims to support the achievement of the company's strategic business targets in the short and long term. The program's target structure consists of organizational targets and performance targets.

The organizational targets are set at a high level in the organization, business unit or Group level, as decided at Group level, and include a large number employees, while the performance targets are directly linked to responsibility within an individual role.

The organizational targets consist of financial targets at Group level or business area targets and comprise operating cash flow, sales growth and operating margin.

Performance targets are financial targets or business strategy, nonfinancial targets. The performance targets are designed to be more closely linked to an individual role.

For the President and the Executive Vice President, organizational targets comprise the Group's adjusted operating margin, organic sales growth and operating cash flow. The performance targets for 2020 consisted of profit

Table 1. Total remuneration of the President and the Executive Vice President

SEK			Fixed remuneration		Variable remuneration1)
Name, position	Fiscal year	Fixed salary	Other benefits and remuneration	Short-term remuneration	Long-term remuneration	Extraordinary benefits	Pension costs	Total salary and remuneration	Proportion fixed and variable remuneration (%)
Magnus Groth
President and CEO	2020	15,000,000	112,291	5,670,000	0	0	6,269,391	27,051,682	79/21
Fredrik Rystedt
CFO and Executive Vice President 2020		7,503,000	50,707	2,836,134	0	0	2,379,895	12,769,736	78/22

1) Variable remuneration pertains to 2020 but is paid in 2021.

Table 2. Outcome of the short-term program 2020 for the President and the Executive Vice President

Name, position	Target	Target's relative value	Target outcome	Remuneration (SEK)
Magnus Groth	Organizational target
President and CEO	EBITA margin (adjusted)	21%	14.5%	1,575,000
	Operating cash flow (adjusted)1)	28%	SEK 17.1bn	2,100,000
	Organic sales growth	21%	–1.9%	0
	Performance target
	Profit for the period (adjusted)	21%	SEK 11.8bn	1,315,500
	Science Based Targets, Scope 1 and 2	9%	–11%	675,000
Fredrik Rystedt	Organizational target
CFO and Executive Vice President	EBITA margin (adjusted)	21%	14.5%	787,815
	Operating cash flow (adjusted)1)	28%	SEK 17.1bn	1,050,420
	Organic sales growth	21%	–1.9%	0
	Performance target
	Profit for the period (adjusted)	21%	SEK 11.8bn	658,013
	Science Based Targets, Scope 1 and 2	9%	–11%	337,635

1) Change in working capital is replaced with average calculated change in working capital during the year.

for the period (adjusted) and sustainability targets. The organizational targets account for 70% and the performance targets 30%. See table 2.

If the targets are met in full, short-term remuneration amounts to 50% of fixed cash salary for the President and the Executive Vice President. This remuneration is not pensionable income.

3.2 Long-term incentive program

The aim of the long-term program is to promote the long-term positive earnings trend for the company and positive value appreciation for the company's shareholders.

The program is a cash-based program and aims through share ownership to create commonality between participants and the company's shareholders and reward long-term value creation. The program is also an important remuneration component in attracting and retaining key employees. The program is approved by the Board each year and participants in one program are not automatically eligible to participate in future programs.

The measurement period is three years. An invitation to take part in the program is sent during the third year of the measurement period. The degree to which the targets were met and any outcomes are determined at the end of the measurement period. The cost of any outcome within the program is charged to the third year.

The target for the long-term incentive program is based on the company's performance, measured as Total Shareholder Return (TSR). The TSR value comprises dividends, share performance and other returns that are compared with the performance of the MSCI Household Products Index, Consumer Staples, which is a weighted index of the corresponding TSR values of competitors and consumer companies during a three-year measurement period.

The starting point is the average TSR value during the final quarter before the start of the measurement period compared with the average TSR value during the final quarter of the measurement period.

Remuneration is paid if Essity's TSR value reaches the performance interval between –5 percentage points of the average TSR value of the comparison group for the same period (minimum outcome) and +5 percentage points of the average TSR value of the comparison group (maximum outcome).

Resulting remuneration is not pensionable income.

The company pays any outcome as cash remuneration, and the maximum outcome may amount to 50% of the fixed cash salary for the senior executive. Within a specified period, the senior executive must acquire Essity shares for at least half of the remuneration received, after deduction of income tax. If trading restrictions are in place, due to insider information, the acquisition must take place as soon as possible thereafter.

The senior executive must then not divest the shares acquired within the framework of the program until the shares have been retained for at least three years from the date of purchase.

If a participant resigns and is subsequently removed from the program before the end of the vesting period, entitlement to the remuneration proceeds is lost.

The outcome of the program is paid as cash remuneration to the senior executive, which means the program has no dilution effect or similar impact for shareholders and, as stated above, there is a ceiling for the maximum outcome.

4. Pension benefits

Pension benefits for senior executives shall be contribution-defined in accordance with the remuneration guidelines and limited to at most 40% of fixed salary with the exception of pension agreements signed before 2020.

For the President and the Executive Vice President, pension benefits are defined contribution with a premium of 40% of fixed cash salary in addition to the premium expenses for basic pension benefits in the ITP plan with retirement pension benefits limited to a maximum salary income of 7.5 income base amounts. The retirement age is 65.

5. Other benefits

Other benefits refers to company cars, luncheon vouchers and medical insurance.

6. Deviations and audit

No deviations from the guidelines took place and no exemptions from implementing the guidelines were made. The auditor's report on the company's compliance with the guidelines is available on the company's website1). No remuneration was refunded.

7. Comparative information between remuneration and performance

Comparative information about changes in total remuneration of senior executives and average remuneration per full-time employee in the Parent Company and the company's performance results is provided under Table 4.

The former SCA Group was split in 2017 into the forest products company SCA and the hygiene products company Essity, which is why comparative information is not reported before 2018.

1) www.essity.com/company/corporate-governance/general-meeting/general-meeting-2021/

Board of Directors, February 18, 2021

Table 3. Outcome of long-term program 2020 for the President and the Executive Vice President

Name, position	Target	Target's relative value	Target outcome (%)	Remuneration (SEK)
Magnus Groth President and CEO	Performance of the company's Total Shareholder Return (TSR) compared with MSCI Household Products Index, Consumer Staples' TSR, during the three-year measurement period.	100%	0.00%	0
Fredrik Rystedt CFO and Executive Vice President	Performance of the company's Total Shareholder Return (TSR) compared with MSCI Household Products Index, Consumer Staples' TSR, during the three-year measurement period.	100%	0.00%	0

Table 4 – Change in Total remuneration1) and the company's performance in recent fiscal years

Total remuneration1) in		2020/2019	Year-on-year change – 2019/2018
(SEKm)	(SEKm)	(%)	(SEKm)	(%)
27.1	–6.4	–19%	7.6	29%
12.8	–3.4	–21%	2.4	17%
1.6	–0.2	–9%	0.3	18%
11,805	1,039	10%	1,210	13%
	2020		Year-on-year change –

1) Total remuneration comprises fixed salary, short and long-term variable remuneration, pension costs and other benefits.

Description of costs

Total operating expenses1): SEK 105,029m

• Sales, general and administration2), 21%
• Energy, 4%
• Transport and distribution expenses, 11%
• Other costs of goods sold3), 24%
• Raw materials and consumables, 40%

Of which
Pulp	14%
Recovered paper	4%
Super absorbents	2%
Non-woven	3%
Other4)	17%
Total raw materials and consumables	40%

Essity Group Personal Care

Total operating expenses1): SEK 39,738m

• Sales, general and administration, 30%
• Energy, 1%
• Transport and distribution expenses, 10%
• Other costs of goods sold, 22%
• Raw materials and consumables, 37%

Of which

7%
5%
7%
18%
37%

Consumer Tissue Professional Hygiene

Total operating expenses1): SEK 22,173m

• Sales, general and administration, 16%
• Energy, 5%
• Transport and distribution expenses, 11% Other costs of goods sold, 36%
• Raw materials and consumables, 32%

Of which

Pulp	8%
Recovered paper	8%
Other	16%
Total raw materials and consumables	32%

Energy, 7%

Of which
Pulp	25%
Recovered paper	4%
Other	19%
Total raw materials and consumables	48%

Transport and distribution expenses, 12% Other costs of goods sold, 20% Raw materials and consumables, 48%

Total operating expenses1): SEK 42,203m Sales, general and administration, 13%

1) Excluding items affecting comparability.

• 2) Sales, general and administration include costs for marketing by 6 percentage points.
• 3) The two largest items of Other costs of goods sold comprise personnel (11 percentage points) and depreciation/amortization (5 percentage points).
• 4) The item Other in Raw materials and consumables includes costs for chemicals, packaging material and plastic material.

Raw materials

Pulp consumption Recovered paper consumption

1.9 million tons

3.2 million tons

Essity's own pulp production corresponded to 7% of the pulp consumption and is primarily related to an integrated tissue plant in Mannheim, Germany.

Production facilities1)

(Capacity is stated in thousands of tons, unless otherwise indicated, and per year)

Personal Care
Production facility	Country
Buenos Aires	Argentina
Jarinu	Brazil
Drummondville	Canada
Hubei	China
Zhejiang	China
Cali	Colombia
Caloto	Colombia
Rio Negro	Colombia
San Cristobal	Dominican Republic
Lasso	Ecuador
Cairo	Egypt
Radiante	France
Vibraye	France
Emmerich	Germany
Hausbruch	Germany
Goa	India
Amman	Jordan
Shah Alam 1&2	Malaysia
Ecatepec	Mexico
Reynosa	Mexico
Assen	Netherlands
Gennep	Netherlands
Hoogezand	Netherlands
Karachi	Pakistan
Olawa	Poland
Veniov	Russia
Gemerská Hôrka	Slovakia
Pinetown	South Africa
Valls	Spain
Falkenberg	Sweden
Mölnlycke	Sweden
Kao Hsiung	Taiwan
Kartepe	Turkey
Bowling Green	USA

Production facility	Country	Capacity	Production facility	Country	Capacity
Ortmann	Austria	132	Sahagun	Mexico	95
Stembert	Belgium	75	Uruapan Mexico		40
Santiago	Chile	28	Cuijk	Netherlands	52
Beijing	China	30	Suameer2)	Netherlands	9
Hubei	China	300	Sovetsk	Russia	91
Liaoning	China	55	Svetogorsk	Russia	55
Shangdong	China	110	Allo	Spain	120
Sichuan	China	75	Valls	Spain	137
Xinhui, Sanjiang	China	410	Lilla Edet	Sweden	100
Yangjiang	China	60	Manchester UK		50
Zhejiang	China	210	Oakenholt	UK	70
Cajica	Colombia	70	Prudhoe	UK	94
Medellin	Colombia	30	Stubbins	UK	55
Inpaecsa	Ecuador	13	Tawd Mill	UK	30
Lasso	Ecuador	26	Barton	USA	180
Nokia	Finland	67	Harrodsburg	USA	55
Gien	France	145	Menasha	USA	211
Hondouville	France	55	Middletown	USA	100
Kunheim	France	52	South Glens Falls	USA	64
Le Theil	France	65
Kostheim	Germany	152	Converting facilities
Mannheim	Germany	283	Kingsgrove	Australia
Neuss	Germany	112	Jarinu	Brazil
Witzenhausen	Germany	32	Hlohovec	Slovakia
Altopascio	Italy	25	Telde	Spain
Collodi	Italy	42	Skelmersdale	UK
Lucca	Italy	100	Greenwich	USA
Monterrey	Mexico	62	Neenah	USA
Total					4,424

Production facility	Country	Capacity
Sahagun	Mexico	95
Uruapan	Mexico	40
Cuijk	Netherlands	52
Suameer2)	Netherlands	9
Sovetsk	Russia	91
Svetogorsk	Russia	55
Allo	Spain	120
Valls	Spain	137
Lilla Edet	Sweden	100
Manchester	UK	50
Oakenholt	UK	70
Prudhoe	UK	94
Stubbins	UK	55
Tawd Mill	UK	30
Barton	USA	180
Harrodsburg	USA	55
Menasha	USA	211
Middletown	USA	100
South Glens Falls	USA	64
Converting facilities
Kingsgrove	Australia
Jarinu	Brazil
Hlohovec	Slovakia
Telde	Spain

1) As of December 31, 2020. 2) Non-woven production.

Financial multi-year summary

SEKm	2020	2019	2018	2017	2016	2015
INCOME STATEMENT
Net sales	121,752	128,975	118,500	109,265	101,238	98,519
Adjusted EBITA	17,626	15,840	12,935	13,405	11,992	10,603
Personal Care	7,161	6,746	6,354	5,937	4,283	3,997
Consumer Tissue	8,045	5,321	3,331	4,084	4,450	3,846
Professional Hygiene	3,317	4,463	3,841	4,004	3,836	3,497
Other operations	–897	–690	–591	–620	–577	–737
Items affecting comparability	–59	–713	–1,375	–855	–2,645	–292
EBITA	17,567	15,127	11,560	12,550	9,347	10,3111)
Amortization of acquisition-related intangible assets	–809	–778	–732	–560	–159	–133
Items affecting comparability	0	0	–69	–85	–180	–494
Operating profit	16,758	14,349	10,759	11,905	9,008	9,684
Financial income	108	106	91	158	202	3122)
Financial expenses	–1,066	–1,415	–1,248	–1,340	–1,037	–1,140
Profit before tax	15,800	13,040	9,602	10,723	8,173	8,856
Income taxes	–4,053	–2,828	–1,050	–1,938	–3,931	–2,278
Profit for the period	11,747	10,212	8,552	8,785	4,242	6,578
BALANCE SHEET
Non-current assets (excl. financial receivables)	107,974	116,779	110,370	105,398	77,238	67,483
Receivables and inventories	37,141	38,486	38,646	34,664	29,917	29,171
Non-current assets held for sale	0	42	69	42	156	120
Financial receivables	3,555	3,535	1,751	1,700	1,052	766
Current financial assets	993	525	422	1,105	1,677	12,983
Cash and cash equivalents	4,982	2,928	3,008	4,107	4,244	4,828
Total assets	154,645	162,295	154,266	147,016	114,284	115,351
Equity	54,352	54,125	47,141	42,289	33,204	42,986
Non-controlling interests	8,990	8,676	7,758	7,281	6,376	5,289
Provisions	12,671	14,017	15,696	14,659	11,961	8,450
Interest-bearing debt	46,890	52,062	54,327	54,838	36,873	34,717
Operating and other non-interest bearing liabilities	31,742	33,415	29,344	27,949	25,870	23,909
Total equity and liabilities	154,645	162,295	154,266	147,016	114,284	115,351
Average capital employed	112,473	114,663	107,575	90,167	73,145	70,115
Net debt, incl. pension liabilities	42,688	50,940	54,404	52,467	35,173	19,058
OPERATING CASH FLOW STATEMENT
Operating cash flow	16,018	15,639	9,900	10,622	10,998	8,261
Cash flow from current operations	11,175	13,208	6,363	6,644	6,530	5,371
Cash flow before transactions with shareholders	10,795	13,285	5,737	–19,372	359	5,328
Investments in non-current assets, net	–6,439	–5,707	–6,781	–6,012	–6,255	–5,472
Acquisitions of Group companies and other operations	–747	–143	–694	–26,045	–6,540	–92
Divestments of Group companies and other operations	367	220	68	29	369	49
KEY FIGURES
Equity/assets ratio, %	35	33	31	29	29	37
Interest coverage ratio	17.5	11.0	9.3	10.1	10.8	11.7
Debt payment capacity, incl. pension liabilities, %	46	38	25	26	29	65
Debt/equity ratio, incl. pension liabilities	0.67	0.81	0.99	1.06	0.89	0.39
Debt/equity ratio, excl. pension liabilities	0.63	0.76	0.92	0.99	0.76	0.34
Return on capital employed, %	15.6	13.2	10.8	13.9	12.8	13.8
Adjusted return on capital employed, %	15.7	13.8	12.0	14.9	16.4	15.1
Return on equity, %	18.2	17.4	16.1	19.8	9.3	13.9
EBITA margin, %	14.4	11.7	9.8	11.5	9.2	10.5
Adjusted EBITA margin, %	14.5	12.3	10.9	12.3	11.8	10.8
Operating margin, %	13.8	11.1	9.1	10.9	8.9	9.8
Adjusted operating margin, %	13.8	11.7	10.3	11.8	11.7	10.6
Net margin, %	9.7	7.9	7.2	8.0	4.2	6.7
Capital turnover rate	1.08	1.12	1.10	1.21	1.38	1.41
Cash flow from current operations per share, SEK	15.91	18.81	9.06	9.46	9.30	7.65
Earnings per share, SEK	14.56	13.12	11.23	11.56	5.41	8.73
Dividend per share, SEK	6.753)	6.25	5.75	5.75

1) 2015 includes the sale of securities, SEK 970m.

2) 2015 does not include the sale of securities, SEK 970m.

3) Board of Directors' dividend proposal.

Breaking Barriers to Well-being

We make a greater difference through partnerships

At Essity, we know that hygiene and health are fundamental to people's well-being – in all parts of the world, and in all phases of life. It is a simple fact, but also full of complex challenges. From taboos and stigmas, to access to the necessary products and facilities. Our products, our solutions and our work contribute to the improvement of well-being for people around the world.

Within the framework of the Essity brand purpose – Breaking Barriers to Well-being – we are engaging in a series of global and local initiatives to promote awareness and inspire sustainable solutions for hygiene and health. Through collaborations, partnerships, reports, education and innovations, we help enable a global dialogue to drive positive change for society at large.

During the year, we published the report "Accelerating Action on Hygiene and Health for All" in cooperation with the Water Supply and Sanitation Collaborative Council (WSSCC), to highlight key global challenges facing hygiene and health. The report focuses on facts and solutions with the aim of stimulating ideas and actions to improve global health and well-being.

The report was launched in conjunction with the United Nations Foundation's annual Global Dialogue, where Essity was convening partner for the fifth year in a row. The Global Dialogue brings together leaders and experts from the private and public sectors to inspire and encourage accelerated action in achieving the UN Sustainable Development Goals.

During the year, Essity also increased its commitment to the Global Handwashing Partnership, under the leadership of the WHO and UNICEF. The spread of COVID-19 has further emphasized the importance of good hand hygiene to reduce the spread of infections in society and save lives. In addition, Essity contributed to the "COVID-19 Solidarity Response Fund", coordinated by the WHO.

Through our cooperation with UNICEF in Mexico, we have reached more than seven million young people with knowledge around hand hygiene and hygiene in relation to menstruation. During the year, we launched a virtual initiative to educate girls, boys, teachers and parents. Through our collaboration with the Red Cross in several countries, we have also reached out to people in particularly vulnerable situations during the pandemic.

Awards and memberships Partnerships 1) Now known as the Sanitation and Hygiene Fund 1)

The name Essity stems from the words essentials and necessities. We are a leading global hygiene and health company that offers products and solutions that are a necessity in everyday life. Hygiene and health are central to people's well-being. Improved hygiene and health are preconditions for a better life and play an essential role in well-being.

That is why we are called Essity.

Essity Aktiebolag (publ) PO Box 200, SE-101 23 Stockholm, Sweden Visiting address: Klarabergsviadukten 63 Tel +46 8 788 51 00 Corp. Reg. No.: 556325-5511 www.essity.com Follow Essity: