Annual / Quarterly Financial Statement • Mar 13, 2019
Annual / Quarterly Financial Statement
Open in ViewerOpens in native device viewer
The Board of Directors' Report and financial statements
The Annual and Sustainability Report 2018 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 6–8 and 20–126 and include the auditor's report. Pages 33–45 and 114–121 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 11. The report was prepared in accordance with GRI Reporting Standards: Core. It also constitutes Essity's Communication on Progress (COP) to the UN Global Compact.
Essity is a leading global hygiene and health company. We improve people's well-being through our products and services.
Sales are conducted in approximately 150 countries under the globally leading brands TENA and Tork, and other strong brands, such as JOBST, Leukoplast, Libero, Libresse, Lotus, Nosotras, Saba, Tempo, Vinda and Zewa. Essity is listed on Nasdaq Stockholm.
company. We improve people's well-being Net sales 2018
Saleding global brands TENA and Tork, and
SEKm
Libero, Libresse, Lotus, Nosotras, Saba, Tempo, Vinda and Zewa. Adjusted EBITA1) 2018 12,935
SEKm
Essity is listed on Nasdaq Stockholm. Employees, approximately 47,000 around the world
Sales in approximately 150 countries
Essity's market capitalization
Personal Care Our business areas 153 SEKbn at December 31, 2018
1) Excluding items affecting comparability.
Professional Hygiene Essity is the world's largest supplier of products and services in the market for professional hygiene. Our offering comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap and dispensers. Read more on pages XX–XX. Essity is a leading global player in personal care. Our offering includes Incontinence Products, Baby Care, Feminine Care and Medical Solutions. In the market for incontinence products, Essity is the global market leader and the Group holds strong market positions in baby care, feminine care and medical solutions. Read more on pages 22–23.
Essity is the world's second largest supplier of consumer tissue. Our offering includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Read more on pages 24–25.
Essity is the world's largest supplier of products and services in the market for professional hygiene. Our offering comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap and dispensers. Read more on pages 26–27.
through our products and services. 118,500
Essity is a leading global hygiene and health company. We have sales in approximately 150 countries and hold the number one or number two position within at least one product category in approximately 90 countries.
Shifts in global demographics such as population growth and increased longevity as well as higher disposable income point to continued good growth for hygiene and health products. An aging population and increased prevalence of chronic diseases, such as obesity and diabetes, and greater life expectancy of people with chronic diseases, are expected to increase demand for incontinence products and medical solutions. Market growth for hygiene and health products is also positively impacted by increased awareness of the importance of hygiene to avoid diseases and improve health.
Essity holds a strong position in several key emerging markets, such as China, Latin America and Russia. We are the majority shareholder in Vinda, one of China's largest hygiene companies. Emerging markets accounted for 35% of Essity's net sales in 2018. The growth potential for hygiene and health products is high in emerging markets where market penetration is significantly lower than in mature markets and where urbanization, higher disposable income, the development of the retail trade and improved access to health care are resulting in increased demand for hygiene and health products.
Essity is the global market leader in incontinence products with the TENA brand and in Professional Hygiene with the Tork brand. We also have strong brands and market positions in the markets for baby care, feminine care, medical solutions and consumer tissue. Essity's offerings simplify everyday life for hundreds of millions of people worldwide every day. In 2018, we launched important innovations that offer greater value for customers and consumers while also reducing resource consumption. As an important element in our innovation work, we develop market-leading digital products and services in hygiene and health.
Essity continuously works to improve efficiency in order to strengthen competitiveness, cut costs and improve earnings. By streamlining the supply chain and leveraging digitalization and economies of scale, a more efficient value chain is achieved. Improved capital efficiency, lower costs and strengthened cash flow are made possible through efficiency improvements and savings measures, as well as the optimization of capital employed.
To improve profitability and strengthen the company's longterm cost efficiency, Essity introduced a Group-wide cost-savings program in September 2018. The program is in addition to the efficiency initiatives already in progress in the company. Changes were also made to the company's organizational structure and Executive Management Team.
Essity's sustainable business model creates value for both people and nature. Essity's objective is to develop products and services that contribute toward a sustainable and circular society where we strive to reduce resource consumption and to offer efficient recycling or composting of our products. In 2018, Essity was included in Dow Jones Sustainability Index and named industry leader in the Household Products sector.
Through continuous work to grow profitable market positions, improve or exit underperforming positions, and successful innovations and efficiency improvements, Essity has demonstrated profitable growth and strong cash flow. Between 2014 and 2018, Essity's net sales increased 34.7%. Organic net sales increased 13.3%, corresponding to an annual increase of 3.2%. During the same period, adjusted EBITA1) increased 36% and the adjusted EBITA margin1) increased from 10.8% to 10.9%. The company has generated strong cash flow and in 2018, operating cash flow amounted to SEK 12,324m.
1) Excluding items affecting comparability.
In all product categories innovations were launched that strengthened Essity's customer and consumer offering.
To further improve cost and capital efficiency in Consumer Tissue and Professional Hygiene, decisions were taken on restructuring measures in tissue production in Europe, North America and Latin America.
To improve profitability and strengthen long-term cost efficiency, a Group-wide cost-savings program was introduced. The program is expected to generate annual cost savings of approximately SEK 900m, with full effect at the end of 2019.
To strengthen competitiveness and increase efficiency, changes were made to the organizational structure and Executive Management Team.
1) Net sales excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability. 3) Board of Directors proposal.
Personal Care, 38% Consumer Tissue, 38% Professional Hygiene, 24%
SEKm %
0 20,000 40,000 60,000 80,000 100,000 120,000
Net sales Organic net sales1)
and divestments.
2014 2015 2016 2017 2018
In 2018, we strengthened our brands through successful innovations, improved our product mix, implemented price increases and intensified efficiency improvements and restructuring measures. We took actions in all parts of the business to increase profitability and offset the negative impact on earnings of the significantly higher raw material and energy costs. The work to contribute to a sustainable and circular society was rewarded. We qualified for inclusion in the Dow Jones Sustainability Index and were named industry leader in the Household Products sector. External factors made 2018 a challenging year, but with a strong customer focus and hard work we strengthened the business for the future.
In 2018, organic net sales increased 2.6%. In emerging markets, which accounted for 35% of net sales, the increase was 5.9%. The adjusted EBITA margin1) declined 1.4 percentage points to 10.9%. Price increases, improved product mix, volume growth and cost savings enabled us to offset a large share of the higher raw material and energy costs, which had a negative impact on the margin of 4.2 percentage points.
We continued to invest in our strong brands and improved our product mix through innovations. During the year, we implemented price increases in all business areas and further price increases are anticipated in 2019. We intensified our efficiency improvements and restructuring of the business and achieved SEK 1,040m in cost savings during the year. These cost savings were primarily a result of measures as part of Tissue Roadmap, operational efficiency improvements, material rationalizations and sourcing savings. To improve profitability and strengthen long-term cost efficiency, a Group-wide cost-savings program was launched in 2018. We also made changes to the company's organizational structure and Executive Management Team.
With a focus on our customers and consumers, we launched successful innovations in all product categories, which strengthened our brands and market positions. Within Incontinence Products, with our globally leading TENA brand we, for example, improved our offering with TENA Complete™, a high-quality and costefficient incontinence product that represents an improvement
"Poor hygiene and sanitation constitute a barrier for the health, livelihood, well-being, and development of millions of people. Our vision is: Dedicated to improving well-being through leading hygiene and health solutions."
1) Excluding items affecting comparability.
for both users and caregivers. In the retail trade, we launched TENA Men and lights by TENA with higher absorption, better fit and discretion. Within Medical Solutions, we launched Cutimed® Siltec® Sorbact®, a dressing for chronic wounds. With our globally leading Tork brand, we launched in Professional Hygiene our new Tork Reflex® paper dispenser. Within Consumer Tissue, we launched Lotus Moltonel Sans Tube, our first coreless toilet paper.
For Essity, digitalization offers many opportunities to optimize and develop all parts of our value chain. In 2018, we robotized and automated processes to improve product quality and efficiency in production, administration and logistics. We are working to develop digital solutions that improve our offering to customers and consumers. Our online sales increased in 2018. Together with the retail trade and e-commerce, we are developing and strengthening our presence in this channel. The target is to have at least the same market share online as offline in all markets and for all product categories.
Poor hygiene and sanitation constitute a barrier for the health, livelihood, well-being, and development of millions of people. Our vision is: Dedicated to improving well-being through leading hygiene and health solutions. In 2018, hundreds of millions of people across the world used our products every day and we educated approximately 2.5 million people in hygiene and health during the year. Knowledge is the key to improved hygiene and health, at the same time as this creates business opportunities for us. Through our business model, we also contribute toward the UN Sustainable Development Goals (SDGs) and we were the convening partner for the United Nations Foundation Global Dialogue concerning these goals. Essity supports the UN Global Compact.
We develop products and services that contribute toward a sustainable and circular society in order to be relevant both today and in the future. One important aspect of this is to offer products and services that help customers and consumers reduce their environmental impact. We endeavor to reduce resource consumption and enable efficient recycling of our products. To achieve this, we need innovation and collaboration. Our Tork PaperCircle™ innovation, the world's first recycling service for paper hand towels, is one example. In 2018, our new targets to reduce greenhouse gas emissions were approved by the Science Based Targets initiative. This means that our climate commitment supports the Paris Agreement's target to keep global warming below 2 degrees Celsius.
Health and safety is a top priority for Essity. Essity's aim is zero workplace accidents and we are working continuously to nurture a culture where safety is a top priority and where unsafe working conditions and behaviors are immediately reported and resolved. During the year, we updated our Code of Conduct, which describes how we conduct our operations in a responsible manner and helps our employees make correct decisions in their dayto-day work. We conducted our first employee survey as Essity. The survey shows strong employee engagement with particularly high scores in areas such as collaboration, results orientation, team spirit, health and safety.
We prioritize growth in product categories where we have the highest margins, meaning that Incontinence Products, Medical Solutions, Feminine Care and Professional Hygiene are to account for an increasing share of Essity's net sales in the future. In Consumer Tissue and Baby Care, our priority is to improve margins. In addition to organic growth, our ambition is to grow through
acquisitions. One prioritized area for acquisitions is Medical Solutions, a product category with favorable growth opportunities and high margins, where we – through the acquisition of BSN medical – have created a growth platform that we aim to grow both organically and through acquisitions.
Our ambition is to improve the well-being of 2 billion people every day by 2030. We plan to achieve this through our unique knowledge and insight about the needs of customers and consumers and our ability to transform this into innovative offerings that increase well-being and simplify everyday life for people, regardless of where you live in the world.
President and CEO
Essity shares are quoted and traded on Nasdaq Stockholm. Essity's market capitalization was SEK 153bn at December 31, 2018.
In 2018, the price of Essity's B share declined 7%. During the same period, the OMX Stockholm 30 Index fell 11% and MSCI Household Products Index fell 6%. The closing price of Essity's B share at yearend was SEK 217.60. The highest closing price for Essity's B share during the year was SEK 240.50, which was noted on January 26, 2018. The lowest closing price was SEK 204.70 on October 29, 2018.
The total shareholder return for Essity's B share for the year was –4%. The total shareholder return for the OMX Stockholm 30 Index was –7% and for MSCI Household Products Index –3%.
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 Board of Directors proposes a dividend of SEK 5.75 per share for the 2018 fiscal year. The 2018 dividend represents a dividend yield of 2.6%, based on Essity's share price at the end of the year.
On Nasdaq Stockholm, 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 Eurofirst Index and FTSE All World Index. Within MSCI, Essity is included in Household Products Index within Consumer Staples. Essity is also represented in sustainability indexes including the Dow Jones Sustainability Index and the FTSE4Good Global Index.
46% of the share capital is owned by investors registered in Sweden and 54% by foreign investors. The US and the UK account for the highest percentage of shareholders registered outside Sweden. Of Essity's shareholders, at least 22% perform sustainability assessments.
The beta coefficient for Essity's B share was 0.55 in 2018. A beta coefficient of less than 1 indicates that the share is less sensitive to market fluctuations than the average.
In 2018, the volume of Essity shares traded on Nasdaq Stockholm was about 341 million, corresponding to a value of approximately SEK 77bn. Average daily trading for Essity on Nasdaq Stockholm amounted to approximately 1.4 million shares, corresponding to a value of approximately SEK 307m.
| % | 2018 | 2017 |
|---|---|---|
| Nasdaq Stockholm | 75% | 85% |
| CBOE | 19% | 12% |
| Turquoise | 3% | 2% |
| Other | 3% | 1% |
| Total | 100% | 100% |
Source: Nasdaq Stockholm, Essity
At December 31, 2018, the following companies, foundations and mutual funds were the ten largest registered shareholders based on voting rights:
| Shareholders | Votes (%) | Capital (%) |
|---|---|---|
| AB Industrivärden | 29.9 | 9.5 |
| Norges Bank Investment Management | 8.2 | 4.7 |
| MFS Investment Management | 2.7 | 5.0 |
| AMF Insurance and Funds | 2.5 | 3.3 |
| Swedbank Robur Funds | 2.4 | 4.3 |
| SHB Oktogonen Foundation | 2.4 | 0.4 |
| Skandia | 1.6 | 0.4 |
| First Swedish Pension Insurance Fund | 1.0 | 1.9 |
| SHB Pension Fund | 1.0 | 0.2 |
| Nordea Investment Funds | 1.0 | 1.7 |
| Other owners | 47.3 | 68.6 |
| Total | 100.0 | 100.0 |
Essity Aktiebolag (publ) holds no treasury shares.
Source: Euroclear, December 31, 2018
| Holding | No. of shareholders | No. of shares | Capital (%) | Votes (%) |
|---|---|---|---|---|
| 1–1,000 | 71,666 | 18,706,485 | 2.7 | 3.1 |
| 1,001–10,000 | 14,522 | 39,370,938 | 5.6 | 6.4 |
| 10,001–20,000 | 685 | 9,777,799 | 1.4 | 1.4 |
| 20,001– | 975 | 634,487,267 | 90.3 | 89.1 |
| Total | 87,848 | 702,342,489 | 100.0 | 100.0 |
Source: Euroclear, December 31, 2018
| Class A | Class B | Total | |
|---|---|---|---|
| Number of registered shares | 63,992,771 | 638,349,718 | 702,342,489 |
| In 2018, 147,667 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 1,278,277,428. Source: Euroclear, December 31, 2018
Essity was named industry leader in the Dow Jones Sustainability Index
Ticker names
| ESSITY A, ESSITY B |
|---|
| ESSITYA:SS, ESSITYB:SS |
| ESSITYa.ST, ESSITYb.ST |
All earnings figures include items affecting comparability unless otherwise indicated.
| SEK per share unless otherwise indicated | 2018 | 2017 |
|---|---|---|
| Earnings per share: | ||
| Earnings per share: | 11.23 | 11.56 |
| Adjusted earnings per share1) | 13.32 | 13.09 |
| Market price for B share: | ||
| Average price during the year | 225.72 | 233.87 |
| Closing price, December 31 | 217.60 | 233.00 |
| Cash flow from current operations2) | 12.51 | 12.45 |
| Cash flow from operating activities | 18.74 | 18.12 |
| Dividend | 5.753) | 5.75 |
| Dividend yield, % | 2.6 | 2.5 |
| P/E ratio4) | 19 | 20 |
| Adjusted P/E ratio5) | 16 | 18 |
| Price/EBITA6) | 18 | 17 |
| Price/EBITA, excluding items affecting comparability6) | 16 | 16 |
| Beta coefficient7) | 0.55 | 0.58 |
| Pay-out ratio (before dilution), % | 51 | 50 |
| Equity, after dilution effects | 78 | 71 |
| 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 64–69. 3) Board of Directors proposal.
4) Share price at year-end divided by earnings per share.
5) Share price at year-end divided by adjusted earnings per share.
6) Market capitalization plus net debt plus non-controlling interests
divided by EBITA (EBITA = Operating profit before amortization of acquisition-related intangible assets).
7) Share price volatility compared with the entire stock exchange.
1) Dividend proposed by the Board of Directors.
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 |
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.
The Annual General Meeting of Essity Aktiebolag (publ) will be held on Thursday, April 4, 2019 at 3:00 p.m. at the Stockholm Waterfront Congress Centre, Nils Ericsons Plan 4, Stockholm, Sweden. Registration for the Annual General Meeting will start at 1:30 p.m.
Shareholders who wish to attend the Annual General Meeting must be listed in the shareholders' register maintained by Euroclear Sweden AB on Friday, March 29, 2019, and give notice of their intention to attend the meeting no later than Friday, March 29, 2019.
Notification may be given in any of the following manners:
The following applies to shareholders who have their shares registered through a bank or other nominee in order to be entitled to attend the meeting. Apart from giving notice of attendance, such shareholders must have their shares registered in their own names. Such registration in the shareholders' register must have been completed with Euroclear Sweden AB at the latest on Friday, March 29, 2019. Shareholders should in such case inform their bank or nominee of this in due time before Friday, March 29, 2019. Such registration can be temporary.
Name, personal identity number/corporate registration number, address and telephone number, and number of accompanying persons, if any, should be stated when notification is given. Shareholders represented by proxy should deliver a proxy in the original to the company prior to the annual general meeting. Proxy forms are available upon request and on the company website www.essity.com. Anyone representing a corporate entity must also present a copy of the registration certificate, not older than one year, or equivalent authorisation document, listing the authorised signatories.
The Notice convening the Annual General Meeting can be found on the company website www.essity.com.
The Nomination Committee prepares, among other things, the proposal for election of Board members. In addition, refer to the Corporate Governance Report on page 46.
The Board of Directors proposes a dividend of SEK 5.75 per share and that the record date for the dividend be Monday, April 8, 2019. Payment through Euroclear Sweden AB is expected to be made on Thursday, April 11, 2019.
| Interim report | (Jan 1–Mar 31, 2019) | April 25, 2019 |
|---|---|---|
| Half-year report | (Jan 1–Jun 30, 2019) | July 18, 2019 |
| Interim report | (Jan 1–Sep 30, 2019) | October 25, 2019 |
| Year-end report | 2019 | January 22, 2020 |
| Annual and Sustainability Report | 2019 | March 2020 |
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.
Annual and Sustainability Reports can also be ordered from: Essity Aktiebolag (publ) Group Function Communications P.O. Box 200 SE-101 23 Stockholm, Sweden Tel +46 8 788 51 00
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.
Drawing up Essity's business strategy, we analyze the external trends and changes that are continuously ongoing. We identify the macro-economic drivers that we believe are most relevant to our business in order to leverage the opportunities and to manage the associated risks. We analyze how trends can impact Essity and how the company can benefit from these.
We maintain continuous dialogue with customers and consumers to develop products and services that meet needs and solve the challenges that many are facing in their everyday lives. The foundation of Essity's strategy is a materiality analysis where Essity and company's stakeholders prioritize the issues and areas that are deemed important for the company. Through this process, Essity creates a strategy for profitable and sustainable growth.
The world's population is growing and living longer. This growing population is resulting in an increased demand for hygiene and health products and thus creating favorable growth opportunities for Essity. The greatest global population increase is expected to occur in Asia, Latin America and Africa. Essity is prioritizing growth in selected emerging markets, such as China, Southeast Asia, Latin America, Eastern Europe and Russia. An aging population is increasing demand for incontinence and health products, both in mature and emerging markets. For example, the occurrence of incontinence among people over the age of 65 is estimated to be between 15 and 20%.
At the same time as the population is growing, the level of poverty in the world is decreasing. Once people's most basic needs for food and shelter are met, hygiene becomes a top priority. Increased disposable income and higher living standards are expected to drive demand for hygiene and health products.
Limited access to hygiene and sanitation is a major global challenge. There is a growing awareness of the relationship between good hygiene and health, and how this improves well-being in the world, as indicated by the UN's 17 Sustainable Development Goals. Essity continuously develops new hygiene and health solutions and is educating, for example, healthcare and medical staff in incontinence and good hand hygiene. Young women are educated about menstruation and puberty, and children and preschool teachers are taught about the importance of good hand hygiene.
Increased prevalence of chronic diseases and greater life expectancy of people with chronic conditions are expected to increase demand for such items as incontinence and health products.
The digitalization of our society entails substantial changes and opportunities. For Essity, digitalization offers a variety of opportunities to improve and evolve all parts of our value chain. We are digitalizing production, administration and logistics to achieve efficiency and quality improvements. In product development, we are working to create digital solutions that improve our offering to customers and consumers. Each year, Essity's products are increasingly sold and marketed online.
Conscious customers and consumers are increasing expectations on, and demand for, sustainable solutions. Essity's objective is to develop products and services that are compatible with a sustainable and circular society.
The annual strategy process includes an analysis phase and assessment of the risks present in the business units.
The responsibility for long-term and overall management of strategic risks follows the company's delegation scheme, from the Board of Directors to the President, and from the President to the Business Unit Presidents. A description of the most significant risks that impact Essity's opportunities to achieve its established targets, and how these risks are managed, is presented on pages 33–38.
An active stakeholder dialogue is one way of ensuring that Essity's priorities and ways of working are relevant in today's society. Millions of people across the globe have an impact on, and an interest in, Essity's business. Through dialogue with our various stakeholders, we understand the expectations on us as a company and how we can develop and improve. We also conduct materiality analyses to identify the issues that are significant to us at Essity and to our stakeholders. These also form the basis of Essity's strategy and sustainability work. The latest analysis was conducted in 2017 of about 1,000 stakeholders including customers, consumers, suppliers, investors, analysts and employees.
At Essity, we believe that the work to fulfill the sustainability goals will make the world a better place while offering favorable business opportunities for companies around the world, not least in the areas of health, hygiene and sanitation, where we possess substantial expertise. We are working to overcome global challenges together with like-minded partners. Essity has chosen to prioritize goals 3, 5, 6, 12, 13 and 15, which are most relevant to our business. For a number of years, Essity has been the convening partner for the United Nations Foundation Global Dialogue concerning these goals.
Essity's vision is: Dedicated to improving well-being through leading hygiene and health solutions. Our strategy is designed to generate value for all of the company's stakeholders with a focus on profitable growth. Operations are based on a sustainable business model, focused on value creation for customers and consumers. Essity's vision has been broken down into four objectives and four strategies with clear connections to stakeholder groups, such as shareholders, customers and consumers, society and employees.
VISION Dedicated to improving well-being through leading hygiene and health solutions
To sustainably develop, produce, market and sell value-added products and services within hygiene and health
Our customers and consumers are at the center of Essity's business model. We begin by building knowledge and understanding of their daily needs and challenges. This unique insight allows us to develop products and services to help simplify everyday life for hundreds of millions of people worldwide.
Innovations and product launches are a top priority when it comes to delivering increased customer and consumer value and strengthening Essity's brands and market positions. To contribute to a sustainable and circular society, there is a need for new business solutions and innovations that close the loop.
Input goods, such as pulp, recovered fiber and oil-based raw materials are sourced through a centralized purchasing function to achieve economies of scale and a stronger negotiating position. Essity works throughout the supply chain
to guarantee responsible sourcing and we subject our suppliers to stringent demands.
Essity has approximately 90 production facilities worldwide for manufacturing Personal Care, Consumer Tissue and Professional Hygiene products. Efficiency work at our facilities is a continuous process, and includes digitalization and automation, in order to achieve sustainable, efficient, world-class production.
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 has sales in approximately 150 countries and a well-developed and efficient "go-to-market" model. Our products are distributed in a number of ways, from small convenience stores in rural areas to supermarkets, hospitals, healthcare centers, restaurants, pharmacies and e-commerce. In 2018, the retail trade accounted for 58% of Essity's net sales, business-to-business for 24% and the healthcare sector for 18%.
Essity works to generate long-term value for its shareholders and that the Essity share is to have a higher total shareholder return than competitors.
Essity focuses on profitable growth in order to increase the Group's value creation and the total shareholder return. We prioritize growth in our product categories with the highest margins and our ambition is that these will account for an increasing share of Essity's net sales. In addition to organic sales growth, Essity sees an opportunity to also grow through acquisitions. With respect to underperforming market positions, we are primarily focusing on improving profitability. To strengthen competitiveness and improve profitability,
Essity is also constantly working to reduce the cost base related to cost of goods sold as well as costs for sales and administration. Shareholder value is achieved through a
positive share price trend and dividends. Read more about the Essity share on
pages 6–7.
| Target | Outcome 2018 | |
|---|---|---|
| Organic sales growth1) | Annual organic sales growth of above 3%. >3% |
2.6% |
| Adjusted return on capital employed2) | Adjusted return on capital employed of above 15%. >15% |
12.0% |
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 Board of Directors proposes a dividend of SEK 5.75 per share for the 2018 fiscal year.
Capital Structure Policy: Essity's target is to have an effective capital structure at the same time that the long-term access to debt financing is ensured. Cash flow in relation to net debt shall take into account the target to maintain a solid investment grade rating.
In 2018, Essity had a solid investment grade rating.
1) Net sales excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.
Essity aims to enable more people every day to enjoy a fuller life. To do so, we are working on sharing our knowledge with customers and consumers through education in hygiene and health and by pursuing a global dialogue about hygiene, health and well-being. At the same time, we are also creating business opportunities.
What makes Essity successful is the knowledge and insight about the needs of customers and consumers and the ability to transform this into innovative offerings that increase quality of life and make everyday life easier for people. Essity wants to offer customers and consumers value-added hygiene and health solutions.
We adapt our offering to local and regional market conditions to increase hygiene and health standards worldwide.
Essity's ambition is to improve well-being of 2 billion people every day by 2030.
We will deliver better, safe and environmentally sound solutions to our customers. We strive to continuously improve resource efficiency and reduce our environmental impact by considering the whole life cycle for new innovations.
We will make our knowledge about hygiene and health available to customers and consumers and ensure access to affordable, sustainable solutions to help them lead a healthy and dignified life.
In markets in which we operate, we will:
At least 33% of Essity's innovations will yield social and/or environmental improvements.
Worldwide, around 2.5 million people were reached by hygiene and health training arranged by Essity.
Hundreds of millions of people used Essity's products every day.
Essity held the number one or two position in at least one product category in approximately 90 countries.
Goal 3
includes developing sustainable products and services for hygiene and health, educating consumers and care professionals, and preventing the spread of diseases and other health risks. Business value is also created by meeting societal needs. This offers more people an opportunity to work, better conditions to provide for their families and increased well-being.
Essity works to break the silence around issues such as menstruation and incontinence. We want a society where everyone can fully participate. Essity's contribution toward Goal 5 includes pursuing a global dialogue, making our knowledge about hygiene and health available to customers and consumers and ensuring access to affordable, sustainable hygiene and health solutions to contribute to a dignified life on equal terms.
Our contribution toward Goal 6 covers our work to achieve efficient water usage throughout the entire life cycle of our products and improve access to sustainable sanitation and hygiene solutions. Essity works independently as well as with partners to contribute to sustainable water use and sanitation.
Essity's objective is to develop products and services for a sustainable and circular society. Circularity is a business model that involves striving to reduce resource consumption and an efficient recycling or composting of our hygiene and health products. This means we must include this in our innovation work and develop new business models that create new business opportunities for Essity.
Our ambition is that our environmental footprint will be reduced by 33% in 2030.
In December 2018, Essity's expanded climate targets for carbon emissions were approved by the Science Based Targets initiative. The initiative is a collaboration between for example CDP, the UN Global Compact and the WWF and includes a scientific method to ensure that companies' targets for the reduction of carbon emissions are aligned with the global climate target set by the Paris Agreement to keep global warming below 2 degrees Celsius. We are committed to reducing our climate impact linked to energy use and purchased electricity (Scope 1 and 2), and our indirect climate impact from material use, transportation and waste management, which includes emissions from suppliers and consumers (Scope 3).
Essity is working to promote sustainable and responsible business by choosing suppliers who share our values and comply with our Code of Conduct and Global Supplier Standard. In 2018, we strengthened our target for sourcing of fresh fiber. This means all fresh wood based fiber raw material in our products and packaging will be FSC® or PEFC™ certified.
| Target | Outcome 2018 |
Target | Outcome 2018 |
||
|---|---|---|---|---|---|
| Science-Based Targets Essity has undertaken by 2030, with 2016 as reference year, to reduce the climate impact of: |
Fiber: All fresh wood based fiber raw material in our prod ucts and packaging will be FSC® or PEFC™ certified. |
100% | 76%1) | ||
| – Scope 1 and Scope 2 | –25% | –5% The outcome |
Waste: All waste from all pro duction units will be subject to material and energy recovery by 2030. |
100% | 60% |
| – Scope 3 | –18% | will be reported as of 2019 |
Water: By 2020, with 2014 as reference | ||
| Suppliers: We will evaluate all of our supply streams from a total risk perspective. By 2020, we will source all of our procurement spend from suppliers committed to the criteria specified in Essity's Global Supplier Standard. |
100% | 71% | year, our plants will: • reduce levels of suspended solids • reduce water usage • reduce organic waste (BOD) |
–10% –10% –10% |
–19% –3% –25% |
1) As of 2018, material that fulfills FSC's criteria for Controlled Wood is not included in the fiber target, which explains the decrease compared with 2017. All fiber must fulfill these criteria as a basic requirement.
Essity's contribution toward Goal 12 consists of establishing collaboration for customers and consumers within consumption and circularity. This could involve highlighting sustainability criteria in public procurements and changing behavior through the use of new business models, technology and education of customers and consumers.
Essity's contribution toward Goal 13 involves improving resource efficiency in manufacturing, achieving Science-Based Targets to reduce greenhouse gas emissions and supporting relevant external initiatives and agreements.
We work to promote responsible forest operations throughout our supply chain and require our suppliers to fulfill very strict criteria stipulated in our Global Supplier Standard and in our fiber policy. Essity's contribution toward Goal 15 consists of the certification of suppliers and our own production, ensuring the use of certified fiber in Essity's products and packaging and the responsible use of other input goods.
We offer career opportunities in a leading global hygiene and health company that is working to increase well-being in the world through leading hygiene and health solutions. Improved hygiene and health are basic conditions for a better life and play a vital role in well-being.
The health and safety of our employees is a top priority. We are striving to continuously improve the work environment to make it safe and healthy. Everyone should feel safe when they work for Essity. Managers, employees and partners receive training on a regular basis and all Essity plants have plans to improve safety at their facilities.
Essity's success is dependent upon motivated, competent and performanceoriented employees. Our ambition is that all employees will reach their full potential, and assume responsibility for driving their own development. To achieve the objective, we work to continuously develop our corporate culture, our leadership and to provide a number of programs and initiatives to build capabilities.
Essity offers a strong corporate culture based on our "Beliefs & Behaviors": we are committed, we care, we collaborate, and we have courage. These express, in different ways, what is required of all employees to successfully develop Essity. Our "Beliefs & Behaviors" are supplemented by Essity's Code of Conduct, which was updated in 2018. The Code of Conduct instructs
employees in how we conduct our business in a responsible manner to benefit our company, society and the environment. The Code helps employees to make correct decisions in daily work.
In 2018, Essity conducted a global employee survey. This was completely digital and the response rate was 80%. The survey shows strong employee engagement with particularly high scores in areas such as collaboration, results orientation, team spirit, health and safety.
Our aim is zero workplace accidents, and we will decrease our accident frequency rate by 50% between 2014 and 2020.
Business ethics and human rights
Employee Health and Safety
–50% –39%
We will maintain compliance with our Essity Code of Conduct. All employees will receive regular training in the Code.
of new employees received training in
the Code.
We aim to hold a number one or number two position in the geographies and product categories where Essity chooses to operate. We compare ourselves with the best competitors in each product category in each geographic market and aim to perform better or in line with the best competitor.
Essity has a clear priority for which geographic markets it wants to operate in, and which product categories it will offer in these markets. Sales are conducted in approximately 150 countries. In approximately 90 of these, Essity holds the number one or two position in at least one product category. Essity aims to increase the emerging markets' percentage of net sales and earnings, since these markets' potential for growth is higher because market penetration of hygiene and health
products is lower than in the 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 emerging markets, which accounted for 35% of net sales, organic net sales increased 5.9% in 2018.
Essity creates value through profitable growth. Every product category in each market must generate a certain level of profitability if growth is to create value. In 2018, we continued work with Cure or Kill, a plan to improve profitability for underperforming market positions. We prioritize growth in product categories with the highest margins and our ambition is that these will account for an increasing share of Essity's net sales. This means we are focusing on growth in Incontinence Products, Medical Solutions, Feminine Care and Professional Hygiene while prioritizing improved margins in Consumer Tissue and Baby Care. In addition to organic growth, Essity has the ambition to grow through acquisitions.
To grow our product categories and strengthen market positions, we work continuously to improve and expand our customer and consumer offering. For example, Essity offers wet wipes, skincare products and soap. Expanding the customer offering is also about providing service and solutions to customers and consumers and developing digital solutions.
Essity's products and services help to simplify everyday life for hundreds of millions of people. To succeed, we have to understand the needs, challenges and expectations of our customers and consumers. Customer understanding and consumer insight determine the innovations we develop and how we deliver finished products or services to the market.
Important competitive advantages for Essity are our understanding, knowledge and insight into the needs and purchasing behavior of customers and consumers as well as our global expertise, strong customer relations and knowledge of local and regional market conditions. To understand the needs and expectations, we engage in a continuous dialogue with customers, consumers and patients. We study the world around us to identify trends and new needs. Our sales representatives provide us with insight about our customers
and we conduct regular customer satisfaction surveys. We engage in a dialogue with consumers through focus groups and in-depth interviews. We observe consumer and customer behavior, for example, through home visits. We also gain insight into the needs of consumers and their perceptions of our products by following the discussions on our websites, such as www.libero.com, www.libresse.com and www.tena.com, and on social media.
By developing market-leading digital solutions in hygiene and health, we improve our offering to customers and consumers. One example is our webshops for incontinence products. The TENA Webshop for consumers is available in 21 countries. The webshop is a strategic sales channel to increase knowledge about incontinence, drive market penetration and provide us with further consumer insight. In 2018, the webshop was further developed and adapted for mobile phones.
"Innovation Award" from Sodexo Supply Management for Tork EasyCube®
from Network, an organization with 75 independent distributors in North America
"Cornerstone Partner Award" from Gordon Food Service (GFS) in North America
to Libresse's digital marketing campaign The Period Challenge
awarded by the German newspaper Lebensmittel Zeitung to Tempo and Zewa
from A.S. Watson Group at the "Consumers' Choice" ceremony in Russia
Successful innovations and strong brands go hand in hand. During 2018, Essity launched 29 innovations that simplify everyday life for people and strengthen Essity's brands and market positions. Essity's innovation strategy is to consistently deliver better, safer and more environmentally sound products and services to our customers and consumers. We intend to increase the pace and impact of our innovations as well as capitalize on global economies of scale and ensure that we have a competitive portfolio of innovations.
During the year, Essity's unit with global responsibility for customer and consumer brands and innovation was given a new name: Global Brand, Innovation and Sustainability. The unit now also covers sustainability and public affairs, since innovation and product development are crucial for pursuing and improving our sustainability efforts. We are developing offerings and business models that promote a sustainable and circular society, both to meet the needs of our customers and consumers and to reduce our environmental impact. We strive to develop better solutions for efficient recycling or composting of our products.
To increase customer and consumer benefit and to strengthen Essity's brands, digital offerings are developed in the various product categories. In Baby Care, for example, with the Libero brand, Essity developed a new app in 2018 that includes a pregnancy calendar, tips and facts from the Libero Club's own midwife, a parenting forum and the opportunity to create a photo album for the family.
Essity's marketing is often about breaking taboos and stigma surrounding menstruation and incontinence. In 2018, Essity received more than 50 awards, including
Cannes Lions Titanium, Grand Prix Glass Lion for Change and Grand Prix of Excellence at the Marketing Society, for the #bloodnormal advertising campaign. This marketing was a joint initiative for our various Feminine Care brands and had one mission: to break the taboos surrounding menstruation and that are holding back women. We are running the campaign in Mexico under the Saba brand, in the UK under Bodyform and in Malaysia under Libresse.
In 2018, Essity won the "Technological Innovation of the Year" award for the Tork EasyCube® and the "Best Practice: Sustainability" award for Tork PaperCircle™ at the European Cleaning & Hygiene Awards. These are examples of how Essity's innovation efforts drive increased customer benefit and reduced environmental impact.
Essity joined the Ellen MacArthur Foundation's New Plastic Economy Global Commitment "A line in the sand" in 2018, where we are working toward 100% recyclability of the company's packaging by 2025.
Essity is working to leverage global economies of scale and expertise to continuously increase efficiency in all parts of the business, from the supply chain to sales and administration. We are working to establish a world-class supply chain. By improving productivity, reducing material, energy and logistics costs and minimizing waste, we reduce our costs and improve our earnings at the same time as we reduce the environmental impact.
Essity is working to nurture a culture where safety is top of mind and unsafe working conditions and behaviors are immediately reported and rectified in order to prevent accidents. Essity's aim is zero workplace accidents. Our employees continuously receive training so that everyone in the organization will be able to detect and eliminate hazards. In 2018, the theme of Essity's annual global safety week was "Everyone is a safety leader — so are you." During 2018, the accident frequency rate decreased by 1% and in 2014–2018 it fell by 39%. The target is to reduce the accident frequency rate by 50% between 2014 and 2020.
During the year, we continued to implement digital solutions including self-regulating processes, smart sensors, data analyses and robotization and automation to improve product quality and efficiency.
We have intensified our efficiency improvements and restructuring of the business and achieved SEK 1,040m in cost savings during the year.
To improve efficiency and increase value creation in the Consumer Tissue and Professional Hygiene business areas, Tissue Roadmap was launched in 2016. The aim is to achieve the lowest cost position combined with the best quality in each market in which we choose to operate. As part of the Tissue Roadmap, we took decisions during the year on restructuring measures in Europe, North America and Latin America.
To improve profitability and strengthen long-term cost efficiency, Essity introduced a Group-wide cost-savings program in September 2018. The program is expected to generate annual cost savings of approximately SEK 900m, with full effect at the end of 2019. The cost-savings
program is being implemented in all parts of the Group to reduce the cost base related to cost of goods sold and costs for sales, general and administration. The program includes headcount reductions of approximately 1,000 positions and is in addition to the efficiency initiatives already in progress in the company, for example Tissue Roadmap.
To achieve increased cost savings while contributing to a sustainable and circular society, Essity continued its work during the year on reducing material and energy use. The accumulated energy savings in the 2010–2018 period amounted to 8%.
Changes were implemented to the company's organizational structure and Executive Management Team in 2018. For example, the two units Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care were merged into one unit, Global Manufacturing, with responsibility for production and technology. A new unit, Global Operational Services, was created in order to further strengthen the Group's overall work related to operational and cost efficiency. The unit encompasses sourcing, logistics, business services, IT and digitalization. The number of Group functions was reduced from six to four.
In 2018, the global hygiene and health market amounted to approximately SEK 1,210bn, of which the global market for personal care accounted for approximately SEK 620bn and the global market for tissue accounted for approximately SEK 590bn.
The global market for personal care is divided into baby care (approximately SEK 250bn), feminine care (approximately SEK 140bn), incontinence products (approximately SEK 100bn) and medical solutions (approximately SEK 130bn). The global market for tissue is broken down into consumer tissue (approximately SEK 440bn) and professional hygiene (approximately SEK 150bn).
Market growth is positively impacted by global hygiene and health trends and increased awareness of the importance of hygiene to avoid diseases and improve health.
Growth in consumption of personal care products is supported by favorable demographic trends in emerging and mature markets. Shifts in global demographics such as population growth and increased longevity as well as higher disposable income point to continued good growth for personal care. The effect of higher disposable income is that more people prioritize hygiene when food and housing needs have been, or are in the process of being, satisfied. The growth potential for personal care is greatest in emerging markets where market penetration is significantly lower than in mature markets and where urbanization, improved infrastructure and the retail trade 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. In mature markets, baby care and feminine care have attained high market penetration. However, market penetration for incontinence products in mature markets 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.
Global market by region
Use of incontinence products
1) In medical solutions, in the market in which the company is active, Essity is the world's fourth largest player.
Essity's market positions Personal Care – global market
Use of baby care Use of feminine care
Units per woman aged 10–54 years per year
Source: The information has been compiled by Essity for presentation purposes based on statistics taken from external market sources, including IRI, Price Hanna Consultants and National Macro Economics.
20 Essity's Annual and Sustainability Report 2018
Incontinence, which is classified as a disease by the World Health Organization (WHO), affects 4–8% of the world's population, corresponding to approximately 400 million people. Many indicators point to the proportion of people affected increasing on a global scale as a result of an aging population. By 2020, the population of the world over the age of 60 is expected to have increased to over one billion. The occurrence of incontinence among people over the age of 65 is expected to be between 15 and 20%.
An aging population and increased prevalence of chronic conditions are expected to increase demand for incontinence products and medical solutions.
Essity's competitors in personal care include Kimberly-Clark, Procter & Gamble, Unicharm and 3M.
Shifts in global demographics such as population growth and increased longevity as well as higher disposable income point to continued good growth for tissue. The effect of higher disposable income is that more people prioritize hygiene when food and housing needs have been, or are in the process of being, satisfied. The growth potential for tissue is considered greatest in emerging markets where market penetration is significantly lower than in mature markets and where urbanization, improved infrastructure and the retail trade are evolving rapidly. One example of the lower market penetration in emerging markets is that tissue consumption per capita per year in Eastern Europe is only about one-third of that in Western Europe. Growth is also occurring in mature markets owing to lifestyle changes and innovations that lead to increased use.
Essity's competitors in tissue include Georgia-Pacific, Hengan, Kimberly-Clark and Sofidel.
Net sales by region
Net sales by product category
For Personal Care, 10% of total net sales were related to retailer brands. For Incontinence Products: 1%, Baby Care: 41%, Feminine Care: 5%, Medical Solutions: 0%.
Emerging markets accounted for
36%
of the business area's net sales in 2018. In emerging markets, organic net sales increased by 4.4% in 2018.
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 and wash gloves. 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 and intimate wipes. In Medical Solutions, Essity offers products and services in wound care, vascular and orthopedics.
Distribution channels are the retail trade, online sales, pharmacies, hospitals, distributors and care institutions.
Essity is the global market leader in the market for incontinence products with the TENA brand, holding a global market share that is about 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 in the area 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 sixth 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 and Malaysia, Bodyform in the UK, Nana in France, the Middle East and North Africa, 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. Essity is the market leader in Europe and Latin America. Essity is the largest global player in vascular and the third largest player in orthopedics. In wound care, which includes acute and advanced
wound care, Essity is the sixth largest player. Essity holds the number two position within acute wound care. Examples of strong brands include JOBST, Leukoplast, Cutimed, Delta-Cast and Actimove.
At the end of 2018, Personal Care had production at 37 sites in 24 countries.
Net sales increased 11.7% to SEK 45,342m (40,586). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 3.0%, of which volume accounted for 2.4% and price/mix for 0.6%. Organic net sales in mature markets increased 2.3%. In emerging markets, which accounted for 36% of net sales, organic net sales increased 4.4%. Acquisitions increased net sales by 5.8%, of which the acquisition of BSN medical accounted for 4.8% and acquisitions relating to the increase in the shareholding in associates in Latin America accounted for 1.0%. Exchange rate effects increased net sales by 2.9%.
For Incontinence Products, with the globally leading TENA brand, organic net sales increased 4.2%. For Baby Care, organic net sales decreased 2.3%. For Feminine Care, organic net sales increased 9.3%.
Adjusted operating profit before amortization of acquisitionrelated intangible assets (adjusted EBITA), increased 7% (declined 6% excluding currency translation effects and acquisitions) to SEK 6,354m (5,937). The increase was mainly related to a better price/mix, higher volumes, cost savings and the acquisition of BSN medical. Higher raw material and energy costs and higher distribution costs negatively impacted earnings. Acquisitions increased profit by 7%, of which the acquisition of BSN medical accounted for 6% and acquisitions relating to the increase in the shareholding in associates in Latin America accounted for 1%.
| SEKm | 2018 | 2017 | % |
|---|---|---|---|
| Net sales | 45,342 | 40,586 | 12% |
| Organic net sales1), % | +3.0% | +1.8% | |
| Adjusted EBITA2) | 6,354 | 5,937 | 7% |
| Adjusted EBITA margin2), % | 14.0% | 14.6% | |
| Adjusted return on capital employed2), % | 15.3% | 20.5% | |
| Operating cash flow | 5,812 | 5,453 | 7% |
| Investments in non-current assets | –2,134 | –2,074 | |
| Average number of employees | 18,328 | 17,088 | |
1) Excluding exchange rate effects, acquisitions and divestments.
2) Excluding items affecting comparability.
Organic net sales1) +3.0%
Adjusted EBITA margin2) 14.0%
Adjusted return on capital employed2) 15.3%
1) Excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.
net sales1)
Business areas – Consumer Tissue
paper it lasts longer.
Net sales by region
Asia, 26%
For Consumer Tissue, 34% of total net sales was related to retailer brands.
of the business area's net sales in 2018. In emerging markets, organic net sales increased by 5.0% in 2018.
Essity's offering 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. Products sold under Essity's own brands account for about 66% of net sales, while the remaining 34% are sold under retailer brands.
Distribution channels are the retail trade and online sales.
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 approximately twice the size of the second largest player. Lotus, Tempo and Zewa are the leading brands in, for example, France, Germany and Russia, while Cushelle, Velvet and Plenty are strong brands in the UK and Ireland, and Edet in the Nordic region and the Netherlands.
Essity is the market leader in China 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.
At the end of 2018, Consumer Tissue had production at 47 sites in 19 countries.
Net sales increased 7.4% to SEK 45,125m (42,014). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.6%, of which volume accounted for –1.1% and price/mix for 3.7%. The increase was mainly attributable to Asia and Europe. Organic net sales increased 0.7% in mature markets. In emerging markets, which accounted for 44% of net sales, organic net sales increased by 5.0%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 0.5%. Exchange rate effects increased net sales by 4.3%.
Adjusted operating profit before amortization of acquisitionrelated intangible assets (adjusted EBITA) decreased 18% (22% excluding currency translation effects and acquisitions) to SEK 3,331m (4,084). Higher prices and a better mix as well as cost savings positively impacted earnings. Higher raw material and energy costs as well as higher distribution costs negatively impacted earnings. The significantly higher raw material costs were mainly the result of higher pulp prices.
Net sales and organic
Nettoomsättning och justerad EBITA- och rörelsemarginal
2014 2015 2016 2017 2018
Net sales Organic net sales1)
SEKm %
net sales1)
0 10,000 20,000 30,000 40,000 50,000
| SEKm | 2018 | 2017 | % |
|---|---|---|---|
| Net sales | 45,125 | 42,014 | 7% |
| Organic net sales1), % | +2.6% | +0.5% | |
| Adjusted EBITA2) | 3,331 | 4,084 | –18% |
| Adjusted EBITA margin2), % | 7.4 | 9.7 | |
| Adjusted return on capital employed2), % | 7.4 | 9.8 | |
| Operating cash flow | 3,691 | 3,850 | –4% |
| Investments in non-current assets | –3,074 | –2,889 | |
| Average number of employees | 21,235 | 21,397 |
1) Excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.
Organic net sales1) +2.6%
Adjusted EBITA margin2) 7.4%
Adjusted return on capital employed2) 7.4%
1) Excluding exchange rate effects, acquisitions and divestments.
The ideal hand and surface wiping solution for professional environments, designed to fit workplace flow. This easy-to-use, hygienic and durable system increases flexibility and helps users work more efficiently. Single sheet dispensing cuts down on waste by reducing paper consumption by up to 37% when compared to the Tork Centrefeed system.
Net sales by region
Emerging markets accounted for
19%
of the business area's net sales in 2018. In emerging markets, organic net sales increased by 13.7% in 2018.
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 as well as service and maintenance. Essity also offers digital solutions, such as Internet of Things sensor technology.
Customers consist of companies and office buildings, universities, healthcare facilities, industries, restaurants, hotels, stadiums and other public venues. Distribution channels consist of distributors and online sales.
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 approximately 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 foodservice 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.
At the end of 2018, Professional Hygiene had production at 45 sites in 18 countries.
Net sales increased 4.9% to SEK 28,017m (26,700). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.9%, of which volume accounted for –0.3% and price/mix for 2.2%. The increase was primarily related to Europe, Asia and Latin America. Organic net sales decreased 0.6% in mature markets. Organic net sales increased in Western Europe while it decreased in North America. In emerging markets, which accounted for 19% of net sales, organic net sales increased 13.7%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 0.1%. Exchange rate effects increased net sales by 2.9%.
Adjusted operating profit before amortization of acquisitionrelated intangible assets (adjusted EBITA) decreased 4% (8% excluding currency translation effects and acquisitions) to SEK 3,841m (4,004). Earnings were impacted positively by higher prices, a better mix and cost savings. Higher raw material and energy costs as well as higher distribution costs had a negative impact on earnings.
Net sales and organic
Nettoomsättning och justerad EBITA- och rörelsemarginal
2014 2015 2016 2017 2018
Net sales Organic net sales1)
SEKm %
net sales1)
0 5,000 10,000 15,000 20,000 25,000 30,000
| % | ||
|---|---|---|
| 28,017 | 26,700 | 5% |
| +1.9% | +1.5% | |
| 3,841 | 4,004 | –4% |
| 13.7 | 15.0 | |
| 18.1 | 19.7 | |
| 3,678 | 4,411 | –17% |
| –1,336 | –888 | |
| 7,659 | 7,900 | |
1) Excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.
Organic net sales1) +1.9%
Adjusted EBITA margin2) 13.7%
Adjusted return on capital employed2) 18.1%
1) Excluding exchange rate effects, acquisitions and divestments. 2) Excluding items affecting comparability.
Essity reports its operations according to three business areas: Personal Care, Consumer Tissue and Professional Hygiene. Personal Care includes the Incontinence Products, Medical Solutions, Baby Care and Feminine Care product categories. Consumer Tissue includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Professional Hygiene includes complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap and dispensers.
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.
Essity has the following four business units:
Health and Medical Solutions, which offers incontinence products in Europe, North America, the Middle East and Africa and medical solutions in Asia, Europe, North America, the Middle East and Africa.
Latin America, which offers consumer tissue, baby care, incontinence products, medical solutions, feminine care and professional hygiene in Latin America.
In addition to the business units, Essity has established three global units:
The organization has four Group functions:
During the year, decisions were taken on restructuring measures in tissue production in Europe, North America and Latin America.
On September 28, 2018, Essity announced that the company was launching a Group-wide cost-savings program. The program is expected to generate annual cost savings of approximately SEK 900m, with full effect at the end of 2019.
On October 29, 2018, Essity announced that the company was making changes to its organizational structure and Executive Management Team.
On December 28, 2018, the Supreme Administrative Court announced its decision in a tax case in Sweden. The decision reduced Essity's reported tax expense by approximately SEK 1.1bn in the fourth quarter of 2018. Taxes paid will be refunded to Essity in the first quarter of 2019.
On February 16, 2018, Familia, in which Essity has a 50% stake, acquired the remaining 50% of the company Productos Sancela del Peru with operations in Peru and Bolivia. The consideration transferred amounted to SEK 310m. Essity has consolidated Productos Sancela del Peru as a subsidiary with a non-controlling interest. Prior to the acquisition, the company was consolidated as an associate according to the equity method. The previously owned share of equity was remeasured at fair value in the amount of SEK 225m and recognized as an item affecting comparability in the income statement.
On April 3, 2018, Familia, in which Essity has a 50% stake, acquired the company Industrial Papelera S.A. (INPAECSA) with operations in Ecuador. The consideration transferred amounted to SEK 68m.
On February 22, 2018, Essity announced the company's decision to invest in
creating a center for napkin production at the existing production facility in Altopascio, Italy. The investment will further strengthen the competitiveness of Professional Hygiene in Europe. The investment will lead to restructuring measures at multiple production facilities across Europe in the coming years. The total investments will amount to approximately SEK 590m, of which the majority is related to investments in Altopascio, Italy.
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 Group-wide 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 2018, the Parent Company recognized operating income of SEK 192m (367) and profit before appropriations and tax of SEK 17,102m (1,681). Investments in non-current assets totaled SEK 1m (0) during the year. Cash and cash equivalents at year-end amounted to SEK 0m (0).
Research and development (R&D) costs during the year amounted to SEK –1,320m (–1,239), corresponding to about 1.1% 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.
Essity Aktiebolag (publ) holds no treasury shares.
In 2018, 147,667 Class A shares were converted into Class B shares. The proportion of Class A shares was 9.1% at year-end.
The Board of Directors proposes a dividend of SEK 5.75 (5.75) per share or SEK 4,038m (4,038). The record date for entitlement to receive dividends is proposed as April 8, 2019.
Essity Aktiebolag (publ) is conducting one operation in Sweden for which a permit is required relating to tissue manufacturing. This operation impacts the environment through emissions to air and water, solid waste and noise.
Essity's statutory sustainability report, in accordance with the requirements of the Swedish Annual Accounts Act, can be found on pages 33–45 and 114–121 in the Board of Directors' Report. The company's business model can be found on page 11. 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 114.
The Board of Directors has decided to propose to the AGM 2019 the following guidelines for determining salaries and other remuneration for senior executives to apply for the period following the AGM.
"Remuneration of senior executives will be a fixed salary, variable remuneration, additional benefits and pension. Senior executives include the President, Executive Vice President, Business Unit President and equivalent, as well as Group Function Senior Vice President. The total remuneration is to correspond to market practice and be competitive in the senior executive's field of profession and linked to the executive's responsibility and authority. The variable remuneration is to be limited and linked to the fixed remuneration, based on performance results in relation to the annual and longterm established targets. In the event of termination of employment, the notice period should normally be up to two years if termination is initiated by the company, and up to one year, when initiated by the senior executive. Severance pay should not exist. Pension benefits should, to the extent possible, only contain defined contribution pension benefits and entitle the executive to receive a pension from the age of 65. Variable remuneration is not part of pensionable income. The board of directors shall be entitled to deviate from the adopted guidelines if, in an individual case, there are special reasons for doing so. The guidelines shall not prevail over mandatory conditions under labour law or collective agreements. Neither do they apply to existing agreements."
For information concerning the company's application of previously agreed guidelines and information on the company's calculated expenses for remuneration of senior executives, see Note C3 on pages 80–82.
Essity's net sales for 2018 increased 8.5% compared with the corresponding period a year ago to SEK 118,500m (109,265). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.6%, of which volume accounted for 0.5% and price/mix for 2.1%. Organic net sales increased 0.9% in mature markets and increased 5.9% in emerging markets. Emerging markets accounted for 35% of net sales. Exchange rate effects increased net sales by 3.5%. Acquisitions increased net sales by 2.4%, of which the acquisition of BSN medical accounted for 1.8% and acquisitions relating to the increase in the shareholding in associates in Latin America accounted for 0.6%.
Essity's adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA)1) for 2018 declined 4% (11% excluding currency translation effects and acquisitions) to SEK 12,935m (13,405). Higher prices, a better mix, higher volumes, cost savings and the acquisition of BSN medical had a positive impact on earnings. Cost savings amounted to SEK 1,040m, of which SEK 18m was related to the Group-wide cost-savings program. Higher raw material and energy costs had a negative earnings effect of SEK –4,705m, which corresponds to a negative impact on the adjusted EBITA margin of –4.2 percentage points. Furthermore, higher distribution costs had a negative impact on earnings. The acquisition of BSN medical increased profit by 2%. Acquisitions relating to the increase
in the shareholding in associates in Latin America increased profit by 1%.
Items affecting comparability amounted to SEK –1,444m (–940) and include costs of approximately SEK –1,230m related to restructuring measures at production facilities in Professional Hygiene and Consumer Tissue. Impairments in the associate Asaleo Care had an impact of SEK -280m on items affecting comparability. Restructuring costs related to the Groupwide cost-savings program had a negative impact of SEK –130m on items affecting comparability. Acquisitions relating to the increase in the shareholding in associates in Latin America positively impacted items affecting comparability by SEK 165m. A reversal of a provision for foreign tax of a non-recurring nature on non-current assets outside Sweden had a positive impact of SEK 290m on items affecting comparability. Other costs negatively impacted items affecting comparability by SEK –259m.
Financial items decreased to SEK –1,157m (–1,182). The decrease is primarily due to lower interest. Higher average net debt had a negative impact on financial items during the period.
Adjusted profit before tax1) decreased 5% (12% excluding currency translation effects and acquisitions) to SEK 11,046m (11,663).
The tax expense, excluding effects of items affecting comparability, was SEK 1,490m (2,191). The reported tax expense was reduced by about SEK 1.1bn due to a decision in a tax case in Sweden.
Adjusted profit for the period1) increased 1% (decreased 6% excluding currency
translation effects and acquisitions) to SEK 9,556m (9,472).
Profit for the period decreased 3% (10% excluding currency translation effects and acquisitions) to SEK 8,552m (8,785). Earnings per share were SEK 11.23 (11.56). The adjusted earnings per share3) were SEK 13.32 (13.09).
The Group's adjusted gross margin1) amounted to 28.2% (29.6) and the adjusted EBITA margin1) was 10.9% (12.3). Adjusted return on capital employed1) was 12.0% (14.9). Adjusted return on equity1) was 18.0% (21.3). The interest coverage ratio was 9.3 (10.1).
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Net sales | 118,500 | 109,265 | 101,238 |
| Adjusted EBITA1) | 12,935 | 13,405 | 11,992 |
| EBITA | 11,560 | 12,550 | 9,347 |
| Adjusted operating profit1) |
12,203 | 12,845 | 11,833 |
| Items affecting comparability |
–1,444 | –940 | –2,825 |
| Operating profit | 10,759 | 11,905 | 9,008 |
| Financial items | –1,157 | –1,182 | -835 |
| Adjusted profit before tax1) |
11,046 | 11,663 | 10,998 |
| Profit before tax | 9,602 | 10,723 | 8,173 |
| Adjusted tax1) 2) | –1,490 | -2,191 | –4,355 |
| Tax2) | –1,050 | –1,938 | –3,931 |
| Adjusted profit for the period1) |
9,556 | 9,472 | 6,643 |
| Profit for the period | 8,552 | 8,785 | 4,242 |
1) Excluding items affecting comparability.
2) 2018: A decision in a tax case in Sweden reduced tax by approximately SEK +1.1bn. 2017: Includes positive tax effect of a non-recurring nature of approximately SEK +550m
2016: Includes provision of approximately SEK –1.3bn. 3) Excluding items affecting comparability and amortization of acquisition-related intangible assets.
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, 2015 and 2014 corresponded to the number of issued shares in Essity on December 31, 2017 (702.3 million).
The operating cash surplus amounted to SEK 18,570m (18,465). The cash flow effect of changes in working capital was SEK –971m (–740). Current capital expenditures amounted to SEK –4,357m (–3,911). Operating cash flow was SEK 12,324m (12,723).
Financial items decreased to SEK –1,157m (–1,182). The decrease is primarily due to lower interest. Higher average net debt had a negative impact on financial items during the period. Income tax payments totaled SEK 2,466m (2,971). Cash flow from current operations amounted to SEK 8,787m (8,745).
Strategic capital expenditures amounted to SEK –2,424m (–2,101). The net sum of acquisitions and divestments was SEK –626m (–26,016). Dividends to shareholders impacted cash flow by SEK –4,435m (–285). Net cash flow totaled SEK 1,307m (–18,791).
Net debt increased by SEK 1,937m compared with the same point in time last year and amounted to SEK 54,404m. Excluding pension liabilities, net debt amounted to SEK 50,263m. Net cash flow reduced net debt by SEK 1,307m. 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 1,042m. Exchange rate movements increased net debt by SEK 2,202m.
The debt/equity ratio was 0.99 (1.06). Excluding pension liabilities, the debt/ equity ratio was 0.92 (0.99). The debt payment capacity was 25% (26). Net debt in relation to adjusted EBITDA amounted to 2.96 (2.83).
Professional Hygiene, 32% Consumer Tissue, 28% Consumer Tissue, 28% Professional Hygiene, 28%
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Operating cash surplus | 18,570 | 18,465 | 16,759 |
| Change in working capital | –971 | –740 | 1,596 |
| Current capital expenditures, net | –4,357 | –3,911 | –4,222 |
| Restructuring costs, etc. | –918 | –1,091 | –1,102 |
| Operating cash flow | 12,324 | 12,723 | 13,031 |
| Financial items | –1,157 | –1,182 | –835 |
| Income taxes paid | –2,466 | –2,971 | –3,782 |
| Other | 86 | 175 | 149 |
| Cash flow from current operations | 8,787 | 8,745 | 8,563 |
| Company acquisitions | –694 | –26,045 | –6,540 |
| Strategic capital expenditures in non-current assets | –2,424 | –2,101 | –2,033 |
| Divestments | 68 | 29 | 369 |
| Cash flow before dividend | 5,737 | –19,372 | 359 |
| Private placement to non-controlling interests | 5 | 28 | 435 |
| Dividend to non-controlling interests | –397 | –285 | –190 |
| Dividend | –4,038 | 0 | 0 |
| Transactions with shareholders | 0 | 838 | –14,571 |
| Net cash flow | 1,307 | –18,791 | –13,967 |
The Group's total assets increased 5% compared with the preceding year, amounting to SEK 154,266m (147,016). Non-current assets increased SEK 5,023m compared with the preceding year to SEK 112,121m (107,098), of which property, plant and equipment amounted to SEK 51,673m (48,482) and intangible assets to SEK 55,028m (53,121). Current and strategic capital expenditures in non-current assets amounted to SEK 6,781m. Total depreciation and amortization for the year was SEK 6,175m, of which amortization of acquisition-related intangible assets amounted to SEK 732m.
Current assets increased SEK 2,227m to SEK 42,145m (39,918). Working capital amounted to SEK 7,568m (5,901). Capital employed was 7% higher and totaled SEK 109,303m (102,037). The distribution of capital employed per currency is shown in the table below.
The value denominated in SEK of the Group's foreign net assets amounted to SEK 65,679m at year-end. In 2017, the Group's foreign net assets totaled SEK 65,389m.
The Group's equity increased by SEK 5,329m during the period, to SEK 54,899m (49,570). Net profit for the period increased equity by SEK 8,552m. Equity decreased by SEK 4,435m on account of the dividend to shareholders. Equity decreased net after tax by SEK 861m 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 77m after tax. Exchange rate movements, including the effect of hedges of net foreign investments, after tax, increased equity by SEK 1,976m. Other items increased equity by SEK 20m.
The Group's interest-bearing gross debt amounted to SEK 54,326m (54,838) at year-end. The maturity period was 3.5 (4.3) years.
Net debt increased by SEK 1,937m compared with the same point in time last year and amounted to SEK 54,404m. Excluding pension liabilities, net debt amounted
to SEK 50,263m. Net cash flow reduced net debt by SEK 1,307m. 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 1,042m. Exchange rate movements increased net debt by SEK 2,202m.
The debt/equity ratio was 0.99 (1.06). Excluding pension liabilities, the debt/ equity ratio was 0.92 (0.99). The visible equity/assets ratio was 31% (29). The adjusted return on capital employed was 12.0% (14.9). The adjusted return on equity was 18.0% (21.3). The capital turnover rate was 1.1 (1.2). At year-end, working capital amounted to 6% (5) of net sales.
| 2018 | % | 2017 | % | 2016 | % | |
|---|---|---|---|---|---|---|
| EUR | 43,678 | 40 | 40,937 | 40 | 25,016 | 33 |
| USD | 20,304 | 19 | 18,020 | 18 | 14,419 | 19 |
| CNY | 16,865 | 15 | 15,550 | 15 | 13,402 | 18 |
| MXN | 5,505 | 5 | 4,621 | 5 | 4,309 | 6 |
| GBP | 5,325 | 5 | 5,119 | 5 | 4,306 | 6 |
| Other | 17,626 | 16 | 17,790 | 17 | 13,301 | 18 |
| Total | 109,303 | 100 | 102,037 | 100 | 74,753 | 100 |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Intangible assets | 55,028 | 53,121 | 26,918 |
| Property, plant and equipment | 51,673 | 48,482 | 47,494 |
| Other non-current assets | 5,420 | 5,495 | 3,878 |
| Total non-current assets | 112,121 | 107,098 | 78,290 |
| Current assets | 42,145 | 39,918 | 35,994 |
| Total assets | 154,266 | 147,016 | 114,284 |
| Equity | 54,899 | 49,570 | 39,580 |
| Non-current liabilities | 57,795 | 60,828 | 41,971 |
| Current liabilities | 41,572 | 36,618 | 32,733 |
| Total equity and liabilities | 154,266 | 147,016 | 114,284 |
| Working capital | 7,568 | 5,901 | 4,143 |
| Capital employed | 109,303 | 102,037 | 74,753 |
| Net debt | 54,404 | 52,467 | 35,173 |
Adjusted return on capital employed and equity1) Justerad avkastning på sysselsatt kapital och eget kapital
1) Excluding items affecting comparability.
Consumer Tissue, 42% Professional Hygiene, 20%
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 to have a systematic and effective process to identify, manage and mitigate the effects of these risks in a controlled manner.
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 the Business Unit Presidents. The delegation scheme entails that risks are primarily managed by Essity's business units at local level, but with 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 latter. Identified risks are classified in this process according to the likelihood of the risk becoming a reality and the potential impact it
could have on the group. The model also includes how risks shall be mitigate and followed up.
Essity's financial risk management is centralized. The Group's internal bank handles the Group's financial transactions and energy risks. The financial risks are managed in accordance with the Group's finance policy, which is decided by Essity's Board of Directors. Together with Essity's energy risk policy, the finance policy comprises a framework for financial risk management. The risks are compiled and followed up continuously.
Essity has a corporate internal audit unit, which follow up that Essity's organization complies with the set policies.
Identification and analysis Action for risk management Monitoring
Based on current knowledge, the following are deemed to be the main factors that risk having a materially negative impact on the operations:
| Risk | Action | |
|---|---|---|
| GDP trend and economic conditions | ||
| Demand for Essity's products is affected by general macroeconomic trends and the resulting fluctuations in its customers' purchasing power and consumption patterns. Professional Hygiene is the area of Essity's operations that is most sensitive to economic move ments. The healthcare sector for Incontinence Prod ucts and Medical Solutions also risks being negatively impacted by the public sector's budget situation. Sales to the retail sector, which accounts for the bulk of sales of hygiene products, may also be adversely affected by reduced purchasing power among the company's consumers. |
In all operations, it is important that Essity implements a number of measures to try to manage the effects of economic movements that take place. Examples of this include mea sures to reduce costs, reviewing the capacity and production structure, and creating higher customer value through product innovations. Essity also works on differentiation to move toward product areas that are less sensitive to economic fluctuations. An example of solutions that can create value for Essity and its custom ers is Tork PeakServe in Professional Hygiene, |
a high-capacity dispenser for towels that is labor-saving for the customer. Sensors in public toilets, which facilitate in optimizing the work to empty waste baskets and to refill paper and soap, are another example of solutions that can create value. |
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 this have attracted increased attention. Not least as a result of the 2015 Paris Agreement and new guidelines from the TCFD (Task Force on Climate-related Financial Disclosure).
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 others 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 and products are intensifying.
One example of risks associated with political decisions is if the UK were to leave the EU without an agreement.
Essity's strategic framework and sustainability policy 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 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 SBTi1)-approved Science-Based Targets to reduce the company's climate impact and to support the 2015 Paris Agreement. Essity works to reduce carbon emissions by, for example, making investments in renewable energy and energy-saving programs.
1) SBTi: Science Based Targets initiative
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 particular 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 of and contribute actively to the development of areas that are significant to our operations. Environmental and energy issues are of particular importance to Essity. The circular economy, use of resources and more specifically, issues relating to waste, plastics, chemicals, and emissions to water and air are examples of other key areas.
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.
Measures adopted by the company to limit the effects if the UK leaving the EU without an agreement include an increase in inventory levels and transport capacity in the UK.
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, such as menstrual cups or electric hand dryers. Competition and the occurrence of substitutes presents the risk of a negative effect on sales and pricing of Essity's products and jeopardizes the company's market position.
Essity's focus on customer and consumer insight guides its innovation activities, ensuring that new products and services are 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. 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 18.
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, online sales, 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.
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, loss of production and income, which ultimately, could have a negative impact on Essity's market position.
From this perspective, the aim of Essity's risk management is to effectively and cost efficiently protect its employees, the environment, the company's assets and the business. Essity strives to create and retain a balance between loss-prevention activities and insurance coverage.
The loss-prevention work is conducted in accordance with established guidelines that include repeated inspections 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 to 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.
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 methods 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.
To meet its targets, Essity is dependent on being able to recruit, retain and develop qualified and motivated employees.
Essity has a program for regulatory compliance, which aims to minimize the risk that Essity participates in or is associated with unlawful or unethical business practices or commits 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 behave in the workplace, in the community and in the market. Training of Essity's
employees regarding the Code of Conduct takes place continuously. 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 a committee, which includes the internal audit function and parts of the Essity management.
Essity ensures access to employees with relevant competence through strategic staffing and succession planning. Essity is focusing on making the company known as an attractive employer in the markets in which it operates. Internal recruitment and rotation is facilitated through a "Job Portal", where vacant positions are advertised internally and externally. The company's ambition is that all
employees should have a personal development plan focusing on both training and new challenges. Essity strives to ensure that salaries and other benefits are adapted to the market and competitive in the labor market in which the employee works. Essity is working actively to build good relationships with union organizations.
| Risk | Action | |
|---|---|---|
| Legal risks | ||
| Legal risks comprise a number of risks in, to some extent, diverse areas. Amended legislation, viola tions 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. |
Essity constantly monitors developments in a num ber of areas and addresses any legal risks that arise in cooperation with external advisers. By their nature, legal issues are often national, which means that local experts are also often engaged by Essity in various issues. |
|
| Suppliers | ||
| Essity is dependent on a large number of suppli ers. The unplanned or sudden loss of key suppli ers could result in costs and disruptions to the company's production. Suppliers could also cause problems for Essity through non-compli ance with applicable legislation and guidelines or by otherwise acting in an unethical manner. |
Essity enters into supply contracts of various dura tions with a large number of different suppliers. The 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 particularly selected suppliers in the development of materials and processes. Essity |
continuously evaluates suppliers to ensure com pliance with agreements entered into. Particular importance is placed on suppliers with operations in countries and industries deemed to be exposed to risks. The assessment of key suppliers may take the form of a questionnaire, an on-site visit or inde pendent audit. |
| Information and IT | ||
| Essity relies on IT systems for its operations. Dis ruptions or faults in critical systems risk having a direct impact on production and other important business processes. Errors in financial systems risk affecting the company's reporting of results. |
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 processes are in place for the imple mentation and change of systems and IT services and for daily operations. |
|
| Cost of input goods | ||
| 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 neg atively over time. The price trend for a number of input goods over the past ten years is presented in the diagram below. Highest/lowest market prices |
Fiber (pulp and recovered paper) is a significant cost item, mainly in Consumer Tissue and Pro fessional Hygiene. Price fluctuations for fiber are mainly managed through long-term relationships with suppliers and by optimizing purchasing from different regions and of varying qualities. The cost of oil-based materials is driven by the oil price trend and represents a major cost item in Personal Care and for diverse packaging materials. The oil price |
price movements on input goods can be delayed through purchasing agreements with fixed dura tions. Efficiency improvements in the company's operations, changed product specifications and price increases are examples of measures to dampen the effect of rising costs for input goods. Essity's costs for input goods are described on page 130. |
| (annual average) 2008–2018 per product | trend also impacts transport costs. The impact of | |
| Index 175 150 125 100 75 50 25 0 Recovered paper – SOP (EUR) Recovered paper – SOP (USD) Pulp – NBSK (USD) Pulp – EUCA (USD) Oil-based material – Propylene (SAP) (EUR) Average price for the period |
Energy price risk is the risk that increased energy prices could adversely impact Essity's operating profit. Essity is exposed to price movements of electricity and natural gas, but the price of other energy commodities also directly and indirectly impacts Essity's operating profit.
Transaction exposure is the risk that exchange rate movements in export revenues and import expenses could negatively impact the Group's operating profit and the cost of non-current assets.
Translation exposure is the risk to which Essity is exposed when translating foreign subsidiaries' balance sheets and income statements to SEK.
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.
| Currency | Sales % |
Costs % |
Adjusted EBITA1) SEKm |
Average rate 2018 |
|---|---|---|---|---|
| EUR | 39 | 33 | 11,959 | 10.2467 |
| USD | 15 | 33 | –16,564 | 8.6731 |
| CNY | 10 | 5 | 7,267 | 1.3133 |
| GBP | 7 | 4 | 4,411 | 11.5841 |
| MXN | 4 | 3 | 1,888 | 0.4516 |
| COP | 3 | 3 | 550 | 0.0029 |
| RUB | 3 | 2 | 859 | 0.1389 |
| SEK | 2 | 5 | –2,730 | |
| Other | 17 | 12 | 5,295 | |
| Total | 100 | 100 | 12,935 |
1) Operating profit before amortization of acquisitionrelated intangible assets, excluding items affecting comparability.
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. Energy price hedging is effected through financial instruments and fixed pricing in existing supply agreements.
Essity safeguards the supply of electricity and natural gas through centrally negotiated supply agreements. The portfolio of supply agreements and financial hedges shall be effectively spread to minimize Essity's counterparty risk.
In 2018, Essity purchased about 5 TWh (5; 5) of electricity and about 8 TWh (8; 8) of natural gas.
The graph displays 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 agreements. For further information concerning
financial price hedges, see Note E6 Derivatives and hedge accounting on page 93.
exposure comprises a purchase requirement for USD and a selling requirement for CNY and GBP. The significant USD exposure is a consequence of the Group's purchase of pulp that is invoiced in USD. 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 2019. For further information relating to hedging of transaction exposure, see Note E6 Derivatives and hedge
Transaction exposure, resulting from exports and imports, can be hedged for a period of up to 18 months. The currencies with the greatest net volume were hedged as follows: USD 1 month, CNY 0 months and GBP 1 month. Contracted future payments for non-current assets in foreign currencies can be hedged up to the full cost.
Most of Essity's business is conducted outside Sweden and therefore, transaction exposure primarily arises in currencies other than SEK. The largest
Essity manages translation exposure by distributing the liability across various currencies where the Group owns assets so that key figures that are material for the company's credit rating are protected in the long term against exchange rate effects. Translation exposure in the income statements of foreign subsidiaries is not currency-hedged. As at December 31, 2018, net debt amounted to SEK 54,404m (52,467; 35,173). Distribution by currency is shown in the table to the right.
For further information relating to hedging of translation exposure, see Note E6 Derivatives and hedge accounting on page 93.
accounting on page 93.
| Percentage of net debt | ||||
|---|---|---|---|---|
| Currency | Net debt SEKm |
2018 % |
2017 % |
2016 % |
| EUR | 24,917 | 46 | 46 | 13 |
| GBP | 8,216 | 15 | 6 | 3 |
| USD | 7,059 | 13 | 15 | 15 |
| SEK | 6,150 | 11 | 19 | 45 |
| CNY | 3,735 | 7 | 8 | 11 |
| MXN | 2,334 | 4 | 3 | 3 |
| HKD | 1,476 | 3 | 2 | 4 |
| Other | 517 | 1 | 1 | 6 |
| 54,404 | 100 | 100 | 100 |
Credit risk refers to the risk of losses due to a failure to meet payment obligations by Essity's counterparties in financial agreements or by customers.
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 anticipated 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 91.
The objective is that counterparties must have a minimum credit rating of A–/A3 from at least two of the rating institutes Standard & Poor's, Fitch and Moody's.
Essity strives to enter into agreements that allow net calculation of receivables and liabilities. In certain cases, there are also supplementary terms to these agreements regarding the exchange of collateral.
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 1,255m (1,555; 1,259), gross. Taking net calculation agreements per counterparty into consideration, credit
exposure of derivatives amounted to SEK 810m (1,084; 971). At year-end, the total credit exposure was SEK 4,028m (4,964; 5,214). This exposure includes credit risk of SEK 3,081m (4,107; 4,244) for financial investments. Refer to the table below for the distribution of credit risk by category.
| A | B | C | Total |
|---|---|---|---|
| 87 | 87 | ||
| 50 | 50 | ||
| 2,268 | 224 | 516 | 3,008 |
| 810 | 810 | ||
| 73 | 73 | ||
| 3,078 | 224 | 726 | 4,028 |
| Category 1) |
1) A: Investment grade, a long-term credit rating from one or more of the institutes 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 is the risk that Essity is unable to meet its payment obligations as a result of insufficient liquidity or difficulty in raising new loans.
To ensure good access to loan financing, regardless of the economy and at attractive terms, Essity strives to maintain a solid investment grade rating.
Essity is to maintain 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 good distribution in the maturity profile of its gross debt. The gross debt must have an average maturity in excess of three years, considering unutilized credit facilities that are not liquidity reserves. Surplus liquidity should primarily be used to amortize external liabilities. Essity's policy is to not agree to terms that entitle the lender to withdraw loans or adjust interest rates as a direct consequence of movements in Essity's financial key figures or credit rating.
The Group's financing is mainly secured by bank loans, bond issues and through issuance of commercial papers. The refinancing risk in short-term borrowing is limited through long-term credit facilities from bank syndicates and individual banks with favorable creditworthiness.
Essity's net debt increased SEK 1,937m in 2018. At yearend, the average maturity of gross debt was 3.5 years (4.3; 4.0). If short-term loans were replaced with drawings under long-term unutilized credit facilities, the maturity would amount to 4.2 years. Unutilized credit facilities amounted to SEK 20,554m at year-end. In addition, cash and cash equivalents totaled SEK 3,008m. For further information, see Note E2 Financial assets, cash and cash equivalents on page 90, and Note E4 Financial liabilities on page 92.
| 2018 | 2017 | 2016 |
|---|---|---|
| 19,164 | ||
| 3,008 | 4,107 | 4,244 |
| 20,554 19,680 23,562 23,787 23,408 |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Net sales | 118,500 109,265 101,238 | ||
| Liquidity reserve1) | 20% | 22% | 23% |
1) Liquidity reserve as a percentage of net sales.
Interest rate risk relates to the risk that movements in the interest rates could have a negative impact on Essity. Essity is affected by interest rate movements through its net financial income and expenses.
Essity strives to achieve a good distribution of its interest maturity dates to avoid large debt volumes of renewals occurring at the same time. Essity's policy is to raise loans with floating rates, since it is Essity's understanding that this leads to lower interest expense over time. The interest rate risk and interest period are measured by currency and the average interest term shall be within the interval 3 to 36 months.
Essity's financial items decreased in 2018. The decrease is primarily due to lower interest rates. Higher average net debt had a negative impact on financial items during the period. Essity's largest funding currencies are EUR, GBP and USD, refer to the graph. To achieve the desired fixed interest period and currency balance, Essity uses financial derivatives. The average interest period for the gross debt, including derivatives, was 26.7 months (30.1; 8.5) at year-end.
The average interest rate for the total outstanding net debt including derivatives, amounted to 2.55% (1.83; 2.26) at year-end.
Essity conducts a materiality analysis among its stakeholders every second year. The analysis provides insight into the subject areas that are significant to the company's various stakeholders and forms the basis of the strategy and operations.
The most recent materiality analysis was conducted in 2017, when about 1,000 customers, consumers, suppliers, investors, media representatives, representatives of the community and employees responded to the online survey.
The selection of subject areas to be included in the materiality analysis was guided by such frameworks and governing documents as the Global Reporting Initiative, the UN Global Compact, Essity's Code of Conduct and other subjects considered to be material based on Essity's strategy. The survey covered a total of 21 areas.
The respondents were able to select the ten areas they considered to be most important for Essity. The order of priority the respondents assigned to the areas was weighed against Essity's own assessment of how important the areas are to the company's business strategy and were then placed in the materiality analysis as coordinates. The stakeholder groups' results were weighted to provide a balanced view of the results. Essity's own assessment was based on the evaluation of the top 100 senior executives.
Both stakeholders and Essity believe that business ethics, innovation, customer and consumer satisfaction, health and
safety, and strong brands are the most material areas.
The diagram below shows how the 21 areas were ranked in the survey: the horizontal X axis shows the responses of all respondents except Essity's senior executives, whose responses are shown on the Y axis. The areas are numbered according to how high they were ranked in the survey and next to the subject area, there is also a reference to where you can read more in this year's Annual and Sustainability Report.
A comprehensive account of all 21 areas included in the survey can be found at www.essity.com/sustainability.
| Read more on page | ||
|---|---|---|
| Business ethics | 1 | 120 |
| Innovation | 2 | 115 |
| Customer and consumer satisfaction | 3 | 17 |
| Health and safety | 4 | 121 |
| Brands | 5 | 1, 18 |
| Human rights | 6 | 120 |
| Product safety | 7 | 42 |
| Openness | 8 | 127–128 |
| CO2 emissions | 9 | 116 |
| Resource efficiency | 10 | 116 |
| Water use and water purification | 11 | 117 |
| Corporate governance | 12 | 46–47 |
| Fiber Sourcing | 13 | 115–116 |
| Value chain efficiency | 14 | 119 |
| Market positions | 15 | 20–21 |
| Post-consumer waste | 16 | 118 |
| Human capital | 17 | 15 |
| Risk management | 18 | 33–38 |
| Digitalization | 19 | 9, 17 |
| Distribution and transport | 20 | 119 |
| Tax | 21 | 78–79 |
The purpose of Essity's sustainability governance is to ensure the Group's commitments to its stakeholder groups, including customers, 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. To ensure that the company's priorities and methods are relevant over time, Essity maintains an active and continuous dialogue with its stakeholders.
Essity's objective is to generate maximum economic value and at the same time, live up to environmental and social expectations. Economic strength and stability is a prerequisite for environmental investments and socially responsibility
that generate long-term financial growth. Accordingly, Essity has established a number of policies and management systems to achieve and maintain the company's economic value creation with respect to environmental and social value creation.
Essity's overall social management approach is to assess how the company, through it operations, impacts and interacts with people and to develop strategies for establishing good relations with relevant stakeholders. Essity's Code of Conduct is the main steering document concerning social responsibility. This defines areas where the company can successfully contribute to social sustainable development in the Group's operations, and for various stakeholders along the
value chain. In the markets where Essity operates, social value is generated for individuals and society through the company's products and services for hygiene and health. In addition, the company creates jobs and pays the right tax and fees in the countries where the company operates. Essity's overall environmental management approach is to enhance the operations' positive contribution to the environment, while minimizing negative environmental impact.
Essity's Executive Management Team bears the overall responsibility for the control of Essity's business in the field of sustainability. Changes were implemented to the company's organizational structure during the year. Essity's unit
| Strategic components |
Generate increased shareholder value through profitable growth |
Enable more people every day to enjoy a fuller life |
Contribute to a sustainable and circular society |
Enable our employees to realize their full potential, as part of one winning team |
|---|---|---|---|---|
| Policies (and guidelines) |
• Sustainability Policy • Code of Conduct • Anti-bribery and Corruption policy • Tax Policy |
• Sustainability Policy • Code of Conduct • Anti-bribery and Corruption policy • Global Supplier Standard • Community Relations Instruction |
• Sustainability Policy • Code of Conduct • Global Supplier Standard • Fiber Sourcing Policy • Tax Policy |
• Sustainability Policy • Code of Conduct • Anti-bribery and Corruption policy • Health and Safety Instruction • Diversity Policy • Remuneration Policy |
| Targets and KPIs | • Financial targets • People and nature innovations |
• Supplier Code of Conduct – Global Supplier Standard • Hygiene solutions |
• Climate and energy: Science-Based Targets • Fiber Sourcing • Water • Production waste • Packaging • Innovation processes |
• Employee Health and Safety • Code of Conduct |
| Management systems, programs and certifications |
• Innovation process • International Financial Reporting Standards (IFRS) • Life cycle management |
• Innovation process • Sedex |
• ISO 9001 • ISO 14001 • Resource Management System (RMS) • ESAVE (energy) • MSAVE (material) • Chain of Custody certification, FSC and PEFC • Life cycle assessments (LCAs) |
• OHSAS 18001 • Global system for performance review and development planning • Essity Leadership Platform |
| External charters or initiatives |
• UN SDGs • UN Global Compact • OECD Guidelines for Multinational Enterprises |
• UN SDGs • UN Global Compact • OECD Guidelines for Multinational Enterprises • UN Guiding Principles on Business and Human Rights |
• UN SDGs • UN Global Compact • OECD Guidelines for Multinational Enterprises • Science Based Targets initiative • Ellen MacArthur Foundation |
• UN SDGs • UN Global Compact • OECD Guidelines for Multinational Enterprises • UN Guiding Principles on Business and Human Rights • European Works Council (EWC) • IndustriALL • ILO Core Conventions |
with global responsibility for customer and consumer brands and innovation was given greater responsibility and now also includes sustainability and public affairs. The unit is called Global Brand, Innovation and Sustainability. The head of the unit reports to the CEO and is included in the Executive Management Team. Innovation and product development are crucial for pursuing and further strengthening Essity's sustainability efforts. The sustainability reporting department has been transferred to the Group function Finance and the Compliance & Ethics department reports to the Group function Legal Affairs. In close collaboration with the business unit presidents, the approved strategy and objectives are broken down into specific targets and activities to ensure delivery on the Group's objectives and business plans. Responsibility for implementation rests with the business units.
The purposes of Essity's Compliance Council include monitoring compliance with Essity's Code of Conduct.
A number of committees and networks operate horizontally across the Group's different business units to guarantee a consistent approach. Read more about this at www.essity.com/sustainability.
In addition to Essity being reviewed by external auditors, its operations are subject to external reviews and monitoring by, among others, the Swedish Financial Supervisory Authority and Nasdaq Stockholm. Third-party assurance is conducted in conjunction with, for example, life cycle assessments. Essity's own control systems include segregation of duties in critical processes and defined management responsibilities with regard to internal control. In addition to this, Essity has a separate internal audit function that continuously works to evaluate and improve the effectiveness of governance processes, risk management and internal reporting. The unit contributes to the maintenance of high standards of business ethics and is involved in the monitoring of Code of Conduct compliance, including through audits. To support its work, the internal audit unit has a number of steering documents and policies.
The regulations most relevant to Essity's sustainability governance concern emission rights trading, energy efficiency, waste management, the Industry Emission Directive (IED), general product safety, medical devices, materials for food contact, chemical substances, cosmetics, biocide products and electronics. Essity monitors the development of all relevant regulations and ensures the environmental and human safety of all its products.
Essity's Code of Conduct is the Group's steering document for responsible business operations. All of the Group's employees are subject to the Code of Conduct, which is based on international standards, including the UN Declaration of Human Rights, the ILO Core Conventions, the OECD Guidelines for Multinational Enterprises, the UN Global Compact Principles and related legislation. Systematic activities, such as risk analyses, regular training, audits and other monitoring processes are in place to ensure compliance with the Code. Essity also uses the Supplier Ethical Data Exchange (Sedex) tool to make risk assessments of its production units. Sedex is a global database, in which companies share information about their production units with their customers. The information applies to the areas of labor standards, health and safety, the environment and business ethics.
All employees are regularly trained in the Code of Conduct, including human rights. In addition to this, the Code of Conduct is included in all onboarding programs across the company. Essity offers its employees a number of internal channels to report violations of legislation or the Code of Conduct. Employees also have the opportunity to use a whistleblower system managed by an external party. There is also, wherever the law permits, a possibility to report breaches anonymously. The external whistleblower system is currently available for use in some 30 countries. Essity expects its joint-venture companies to implement a Code of Conduct and guidelines equivalent to those stipulated in Essity's Code of Conduct.
The company's Code of Conduct and anticorruption policy represent the most important steering documents in the area of anticorruption. An evaluation and risk analysis of the company's anticorruption program is conducted each year. Employees in particularly vulnerable positions, as buyers and sellers, must undergo special anticorruption training, both online and through classroom instruction.
Essity's approach for ensuring respect for human rights in conjunction with the company's operations is based on the UN's Guiding Principles on Business and Human Rights (UNGP). In accordance with this framework, due diligence audits are conducted regarding the management of the company's impact on human rights. Essity has assessed the risks and impact regarding human rights using a Groupwide risk assessment that identified three main risk areas:
Essity has a program for compliance with competition rules. The training program is mandatory for employees who encounter these issues during the course of their work. The program includes risk analysis, e-learning, guidelines and recurring training sessions.
Essity has established a position paper, in which the company explains its view on the following areas: animal testing, flushable products, genetically modified organisms (GMO), palm oil, tissue fiber and triclosan (biocide). The position papers are available at www.essity.com/sustainability.
Essity's Compliance & Ethics unit is responsible for ensuring that applicable steering documents, training and systems are in place to ensure that the company meets internal and external Code of Conduct requirements. The function also manages the company's whistleblower service.
Essity's internal audit unit monitors compliance with the Code of Conduct through audits. The operations to be audited are determined by such factors as the social and environmental risks in
the country of operation or whether there are any indications of non-compliance with Essity's policies. The content of the audits emanates from Essity's Code of Conduct, while the approach and 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 results in a report and action plan for the audited unit, which are followed up. The results of the audits are reported to Essity's Board via the Audit Committee.
Essity's business practice audits are conducted by the Internal Audit unit. The audits focus on business ethics and Essity's relationships with customers, suppliers and authorities. A large number of interviews are performed with managers and employees to ensure the effectiveness of the control environment and challenges in the local environment.
Essity has a system for handling complaints from customers and consumers. Essity always seeks to compensate dissatisfied customers directly and determine whether a need exists for further measures beyond the individual case. For example, production personnel receive feedback to determine whether a production fault was the underlying cause. User complaints and opinions provide valuable customer and consumer insight and the knowledge gathered is transferred to the organization.
Essity's innovation process originates in an understanding of a customer or consumer need. The process is divided into four phases: feasibility, development, capacity and launch. Read more at www. essity.com/sustainability.
Essity has a portal for open innovation. Inventors, entrepreneurs and small companies are invited to submit solutions in response to various challenges from Essity. The solutions should be patented so that there are no outstanding issues regarding intellectual property rights should the proposal result in a licensing agreement
or other type of business arrangement. A number of proposals have been submitted this way that have led to further collaboration or product launches.
Essity follows a life cycle approach to understand the environmental, social and societal impact of the company's products, packaging and services. This makes it possible to meet customers' needs and exceed their expectations. The company promotes life cycle thinking in its sourcing, production and development of innovations.
Responsible sourcing involves seeking high-quality raw materials that are safe from both an environmental and social perspective. Essity's suppliers adhere to strict standards, including criteria for quality, product safety, environment, chemicals and business responsibility.
Resource-efficient production focuses on an efficient use of resources and on reducing energy consumption and waste. The production units apply management systems such as ISO 9001, ISO 14001 and OHSAS 18001.
Sustainable products and services are defined as innovative, safe, environmentally and socially sound products, packaging and services. Essity's innovations are developed based on the company's three sustainability platforms of "well-being", "more from less" and "circularity". It is essential to optimize products, packaging and services during use to reduce consumption and waste.
The company has used life cycle assessments (LCAs) since the early 1990s. An LCA illustrates the complete environmental impact of a product based on the ISO 14040 and 14044 standards. The company supplements these ISO standards with product-specific rules in place for hygiene products. It is a standardized measurement of environmental impact in every phase of the product, from raw materials, product development, production and use to disposal of waste. For each activity in the life cycle, an LCA calculates the impact of resources, energy and transportation and the output of, for example, emissions to air and water. The result of an LCA is expressed in environmental impact categories. The LCAs conducted by Essity cover the main impact categories that describe the potential impact on the environment, meaning the product's carbon footprint, acidification of rivers and lakes, and eutrophication of land or water systems.
Essity follows strict requirements and procedures to ensure that all materials in the company's products are safe for consumers, employees and the environment. The company has global product guidelines in place for all products to ensure that they are safe for their intended purpose. Product safety requirements are a key component of Essity's Global Supplier Standard, and the company works closely with its suppliers to ensure these are met. Only chemicals that meet Essity's stringent safety requirements are used. Their potential impact on employees, customers, consumers and the environment is evaluated continuously.
Essity complies with all prevailing laws and regulations that apply to the company's products.
Essity strives to be a dedicated partner in the local communities in which it operates. In accordance with Essity's guidelines for community relations, the company prioritizes initiatives with a clear link to Essity's operations, expertise, culture and geographic presence. Much of the company's efforts are related to hygiene and health, and are often directed at women and children. Examples of Essity's community relations are available at www.essity.com/ sustainability.
Essity's objective is to develop products and services for a sustainable and circular society. This is achieved by reducing inefficient volume consumption, developing products with smarter design and quality material and by continuously optimizing resource efficiency in the value chain. Increasing the use of renewable and recycled material is part of the strategy. Renewable fresh or recycled fiber is used today in Essity's tissue products. The proportion of renewable and recycled plastics in the company's packaging will increase over the coming years. The goal is that all packaging is recyclable by 2025.
Waste management of products is a common responsibility for Essity and customers and consumers. Tissue products comprise renewable fibers that contribute to renewable energy through combustion. Thanks to their biodegradability, they are well suited to composting and digestions. Compostability is based on tests according to existing composting standards to ensure that all requirements are met. In the Tork PaperCircle pilot project, Essity is working to recycle used paper hand towels that are returned to the tissue plant and used to make new products.
For Essity's products in the Personal Care business area, energy recovery through combustion is a good alternative to landfill. There is currently no infrastructure and no established business models for collecting and recycling used products. Essity is working proactively with external partners to assess alternatives for recycling, including a pilot project in the Netherlands where Essity, together with an external party, is developing methods for recycling baby diapers and incontinence products.
Essity has adopted Science-Based Targets for the reduction of greenhouse gas emissions. These targets encompasses energy, electricity, suppliers, transportation and waste. The Science Based Targets initiative is a collaboration between CDP (formerly known as the Carbon Disclosure Project), the UN Global Compact, the WRI (World Resources Institute) and the WWF (World Wide Fund for Nature). Science-Based Targets helps companies determine which emission reductions they need to achieve to keep the global temperature rise below 2 degrees Celsius, as agreed by world leaders at the UN climate change conference (COP 21) in Paris in 2015.
ESAVE, which the company initiated back in 2003, is a program that encompasses investments in energy-efficient technical solutions, the involvement of employees in daily improvement activities and a general change in attitude toward the use of energy at Essity. Knowledge sharing is leveraged across the Group through training and various networks, and ESAVE is part of several onboarding programs for young engineers. Best practices are shared digitally to achieve energy-efficiency excellence by learning from others. Essity also cooperates with external stakeholders, such as machinery suppliers, to ensure continued leadership in energy efficiency and continuous improvements. All new equipment is resource efficient by design and ESAVE is part of the planning criteria.
Essity has also introduced a material savings program, MSAVE, using the same philosophy and methodology as ESAVE.
The program aims to achieve the best cost while minimizing the environmental impact from raw materials and waste. Best practice is shared across the sites worldwide.
Essity works continuously to enhance its water treatment and thus the quality of the effluent water discharged from its plants. Mechanical treatment removes suspended solids, sand and particles, while biological treatment extracts dissolved solids and organic impurities that affect biological oxygen demand (BOD) and chemical oxygen demand (COD).
Essity follows a life cycle approach that includes purchasing, production, use and waste management. This means the company use life cycle assessments (LCAs) to identify resource-efficient solutions and minimize waste, all the way from the product design stage to manufacturing and after use.
Essity has applied a Global Supplier Standard (GSS) for many years. The standard includes requirements concerning quality, product safety, the environment, energy and chemicals. The GSS also contains a specific section concerning Essity's expectations of its suppliers with regard to human rights, employee relations, and health and safety – Essity's Supplier Code of Conduct.
As with its own production units, Essity requires suppliers to perform a self-assessment of health and safety, labor standards, the environment and business ethics in the global Sedex database and to share their status. The answers are used for risk assessments. This is part of Essity's process with supplier risk assessment to ensure compliance with social and ethical sustainability criteria, including respect for human rights and working conditions. Sustainability matters are taken into consideration both when evaluating potential suppliers and in the continuous risk assessment of suppliers and purchased
materials, products and services. Alongside Sedex, other sources are used to support the risk assessment.
Purchases from suppliers in countries classified as high-risk countries according to the Maplecroft Human Rights Index are audited with a specific focus on parameters such as health and safety, human rights and employment conditions. An ethical audit of a supplier can also be triggered by other indicators, such as a low rating in Sedex, a low health and safety score in Essity's supplier qualification audit or the outcome from Essity's risk assessments. The goal is to audit all high-risk suppliers, based on Essity's risk assessment procedure. Essity works with the global auditing company SGS to perform the audits. Essity also accepts independent audits or audits performed on behalf of other clients if the topics covered match Essity's audit requirements and information about corrective and preventive action is shared.
Essity requires documented Chain of Custody from suppliers of products that may contain potential conflict minerals. This mainly applies to paper dispensers for public bathrooms with electronic components containing metals whose origins are to be reported using the Conflict Minerals Reporting Template from the Responsible Minerals Initiative.
Some of Essity's products contain cotton fiber. The volumes are limited but since cotton agriculture in certain countries is associated with social risks, Essity pays particular attention to its cotton suppliers. Essity's ambition is that all purchased cotton is to be part of a recognized program for sustainable cotton. Essity is a member of the Better Cotton Initiative (BCI), one of the world's largest sustainability programs for cotton, which is the preferred program for sustainable cotton, though other programs, for example, organic cotton programs, are accepted.
Essity's target is that all raw materials based on fresh wood fiber in the company's products are to be certified either in accordance with the Forest Stewardship Council (FSC®) or the Programme for the Endorsement of Forest Certification (PEFC™). The target includes all deliveries of fresh wood fiber, meaning timber, pulp, packaging, mother reels and finished products supplied by external parties to Essity's own production sites.
All fiber material containing fresh wood fiber must be accompanied by an FSC Controlled Wood Chain of Custody certification regardless of whether the material is PEFC certified or certified by a forest certification other than FSC.
Essity has a global fiber sourcing policy in place and a shared business system – Essity's Global Fiber Database (GFDB) – for the assessment and purchase of fiber in compliance with Essity's targets for purchasing fresh wood fiber. The database includes all of the Group's pulp, recovered fiber and alternative fiber suppliers. This database provides the purchasing function, environmental department, R&D department and production facilities with fast and easy access to important information about suppliers: certification status, region of supply, wood species, pulp specifications and bleaching methods. Essity can thereby ensure the legal requirements for traceability. The company's R&D department can check the availability of a certain raw material and the sales organization can show customers exactly what has been purchased.
Essity requires fresh fiber suppliers to guarantee that they have robust systems and documented procedures in place to ensure traceability and compliance throughout the supply chain. Essity's fresh fiber sourcing policy includes support to other potential non-certified suppliers in their transition to third-party certification. Essity also conducts its own audits of suppliers' systems and sometimes employs external parties to perform additional surveys of suppliers. The audits are based on Essity's global fiber sourcing policy and Essity's Global Supplier Standard, which play a key role in contracts with suppliers. The supplier standard requires all suppliers to work with quality, environment, product safety, the Code of Conduct and social sustainability.
Essity is working to reduce emissions and the environmental impact of transportation and has implemented a new Transport Management System to enhance the
efficiency of transportation by further increasing the fill ratio, reducing distances driven and prioritizing transport means with less environmental impact. Essity is continuously reviewing its distribution network in order to reduce transport distances and strengthening purchasing procedures with a focus on using the most modern and environmentally friendly transport means. The company is testing new technologies that can reduce fuel consumption together with its freight forwarders. The company is taking part in local collaboration projects, such as Lean & Green and FREIGHT21 to cut transport emissions. Essity is also test driving trucks with a larger cargo volume to reduce the number of trips needed to transport tissue.
Shipping is mainly used for pulp fiber. Essity continuously monitors shipping companies to ensure that they comply with applicable environmental standards. For transportation between the port and plant, Essity uses barges and rail transport wherever possible. Since rail transport is a carbon-efficient alternative, it is a prioritized transport means for Essity. Restrictions in the rail network and lead times mean Essity requests that its suppliers use rail to the greatest possible extent, supplemented by truck transport. For distances exceeding 500 km, Essity prioritizes that suppliers uses several different modes of transport to minimize the environmental impact.
Essity offers its employees development opportunities and remuneration based on market rates comprising salary, pension and other benefits. The company follows local remuneration structures, provided they do not conflict with internationally established rules for minimum wages and reasonable compensation.
Essity's global human resource strategy aims to secure long-term capabilities and ensure that Essity is a safe and healthy workplace based on ethical business practices and is perceived as a great place to work. Essity recruits and develops employees in line with its strategic workforce plan. The plan is based on the company's strategy, access to expertise and demographics, and determines which measures the company needs to implement to meet future requirements for expertise and resources.
The ambition is that all employees are to have an individual development plan that is defined and followed up during annual performance reviews. The reviews identify the capabilities necessary for employees to achieve stated targets. The employees and managers agree on the manner in which these skills should be secured, primarily through internal development opportunities. Essity works proactively with employee health and well-being that addresses both the physical and social work environment. Employee commitment and satisfaction are measured every second year through a global employee survey that is followed by systematic work to identify and implement measures.
Essity endeavors to provide its employees with efficient and flexible opportunities to perform their duties. Through the company's working from home policy, Essity is leveraging modern technology and new working methods that allow employees, whenever necessary, to perform their duties outside the ordinary workplace. This offers increased flexibility for both employees and employer. Periodically working from home could be one approach to achieve a better balance between work and private life and strengthen the company's position as an attractive employer.
With an aging workforce in some markets, Essity is facing new challenges since absence related to musculoskeletal disorders increases with age. This has resulted in Essity creating a workplace program containing technical improvements and attitude changes to create a more ergonomic work environment and production lines.
Transparent communication is fundamental to the trust between Essity and its employees, as well as their representatives. Essity recognizes the right of each employee to join unions and to partake in union activities. The European Works Council (EWC) represents about 18,000 of Essity's employees. Essity meets the EWC and other employee representatives on a regular basis to inform them of and discuss matters such as the Group's performance and earnings, as well as health and safety and employment terms and conditions. The aim is to communicate changes well ahead of time. Essity also has an agreement with IndustriALL Global Union that represents 50 million workers in 140 countries in the mining, energy and manufacturing sectors. In parallel with Essity's
expansion, the Group encounters new circumstances and challenges, including challenges pertaining to its employee dialogue. When there is no union representation, Essity establishes other channels where possible, such as workers' councils.
Essity supports Global Deal, a global partnership with parties in the private and public sector. The aim of Global Deal is to improve the dialogue between parties in the labor market and national governments to improve employment conditions and productivity.
In connection with organizational changes, Essity works to support the employees affected. This is done through discussions with labor unions at an early stage and by preparing a social action plan that is adjusted to local conditions. The action plan normally includes assistance in seeking other employment and/or education, opportunities for early retirement or other financial incentives.
Essity implements the international OHSAS 18001 (Occupational Health and Safety Assessment Series) standard to ensure that uniform processes are deployed across the Group, and that Essity units continuously improve their workplace health and safety. OHSAS specifies requirements for an organization's occupational health and safety management systems.
Essity has a Group Health and Safety Instruction. The Group's governance system encompasses risk assessment, training, targets and monitoring. All Essity's facilities have procedures in place to increase workplace safety.
Reliable near miss and accident reporting is key; it is vital that Essity analyzes both serious and less serious occurrences to ensure that they are not repeated. Essity has a reporting system that employees use to report accidents and near misses, meaning events that could have led to an accident. The system offers the company good opportunities to perform risk assessments, analyze and improve working methods, and continuously monitor performance.
In the event of a critical incident, information is communicated within the entire Group, enabling all units to gain access to the conclusions and learn from the occurrence.
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 2018 Annual Report. The report has been reviewed by the company's auditors.
This section describes applicable regulatory rules and regulations for the Group's corporate governance and the company's management structure and organization. It also details the Board of Directors' responsibilities and its work during the year. Information regarding remuneration and remuneration issues and Essity's internal control are also included here. Essity applies the
Swedish Code of Corporate Governance without any deviations
(www.corporategovernanceboard.se).
Essity's processes to identify and manage risks are part of the Group's strategy work and are pursued at a local and Group-wide level. The section dealing with risk management describes the most significant risks and procedures used to eliminate or limit these risks.
Essity's sustainability work is an integral part of the company's business model. The company's 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.
The general shareholder meeting is Essity's highest decision-making body, which all 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 and determines guidelines for the remuneration of senior executives. 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 on voting rights in respect of shares used by shareholders at the general shareholders meeting.
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.
The Company's auditor is elected at the Annual General Meeting and is responsible for reviewing Essity's annual report and consolidated financial statements and the
Board's and President's administration. The auditor submits an audit report from this review.
The audit is performed in accordance with the Swedish Companies Act, International Standards on Auditing (ISA) and generally accepted auditing principles in Sweden.
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.
The Board of Directors comprises nine members elected by the shareholders at the 2018 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.
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.
The role of the Audit Committee, without prejudice to the Board of Director's responsibility and other duties, 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 and Directive. 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.
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 the applicable remuneration structure and remuneration levels in the Group.
The internal audit assesses and improves the effectiveness of Essity's internal governance and control as well as risk management. 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, HR issues, various types of projects and compliance with Essity's internal rules, including the company's Code of Conduct. The internal audit also offers internal consultancy services in connection with internal control matters and risk management.
Essity's President and CEO is responsible for and manages the day-to-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 54–55, the work of which is led by the President. 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.
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.
• 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.
Essity held its AGM in Stockholm on Thursday, April 12, 2018.
The AGM elected the company's Board of Directors. Moreover, guidelines for determining the salary and other remuneration of the President and other senior executives were adopted, see page 50 and Note C3 on pages 80–82.
Under the Swedish Corporate Governance Code, a company listed on Nasdaq Stockholm shall have a nomination committee, the purpose of which is to make 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 2017 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 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.
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.
The composition of the Nomination Committee for the 2019 AGM is as follows:
All shareholders have had an opportunity to submit proposals to the Nomination Committee. The Nomination Committee's proposal for the 2019 AGM is presented in the notice convening the AGM available on Essity's website www.essity.com. The 2019 AGM will be held on Thursday, April 4, see page 8.
The Nomination Committee was convened on four occasions prior to the 2019 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 2019 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. The aim was to retain gender balance on both the Board and the Board's committees. When preparing its proposal for the election of auditors, the Nomination Committee also gave consideration to the recommendation of the Audit Committee.
| Committees | Attendance1) | ||||||
|---|---|---|---|---|---|---|---|
| Board of Directors | Elected | Depend ence |
Audit | Remuner ation |
Board of Directors (11) |
Audit Committee (6) |
Remuneration Committee (4) |
| Ewa Björling | 2016 | 11/11 | |||||
| Pär Boman | 2016 | x | Chairman | 11/11 | 6/6 | 4/4 | |
| Maija-Liisa Friman | 2016 | 11/11 | |||||
| Annemarie Gardshol | 2016 | 11/11 | |||||
| Magnus Groth | 2016 | 11/11 | |||||
| Bert Nordberg | 2016 | x | x | 11/11 | 6/6 | 4/4 | |
| Louise Svanberg | 2016 | x | 10/11 | 4/4 | |||
| Lars Rebien Sørensen | 2017 | 10/11 | |||||
| Barbara Milian Thoralfsson 2016 | Chairman | 11/11 | 6/6 |
| % | |
|---|---|
| AB Industrivärden | 29.8 |
| Norges Bank Investment Management | 8.2 |
| Handelsbanken's foundations, etc. | 3.8 |
| MFS Investment Management | 2.7 |
| Swedbank Robur Funds | 2.6 |
1) Board meetings January 1–December 31, 2018.
= Dependent in relation to the company's major shareholder, AB Industrivärden.
= President of Essity, dependent in relation to the company and the Executive Management Team.
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 2018. Pär Boman was elected as the Chairman of the Board.
The independence of Board members is presented in the table on page 48. 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 company 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 AGM-elected Board members. The employees have appointed Tina Elvingsson Engfors, Örjan Svensson and Niclas Thulin as representatives to the Board for the period until the 2019 AGM, and their deputies Niklas Engdahl, Martin Ericsson and Andreas Larsson.
In 2018, the Board was convened 11 times. 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, 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 present 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 2018, the Board of Directors has — in addition to the customary work of the Board — focused on the integration of BSN medical and on issues within the scope of ongoing efficiency improvement and profitability programs, such as Cure or Kill and Tissue Roadmap. During the autumn, the Board of Directors also focused on strategy work and issues in connection with the cost-savings program presented by the company on September 28, in light of the market situation, raised raw material and energy costs and events in the business environment.
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 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.
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, and held meetings with the auditors and CFOs of large partly-owned companies. 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.
The Remuneration Committee comprises Chairman Pär Boman, Bert Nordberg and Louise Svanberg. The Remuneration Committee held four meetings in 2018. Activities mainly concerned remuneration and other employment terms and conditions for senior executives, and current remuneration structures and remuneration levels in the Group.
The basis of the work of the internal audit is a risk analysis conducted in cooperation with Essity's management team. The risk analysis concludes in an audit plan, which is presented to the Audit Committee. In 2018, 117 audit projects were performed and reported at meetings with the Audit Committee.
Work in 2018 involved follow-up of the units' progress with process-based control, follow-up of the efficiency in internal governance and control, and follow-up of compliance with Essity's policies.
The 2018 Annual General Meeting 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 Svenska Cellulosa Aktiebolaget SCA, Skanska AB, AB Tetra Pak and Husqvarna AB, among other companies. He owns no shares in the company.
In accordance with its formal work plan, the Board met with the auditors at two scheduled Board meetings in 2018. 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 company management being present.
The 2018 AGM adopted guidelines for remuneration of senior executives that are based on a total remuneration package comprising a fixed salary, variable salary and other benefits, and a pension; see Note C3 on pages 80-82. Corresponding guidelines have been proposed to the 2019 AGM, see page 29.
Remuneration of the President and other senior executives is presented in Note C3 on pages 80–82. Variable remuneration for the President, CFO and Business Unit Presidents was maximized to a total of 100% of the fixed salary for 2018. For two Business Unit Presidents, stationed in Latin America and the US, the maximum outcome is 110– 130%. The corresponding limit for other senior executives was 90% in 2018.
Programs for variable remuneration are formulated to support the Group's strategic targets. The short-term program is individually adapted and based mainly on cash flow, EBITA margin and organic sales growth. The long-term program is based on the Essity share's long-term total shareholder return.
The total remuneration of the AGMelected Board members amounted to SEK 8,642,000 in accordance with the AGM's resolution. See Note C4 on page 82 for further information.
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 Board bears the overall responsibility for financial reporting and its working procedures regulate the internal division of work between the Board and its committees.
The Audit Committee has the important task of preparing the Board's work to assure the quality of financial reporting. This preparation work includes issues relating to internal control and regulation compliance, control of recognized values, estimations, assessments and other activities that may impact the quality of the financial reports. The Committee has charged the company's auditor with the task of specifically examining the degree of compliance in the company with the rules for internal control, both general and detailed.
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.
For a number of years now, Essity has used a shared reporting system for financial reports. An increasing number of units within Essity are also introducing the same accounting system based on a common IT platform.
Accounting and reporting for several units are, to a certain extent, conducted in Shared Service Centers. Reporting is therefore more efficient and uniform.
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.
With regard to financial reporting, the risk that material errors may be made when reporting the company's financial position and results is considered the primary risk. To minimize this risk, control documents have been established pertaining to accounting, procedures for annual accounts and follow-up of reported annual accounts. There is also a joint system for reporting annual accounts. Essity's Board of Directors and management assess the financial reporting from a risk perspective on an ongoing basis. To provide support for this assessment, the company's income statement and balance sheet items are compared with earlier reports, budgets and other planned figures. Control activities that are significant to financial reporting are carried out using the company's IT system. For further information, see the Risk and risk management section on pages 33–38.
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 statements. 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. The controls are adapted to the operational process and system structure of each unit. Accordingly, each unit prepares a record of the actual controls to be carried out in the unit in question. Control of these processes is assessed through self-evaluation followed up by an internal audit. In some cases, Essity has enlisted external help to validate these controls.
Financial results are reported and examined regularly within the management teams of the operating units and communicated to Essity's management at monthly and quarterly meetings. Before reports are issued, results are analyzed to identify and eliminate any mistakes in the process until the year-end closing. For additional information, see the Internal audit section on page 49.
The Board follows up to ensure that the internal control and reporting to the Board functions through continuous reporting from the President and CFO and through reporting from the internal audit unit in the scope of the audit plan set annually. Internal audit also continuously reports its observations in this respect to the Audit Committee. Internal audit's tasks include following up compliance with the company's internal rules, and the results of this follow-up are reported to the Board through the Audit Committee.
Elected by the Annual General Meeting
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 (elected in SCA 2010)
Independent of the company and corporate management.
Class B shares: 3,000
Ewa Björling (1961) Med. Dr. Sci. and Associate Professor from
Karolinska Institutet. Chairman of the Board of The Swedish Petroleum & Biofuels Institute (SPBI). Member of the boards of Biogaia AB and Mobilaris AB. Former member of the Boards of the Swedish National Insurance Office and the Swedish International Development Cooperation Agency (SIDA).
Minister for Trade 2007–2014, and Minister for Nordic Cooperation 2010–2014. Previously Karolinska Institutet.
Elected: 2016 (elected in SCA 2016) Independent of the company, corporate management and Essity's major
shareholders.
Member of the Boards of Finnair, the Securities Market Association and Boardman Oy.
Former Chairman of Helsinki Deaconess Institute, Vice Chairman of Neste Corporation, member of the Boards of TeliaSonera, Rautaruukki, Metso, Ekokem and Talvivaara Mining Company Plc.
Former CEO of Aspocomp Group Plc 2004–2007 and President of Vattenfall Oy and Gyproc Oy.
Elected: 2016 (elected in SCA 2016) Independent of the company, corporate management and Essity's major shareholders.
Annemarie Gardshol (1967) MSc Eng.
Member of the Board of Svenska Cellulosa Aktiebolaget SCA.
President of PostNord Sverige AB, member of PostNord's corporate management team since 2012.
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 (elected in SCA 2015) Independent of the company, corporate
management and Essity's major shareholders. Class B shares: 1,500
Bert Nordberg (1956)
Engineer Chairman of the Board of Vestas Wind Systems A/S. Member of the Boards of AB Electrolux, 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 Board of Sony Mobile Communications and member of the Boards of BlackBerry Ltd, Skistar AB and Axis AB.
Elected: 2016 (elected in SCA 2012)
Independent of the company, corporate management and Essity's major shareholders. Class B shares: 16,800
MSc Econ. Member of the boards of Dana Farber Cancer Institute, Boston and CERAS Health, New York.
Previously held various management positions in EF Education First, including President 2002–2008 and Chairman of the Board 2008–2010. Former member of the Board of Careers Australia Group Ltd. Elected: 2016 (elected in SCA 2012)
Independent of the company, corporate management and Essity's major shareholders. Class B shares: 15,000
BSc Forestry and MSc Econ.
Deputy Chairman of the Board of Carlsberg A/S. Member of the Boards of Jungbunzlauer, Novo Holding A/S, Novo Nordisk Foundation and Thermo Fisher Scientific Inc.
Former President and CEO of Novo Nordisk 2000–2017.
Elected: 2017
Independent of the company, corporate management and Essity's major shareholders.
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 (elected in SCA 2006) Independent of the company, corporate management and Essity's major shareholders.
Magnus Groth (1963) MBA and MSc ME President and CEO of Essity. Member of the Board of Acando AB. 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.
Elected: 2016 (elected in SCA 2015) Independent of Essity's major shareholders. Class B shares: 43,500
Tina Elvingsson Engfors (1967) Operator at Essity Hygiene and Health AB, Falkenberg Member of the Swedish Trade Union Confederation (LO). Appointed: 2017 Class B shares: 225
Örjan Svensson (1963) Senior Industrial Safety Representative at Essity Hygiene and Health AB, Lilla Edet Member of the Swedish Trade Union Confederation (LO). Appointed: 2017 (appointed in SCA 2005) Class B shares: 75
Niclas Thulin (1976) IT Specialist Collaboration & Workplace at Essity Hygiene & Health AB, Gothenburg Other current assignments: Limited partner of TH Tryck & Reklam Kommanditbolag. Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017
Niklas Engdahl (1980)
Employed at Essity Hygiene and Health AB, Lilla Edet Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017
Employed at Essity Hygiene and Health AB, Falkenberg Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2017 Class A shares: 200 Class B shares: 200
Employed at Essity Hygiene and Health AB, Gothenburg Member of the Council for Negotiation and Cooperation (PTK). Appointed: 2018 Class B shares: 1,200
Ernst & Young AB
Senior Auditor: Hamish Mabon, Authorized Public Accountant
Master of Laws Senior Vice President, Group Function Legal Affairs, General Counsel Employed since: 1992 Class B shares: 24,000
Information regarding individuals' own and related parties' shareholdings pertains to the situation on December 31, 2018.
Magnus Groth (1963) President and CEO MBA and MSc ME Employed since: 2011 Class B shares: 43,500
Fredrik Rystedt (1963) CFO and Executive Vice President, Head of Group Function Finance MSc Econ. Employed since: 2014 Class B shares: 16,200
Joséphine Edwall Björklund (1964) Senior Vice President, Group Function Communications University Degree in Communications Employed since: 2012 Class B shares: 7,950
Pablo Fuentes (1973) President, Latin America MSc, MBA Employed since: 2006 Essity ADR: 6,169 Class B shares: 9,448
Donato Giorgio (1973) President, Global Manufacturing Master in Mechanical Engineering Employed since: 2009 Class B shares: 6,472
Ulrika Kolsrud (1970) President, Health and Medical Solutions MSc Eng. Employed since: 1995 Class B shares: 5,403
Don Lewis (1961) President, Professional Hygiene BSc BA Employed since: 2002 Essity ADR: 20,506
Mikael Schmidt (1960) Senior Vice President, Group Function Legal Affairs, General Counsel and Secretary to the Board Master of Laws Employed since: 1992 Class B shares: 24,000
Robert Sjöström (1964) President, Global Operational Services MSc Econ, MBA Employed since: 2009 Class B shares: 19,000
Tuomas Yrjölä (1978) President, Global Brand, Innovation and Sustainability MSc Econ, BA Employed since: 2014 Class B shares: 4,941
Anna Sävinger Åslund (1969) Senior Vice President, Group Function Human Resources BSc Human Resources Employed since: 2001 Class B shares: 4,535
Volker Zöller (1967) President, Consumer Goods BSc BA Employed since: 1994 Class B shares: 7,875
Information regarding individuals' own and related parties' shareholdings pertains to the situation on December 31, 2018.
| Consolidated income statement IS 58 | |
|---|---|
| Consolidated statement of comprehensive income 58 | |
| Consolidated statement of change in equity 59 | |
| Consolidated operating cash flow statement, supplementary disclosure OCF 59 |
| Consolidated cash flow statement CF 60 | |
|---|---|
| Change in liabilities attributable to financing activities 61 | |
| Correlation between consolidated cash flow statement and operating cash flow statement, supplementary disclosure 61 |
|
| Consolidated balance sheet BS 62 | |
Amounts that are reconcilable to the balance sheet, income statement, cash flow statement and operating cash flow statement are marked with the following symbols:
BS Balance sheet
OCF Operating cash flow statement
E8.
Equity 96
Parent Company income statement Statement of comprehensive income Parent Company cash flow statement Parent Company balance sheet Parent Company statement of change in equity
| Contents, Parent Company notes | Contents, non-financial notes | |
|---|---|---|
| PC. Parent Company notes |
H. Notes to non-financial information |
|
| pages 109–123 | pages 114–129 | |
| PC1. Operating loss |
109 | H1. General accounting principles 114 |
| PC2. Personnel and Board costs |
109 | H2. Customers and consumers 114 |
| PC3. Taxes |
110 | H3. Innovation 115 |
| PC4. Intangible assets |
110 | H4. Hygiene solutions 115 |
| PC5. Tangible fixed assets |
111 | H5. Community relations 115 |
| PC6. Participations |
111 | H6. Fiber sourcing 115 |
| PC7. Receivables from and liabilities to subsidiaries |
112 | H7. Energy and emissions to air/Science-Based Targets 116 |
| PC8. Other current receivables |
112 | H8. Water 117 |
| PC9. Financial instruments |
112 | H9. Waste 118 |
| PC10. Other current liabilities |
113 | H10. Transport 119 |
| PC11. Share capital |
113 | H11. Supply chain management 119 |
| PC12. Contingent liabilities and pledged assets |
113 | H12. Certifications 119 |
| PC13. Adoption of the annual accounts |
113 | H13. Code of Conduct and work with anti-corruption 120 |
| PC14. Events after the balance sheet date |
113 | H14. Employees 120 |
| PC15. Proposed disposition of earnings |
122 | H15. Health and safety 121 |
| PC16. |
| Audit report | 123 | Index Statutory sustainability report | ||||
|---|---|---|---|---|---|---|
| and GRI index 127 | ||||||
| Auditor's Combined | ||||||
| Assurance Report 129 | ||||||
| Group notes, cont. | ||
|---|---|---|
| G. Other |
||
| pages 105–107 | ||
| G1. 99 |
Non-current assets held for sale |
105 |
| G2. Jointly owned subsidiaries Leases 100 |
105 | |
| G3. 100 |
Contingent liabilities and pledged assets |
106 |
| G4. 102 |
Transactions with related parties |
106 |
| G5. 102 |
Changes due to new accounting rules |
107 |
| 103 |
| 2018 | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| Group | Note | SEKm | EURm1) | SEKm | EURm1) | SEKm | EURm1) | |
| Net sales | B1, B2 | 118,500 | 11,565 | 109,265 | 11,343 | 101,238 | 10,706 | |
| Cost of goods sold | B3 | –85,058 | –8,301 | –76,899 | –7,983 | –72,438 | –7,661 | |
| Items affecting comparability – cost of goods sold | B2, B3 | –1,437 | –140 | –509 | –53 | –532 | –56 | |
| Gross profit | 32,005 | 3,124 | 31,857 | 3,307 | 28,268 | 2,989 | ||
| Sales, general and administration etc. | B3 | –20,570 | –2,008 | –19,130 | –1,986 | –16,965 | –1,794 | |
| Items affecting comparability – sales, general and administration | B2, B3 | 62 | 6 | –346 | –36 | –2,113 | –223 | |
| Share of profits of associates and joint ventures | 63 | 6 | 169 | 18 | 157 | 17 | ||
| Operating profit before amortization of acquisition-related intangible assets (EBITA) |
11,560 | 1,128 | 12,550 | 1,303 | 9,347 | 989 | ||
| Amortization of acquisition-related intangible assets | B3 | –732 | –71 | –560 | –58 | –159 | –17 | |
| Items affecting comparability – acquisition-related intangible assets | B2, B3 | –69 | –7 | –85 | –9 | –180 | –19 | |
| Operating profit | 10,759 | 1,050 | 11,905 | 1,236 | 9,008 | 953 | ||
| Financial income | E7 | 91 | 9 | 158 | 16 | 202 | 21 | |
| Financial expenses | E7 | –1,248 | –122 | –1,340 | –139 | –1,037 | –109 | |
| Profit before tax | 9,602 | 937 | 10,723 | 1,113 | 8,173 | 865 | ||
| Income taxes | B5 | –1,050 | –102 | –1,938 | –201 | –3,931 | –416 | |
| Profit for the period | 8,552 | 835 | 8,785 | 912 | 4,242 | 449 | ||
| Earnings attributable to: | ||||||||
| Owners of the Parent Company | 7,886 | 770 | 8,116 | 843 | 3,800 | 402 | ||
| Non-controlling interests | 666 | 65 | 669 | 69 | 442 | 47 | ||
| Earnings per share – owners of the Parent Company | ||||||||
| Earnings per share before and after dilution effects | 11.23 | 1.1 | 11.56 | 1.2 | 5.43) | 0.63) | ||
| Dividend per share, SEK | 5.752) | 5.75 | ||||||
| Profit for the period attributable to owners of the Parent Company | 7,886 | 770 | 8,116 | 843 | 3,800 | 402 | ||
| Average number of shares before dilution, million | 702.3 | 702.3 | 702.33) | |||||
| Average number of shares after dilution, million | 702.3 | 702.3 | 702.33) |
1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.25 (9.63; 9.46) was used. 2) Board proposal.
3) 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, 2018 (702.3 million).
| SEKm | 2018 | 2017 | 2016 | |||
|---|---|---|---|---|---|---|
| IS Profit for the period | 8,552 | 8,785 | 4,242 | |||
| Other comprehensive income for the period | ||||||
| Items that may not be reclassified to the income statement | ||||||
| Actuarial gains/losses on defined benefit pension plans | –1,036 | 1,061 | –1,569 | |||
| Measured at fair value through other comprehensive income | –5 | – | – | |||
| Income tax attributable to components in other comprehensive income | 176 | –218 | 421 | |||
| –865 | 843 | –1,148 | ||||
| Items that have been or may be reclassified subsequently to the income statement | ||||||
| Available-for-sale financial assets: | ||||||
| Result from measurement at fair value recognized in equity | – | 0 | –1 | |||
| Cash flow hedges: | ||||||
| Result from remeasurement of derivatives recognized in equity | 471 | 35 | 275 | |||
| Transferred to profit or loss for the period | –378 | –56 | 274 | |||
| Transferred to cost of hedged investments | – | 10 | –19 | |||
| Translation differences in foreign operations | 2,080 | 320 | 2,742 | |||
| Gains/losses from hedges of net investments in foreign operations | –122 | –1,968 | –437 | |||
| Other comprehensive income from associates | 23 | –22 | 12 | |||
| Income tax attributable to components in other comprehensive income | 4 | 439 | –41 | |||
| 2,078 | –1,242 | 2,805 | ||||
| Other comprehensive income for the period, net of tax | 1,213 | –399 | 1,657 | |||
| Total comprehensive income for the period | 9,765 | 8,386 | 5,899 | |||
| Total comprehensive income attributable to: | ||||||
| Owners of the Parent Company | 8,893 | 8,029 | 5,222 | |||
| Non-controlling interests | 872 | 357 | 677 | |||
| By operating segment | Net sales | Adjusted EBITA1) | ||||
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Personal Care | 45,342 | 40,586 | 33,651 | 6,354 | 5,937 | 4,283 |
| Personal Care | 45,342 | 40,586 | 33,651 | 6,354 | 5,937 | 4,283 |
|---|---|---|---|---|---|---|
| Consumer Tissue | 45,125 | 42,014 | 41,560 | 3,331 | 4,084 | 4,450 |
| Professional Hygiene | 28,017 | 26,700 | 26,001 | 3,841 | 4,004 | 3,836 |
| Other | 16 | –35 | 26 | –591 | –620 | –577 |
| Total | 118,500 | 109,265 | 101,238 | 12,935 | 13,405 | 11,992 |
1) Excluding items affecting comparability.
| Group | 2018 | 2017 | 2016 |
|---|---|---|---|
| Attributable to owner of the Parent | |||
| Value, January 1 | 42,289 | 33,204 | 42,986 |
| Effect attributable to changed accounting standard IFRS 9 | –9 | – | – |
| Tax effect attributable to changed accounting standard IFRS 9 | 2 | – | – |
| Total comprehensive income for the period | 8,893 | 8,029 | 5,222 |
| Dividend | –4,038 | – | – |
| Transactions with shareholders (for further information, see note G4 Transactions with related parties on page 106) | – | 842 | –14,679 |
| Private placement to non-controlling interests | 3 | 504 | 240 |
| Private placement to non-controlling interests, dilution | – | –290 | –110 |
| Issue expenses, private placement | – | – | –4 |
| Acquisition of non-controlling interests | – | – | –799 |
| Acquisition of non-controlling interests, dilution | – | – | 348 |
| Transferred to cost of hedged investments | 1 | – | – |
| BS Value, December 31 | 47,141 | 42,289 | 33,204 |
| Non-controlling interests | |||
| Value, January 1 | 7,281 | 6,376 | 5,289 |
| Total comprehensive income for the period | 872 | 357 | 677 |
| Dividend | –397 | –285 | –190 |
| Private placement to non-controlling interests | 2 | 465 | 199 |
| Private placement to non-controlling interests, dilution | – | 290 | 110 |
| Issue expenses, private placement | – | – | –4 |
| Acquisition of non-controlling interests | – | 78 | 643 |
| Acquisition of non-controlling interests, dilution | – | – | –348 |
| BS Value, December 31 | 7,758 | 7,281 | 6,376 |
| BS Total equity, value December 31 | 54,899 | 49,570 | 39,580 |
For further information, see Note E8 Equity on page 96.
| 2018 2017 |
2016 | ||||||
|---|---|---|---|---|---|---|---|
| Group Note |
SEKm | EURm1) | SEKm | EURm1) | SEKm | EURm1) | |
| IS Net sales | 118,500 | 11,565 | 109,265 | 11,343 | 101,238 | 10,706 | |
| Operating expenses | –100,165 | –9,776 | –90,867 | –9,433 | –84,498 | –8,936 | |
| Operating surplus | 18,335 | 1,789 | 18,398 | 1,910 | 16,740 | 1,770 | |
| Adjustment for non-cash items | 235 | 23 | 67 | 7 | 19 | 2 | |
| Operating cash surplus | 18,570 | 1,812 | 18,465 | 1,917 | 16,759 | 1,772 | |
| Change in | |||||||
| Inventories | –1,017 | –99 | –1,703 | –177 | 1,059 | 112 | |
| Operating receivables | –344 | –34 | 1,522 | 158 | –298 | –31 | |
| Operating liabilities | 390 | 38 | –559 | –58 | 835 | 88 | |
| Change in working capital | –971 | –95 | –740 | –77 | 1,596 | 169 | |
| Current capital expenditures, net | –4,357 | –424 | –3,911 | –406 | –4,222 | –446 | |
| Restructuring costs, etc. | –918 | –90 | –1,091 | –113 | –1,102 | –117 | |
| Operating cash flow | 12,324 | 1,203 | 12,723 | 1,321 | 13,031 | 1,378 | |
| Financial items E7 |
–1,157 | –113 | –1,182 | –123 | –835 | –88 | |
| Income taxes paid B5 |
–2,466 | –241 | –2,971 | –308 | –3,782 | –400 | |
| Other | 86 | 8 | 175 | 18 | 149 | 16 | |
| Cash flow from current operations | 8,787 | 857 | 8,745 | 908 | 8,563 | 906 | |
| Strategic capital expenditures and divestments | |||||||
| Company acquisitions F6 |
–694 | –68 | –26,045 | –2,704 | –6,540 | –692 | |
| Strategic capital expenditures in non-current assets | –2,424 | –236 | –2,101 | –218 | –2,033 | –215 | |
| Total strategic capital expenditures | –3,118 | –304 | –28,146 | –2,922 | –8,573 | –907 | |
| Divestments F6 |
68 | 7 | 29 | 3 | 369 | 39 | |
| Cash flow from capital expenditures and divestments | –3,050 | –297 | –28,117 | –2,919 | –8,204 | –868 | |
| Cash flow before transactions with shareholders | 5,737 | 560 | –19,372 | –2,011 | 359 | 38 | |
| Private placement to non-controlling interests | 5 | – | 28 | 3 | 435 | 46 | |
| Dividend to non-controlling interests E8 |
–397 | –39 | –285 | –30 | –190 | –20 | |
| Dividend E8 |
–4,038 | –394 | – | – | – | – | |
| Transactions with shareholders | – | – | 838 | 87 | –14,571 | –1,541 | |
| Net cash flow | 1,307 | 127 | –18,791 | –1,951 | –13,967 | –1,477 | |
| 2018 | 2017 | 2016 |
| 2018 | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|
| Net debt | SEKm | EURm | SEKm | EURm | SEKm | EURm |
| Net debt, January 12) | –52,467 | –5,332 | –35,173 | –3,680 | –19,058 | –2,087 |
| Net cash flow1) | 1,307 | 127 | –18,791 | –1,951 | –13,967 | –1,477 |
| Remeasurements to equity1) | –1,041 | –102 | 1,061 | 110 | –1,570 | –166 |
| Exchange rate effects, etc. | –2,203 | 13 | 436 | 189 | –578 | 50 |
| Net debt, December 312) | –54,404 | –5,294 | –52,467 | –5,332 | –35,173 | –3,680 |
1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.25 (9.63; 9.46) was used.
2) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.28 (9.84; 9.56) was used for net debt.
| 2018 | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|
| Group Note |
SEKm | EURm1) | SEKm | EURm1) | SEKm | EURm1) |
| Operating activities | ||||||
| IS Profit before tax | 9,602 | 937 | 10,723 | 1,113 | 8,173 | 864 |
| T:1 Adjustment for non-cash items | 6,995 | 683 | 5,717 | 594 | 6,791 | 718 |
| 16,597 | 1,620 | 16,440 | 1,707 | 14,964 | 1,582 | |
| Paid tax B5 |
–2,466 | –241 | –2,971 | –308 | –3,782 | –400 |
| Cash flow from operating activities before changes | ||||||
| in working capital Cash flow from changes in working capital |
14,131 | 1,379 | 13,469 | 1,399 | 11,182 | 1,182 |
| Change in | ||||||
| Inventories | –1,017 | –99 | –1,703 | –177 | 1,059 | 112 |
| Operating receivables | –344 | –34 | 1,522 | 158 | –298 | –31 |
| Operating liabilities | 390 | 38 | –559 | –58 | 835 | 88 |
| Cash flow from operating activities | 13,160 | 1,284 | 12,729 | 1,322 | 12,778 | 1,351 |
| Investing activities | ||||||
| Company acquisitions F6 |
–461 | –45 | –13,070 | –1,357 | –4,416 | –467 |
| Divestments F6 |
68 | 7 | 29 | 3 | 369 | 39 |
| T:2 Investments in intangible assets and property, plant and equipment | –6,906 | –675 | –6,160 | –640 | –6,339 | –670 |
| Sale of property, plant and equipment | 134 | 13 | 152 | 16 | 83 | 9 |
| Loans granted to external parties | –340 | –33 | –287 | –30 | – | – |
| Repayment of loans from external parties | – | – | – | – | 184 | 19 |
| Cash flow from investing activities | –7,505 | –733 | –19,336 | –2,008 | –10,119 | –1,070 |
| Financing activities | ||||||
| Private placement to non-controlling interests | 5 | 0 | 28 | 3 | 435 | 46 |
| Acquisition of non-controlling interests F6 |
– | – | –2 | 0 | – | – |
| Change, receivables from Group companies | – | – | 952 | 99 | 10,403 | 1,100 |
| Loans raised | 4,386 | 428 | 31,037 | 3,222 | 16,148 | 1,708 |
| Amortization of debt | –6,777 | –661 | –25,982 | –2,697 | –15,614 | –1,651 |
| Dividend to non-controlling interests E8 |
–397 | –39 | –285 | –30 | –190 | –20 |
| Dividend E8 |
–4,038 | –394 | – | – | – | – |
| Transactions with shareholders | – | – | 838 | 87 | –14,571 | –1,541 |
| Cash flow from financing activities | –6,821 | –666 | 6,586 | 684 | –3,389 | –358 |
| Cash flow for the period | –1,166 | –115 | –21 | –2 | –730 | –77 |
| Cash and cash equivalents, January 12) | 4,107 | 417 | 4244 | 444 | 4,828 | 529 |
| Exchange differences in cash and cash equivalents | 67 | –9 | –116 | –25 | 146 | –8 |
| Cash and cash equivalents, December 31 2) E2 |
3,008 | 293 | 4,107 | 417 | 4,244 | 444 |
1) Translation to EUR is provided for the convenience of the reader. An average exchange rate of 10.25 (9.63; 9.46) was used.
2) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.28 (9.84; 9.56) was used.
For the Group's liquidity reserve, refer to the Risk and risk management section on page 33.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Depreciation/amortization and impairment of non-current assets | 6,708 | 6,110 | 5,701 |
| Gain/loss on asset sales and swaps | 35 | 8 | 51 |
| Gain/loss on divestments | –69 | –17 | –149 |
| Unpaid relating to efficiency program | 669 | 3 | 578 |
| Payments relating to efficiency program already recognized | –257 | –435 | –196 |
| Revaluation of previous share upon acquisition | –225 | –72 | – |
| Change in provision for ongoing competition case | 95 | –248 | 813 |
| Change in provision for foreign tax of a non-recurring nature on non-current assets | –288 | 459 | – |
| Impairment of participations in associates | 278 | – | – |
| Other | 49 | –91 | –7 |
| Total | 6,995 | 5,717 | 6,791 |
| T:2 Investments in intangible assets and property, plant and equipment |
|---|
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Measures to raise the capacity level of operations (Strategic capital expenditures) | –2,424 | –2,101 | –2,033 |
| Measures to uphold capacity level (Current capital expenditures) | –4,490 | –4,064 | –4,306 |
| Investments through finance leases | 8 | 5 | – |
| Total | –6,906 | –6,160 | –6,339 |
| Interest paid, SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Interest paid | –842 | –845 | –879 |
| Interest, Group companies | – | – | 106 |
| Interest received | 85 | 156 | 78 |
| Total | –757 | –689 | –695 |
| SEKm | Value at January 1 |
Cash flow | Acquisitions | Translation differences |
Measurement at fair value |
Reclassi - fications |
Other changes2) |
Value at December 31 |
|---|---|---|---|---|---|---|---|---|
| 2018 fiscal year | ||||||||
| Non-current financial liabilities | 47,637 | 4,386 | 210 | –4,215 | – | –4,518 | – | 43,500 |
| Provisions for pensions | 4,541 | 78 | 2 | 176 | 598 | –401) | –97 | 5,258 |
| Current financial liabilities | 7,201 | –7,279 | 21 | 6,340 | – | 4,518 | 26 | 10,827 |
| Assets for hedging financial liabilities included in cash flow from financing activities |
–1,269 | 424 | – | –1 | – | – | – | –846 |
| Total financial liabilities attributable to financing activities |
58,110 | –2,391 | 233 | 2,300 | 598 | –40 | –71 | 58,739 |
| 2017 fiscal year | ||||||||
| Non-current financial liabilities | 31,299 | 10,255 | 11,113 | –512 | – | –4,518 | – | 47,637 |
| Provisions for pensions | 5,273 | –729 | 311 | –1 | –1,061 | 748 | – | 4,541 |
| Current financial liabilities | 5,574 | –4,479 | 1,617 | –101 | – | 4,518 | 72 | 7,201 |
| Less: current financial liability to Group companies | –485 | 485 | – | – | – | – | – | – |
| Assets for hedging financial liabilities included in cash flow from financing activities |
–791 | –477 | – | –1 | – | – | – | –1,269 |
| Total financial liabilities attributable to financing activities excluding receivables from and liabilities to |
||||||||
| Group companies | 40,870 | 5,055 | 13,041 | –615 | –1,061 | 748 | 72 | 58,110 |
| Financial receivables from Group companies | –1,436 | 1,437 | – | –1 | – | – | – | – |
| Current financial liability to Group companies | 485 | –485 | – | – | – | – | – | – |
| Net change in financial receivables from and liabilities to Group companies |
–951 | 952 | – | –1 | – | – | – | – |
| Total financial liabilities attributable to financing activities including receivables from and liabilities to Group companies |
39,919 | 6,007 | 13,041 | –616 | –1,061 | 748 | 72 | 58,110 |
1) Reclassification to surplus in funded pension plans.
2) Other changes relate to change in accrued interest, change in liability related to financial leases and change in pension liability from the effect of the asset ceiling.
| Cash flow from operating activities | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Cash flow from operating activities | 13,160 | 12,729 | 12,778 |
| Adjustment items | |||
| Current capital expenditures | –4,357 | –3,911 | –4,222 |
| Accrued interest | –16 | –73 | 8 |
| Other | – | – | –1 |
| Cash flow from current operations according to consolidated operating cash flow statement | 8,787 | 8,745 | 8,563 |
| Cash flow from investing activities | |||
| SEKm | 2018 | 2017 | 2016 |
| Cash flow from investing activities | –7,505 | –19,336 | –10,119 |
| Adjustment items | |||
| Current capital expenditures | 4,357 | 3,911 | 4,222 |
| Loans granted to external parties | 340 | 287 | – |
| Repayment of loans from external parties | – | – | –184 |
| Net debt in acquired and divested companies | –234 | –13,034 | –2,124 |
| Acquisition of non-controlling interests | – | –2 | – |
| Investments through finance leases | –8 | –5 | – |
| Settled financial debt pertaining to acquisitions in earlier years | – | 62 | – |
| Other | – | – | 1 |
| Cash flow from strategic capital expenditures and divestments according to consolidated operating cash flow statement | –3,050 | –28,117 | –8,204 |
| Cash flow for the period | |||
| SEKm | 2018 | 2017 | 2016 |
| Cash flow for the period | –1,166 | –21 | –730 |
| Adjustment items | |||
| Amortization of debt | 6,777 | 25,982 | 15,614 |
| Loans raised | –4,386 | –31,037 | –16,148 |
| Loans granted to external parties | 340 | 287 | – |
| Repayment of loans from external parties | – | – | –184 |
| Change, receivables from Group companies | – | –952 | –10,403 |
| Net debt in acquired and divested operations | –234 | –13,034 | –2,124 |
| Investments through finance leases | –8 | –5 | – |
| Settled financial debt pertaining to acquisitions in earlier years | – | 62 | – |
| Accrued interest | –16 | –73 | 8 |
| Net cash flow according to consolidated operating cash flow statement | 1,307 | –18,791 | –13,967 |
| 2018 | 2017 | 2016 | ||||
|---|---|---|---|---|---|---|
| Group Note |
SEKm | EURm1) | SEKm | EURm1) | SEKm | EURm1) |
| Non-current assets | ||||||
| Goodwill D1 |
33,553 | 3,264 | 31,697 | 3,221 | 19,253 | 2,014 |
| Other intangible assets D1 |
21,475 | 2,089 | 21,424 | 2,177 | 7,665 | 802 |
| Buildings, land, machinery and equipment D2 |
51,673 | 5,028 | 48,482 | 4,927 | 47,494 | 4,969 |
| Participations in joint ventures and associates F3 |
777 | 76 | 1,062 | 108 | 1,096 | 115 |
| Shares and participations F5 |
29 | 3 | 32 | 3 | 32 | 3 |
| Surplus in funded pension plans C5 |
1,117 | 109 | 1,148 | 117 | 335 | 35 |
| Non-current financial receivables, Group companies G4 |
– | – | – | – | 3 | 0 |
| Non-current financial assets E2 |
634 | 62 | 552 | 56 | 714 | 75 |
| Deferred tax assets B5 |
2,158 | 210 | 2,232 | 227 | 1,457 | 153 |
| Other non-current assets | 705 | 69 | 469 | 48 | 241 | 25 |
| Total non-current assets | 112,121 | 10910 | 107,098 | 10,884 | 78,290 | 8,191 |
| Current assets | ||||||
| Inventories D3 |
15,234 | 1,482 | 13,739 | 1,396 | 10,944 | 1,145 |
| Trade receivables E3 |
18,687 | 1,818 | 17,607 | 1,790 | 15,843 | 1,658 |
| Current tax assets B5 |
2,126 | 207 | 769 | 78 | 740 | 77 |
| Current receivables, Group companies G4 |
– | – | – | – | 57 | 6 |
| Current financial receivables, Group companies G4 |
– | – | – | – | 1,433 | 150 |
| Other current receivables D4 |
2,599 | 253 | 2,549 | 259 | 2,333 | 244 |
| Current financial assets E2 |
422 | 41 | 1,105 | 112 | 244 | 26 |
| Non-current assets held for sale G1 |
69 | 7 | 42 | 4 | 156 | 16 |
| Cash and cash equivalents E2 |
3,008 | 293 | 4,107 | 418 | 4,244 | 444 |
| Total current assets | 42,145 | 4,101 | 39,918 | 4,057 | 35,994 | 3,766 |
| Total assets | 154,266 | 15,011 | 147,016 | 14,941 | 114,284 | 11,957 |
| EQUITY AND LIABILITIES | ||||||
| Equity E8 |
||||||
| Owners of the Parent | ||||||
| Share capital | 2,350 | 229 | 2,350 | 239 | 0 | 0 |
| Reserves | 5,003 | 487 | 3,154 | 321 | 4,061 | 425 |
| Retained earnings | 39,788 | 3,871 | 36,785 | 3,738 | 29,143 | 3,049 |
| 47,141 | 4,587 | 42,289 | 4,298 | 33,204 | 3,474 | |
| Non-controlling interests | 7,758 | 755 | 7,281 | 740 | 6,376 | 667 |
| Total equity | 54,899 | 5,342 | 49,570 | 5,038 | 39,580 | 4,141 |
| Non-current liabilities | ||||||
| Non-current financial liabilities E4 |
43,500 | 4,233 | 47,637 | 4,841 | 31,299 | 3,275 |
| Non-current liabilities, Group companies G4 |
– | – | – | – | 48 | 5 |
| Provisions for pensions C5 |
5,258 | 512 | 4,541 | 461 | 5,273 | 552 |
| Deferred tax liabilities B5 |
7,272 | 707 | 7,090 | 721 | 3,872 | 405 |
| Other non-current provisions D6 |
1,694 | 165 | 1,481 | 151 | 1,407 | 147 |
| Other non-current liabilities D5 |
71 | 7 | 79 | 8 | 72 | 7 |
| Total non-current liabilities | 57,795 | 5,624 | 60,828 | 6,182 | 41,971 | 4,391 |
| Current liabilities | ||||||
| Current financial liabilities E4 |
10,827 | 1,054 | 7,201 | 732 | 5,089 | 533 |
| Current liabilities, Group companies G4 |
– | – | – | – | 259 | 27 |
| Current financial liabilities, Group companies G4 |
– | – | – | – | 485 | 51 |
| Trade payables | 15,911 | 1,548 | 14,748 | 1,499 | 12,972 | 1,357 |
| Current tax liabilities B5 |
570 | 55 | 553 | 56 | 915 | 96 |
| Current provisions D6 |
1,472 | 143 | 1,547 | 157 | 1,409 | 147 |
| Other current liabilities D5 |
12,792 | 1,245 | 12,569 | 1,277 | 11,604 | 1,214 |
| Total current liabilities | 41,572 | 4,045 | 36,618 | 3,721 | 32,733 | 3,425 |
| Total liabilities | 99,367 | 9,669 | 97,446 | 9,903 | 74,704 | 7,816 |
| Total equity and liabilities | 154,266 | 15,011 | 147,016 | 14,941 | 114,284 | 11,957 |
| Contingent liabilities and pledged assets, see Note G3 on page 106. | ||||||
| Capital employed | 109,303 | 10,635 | 102,037 | 10,370 | 74,753 | 7,821 |
| Net debt | 54,404 | 5,294 | 52,467 | 5,332 | 35,173 | 3,680 |
1) Translation to EUR is provided for the convenience of the reader. Closing exchange rate of 10.28 (9.84; 9.56) was used.
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 notes. The same 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.
Key assessments and assumptions KAA are presented under the respective notes; see application of assessments on page 64.
Amounts that are reconcilable to the balance sheet, income statement, cash flow statement and the operating cash flow statement are marked with the following symbols:
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 Parent Company's financial statements are prepared in accordance with the Swedish Financial Reporting Board's recommendation RFR 2, Reporting by Legal Entities, and the Annual Accounts Act. The accounts for both the Group and the Parent Company relate to the fiscal year that ended on December 31, 2018. 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, which are measured at fair value either in profit or loss or in other comprehensive income.
In this Annual Report, the Group and Parent Company apply the new and amended standards that came into effect from January 1, 2018.
IFRS 9 replaces IFRS 39 and includes rules governing how financial instruments are to be classified and measured, introduces a new model for impairment of financial assets based on expected credit losses and provides clarification of the rules for hedge accounting. Information regarding the effects of the changed rules for Essity is provided in the Capital structure and financing section on page 89, in Note E1, E2, E3, E6 and in the Risks and risk management section on page 33. The effects of the transition to IFRS 9 are described in Note G5 Changes due to new accounting rules on page 107.
IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC (International Financial Reporting Interpretations Committee) 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC (Standing Interpretation Committee of the IASC, predecessor to the IFRIC) 31 Revenue – Barter Transactions Involving Advertising Services. The standard establishes a new regulatory framework for the manner in which a company should recognize revenue relating to commercial agreements (contracts) with customers in which the delivery of goods/services is divided up into separate identifiable performance obligations that are reported independently. Information regarding the effects of the changed rules for Essity is provided in Note B1 – Net sales – Revenue from contracts with customers on page 70. The effects of the transition to IFRS 15 are described in Note G5 Changes due to new accounting rules on page 107.
The above amendments did not have any material impact on the Group's or Parent Company's results or financial position.
A number of new and amended IFRS have not yet come into effect and have not been applied in advance in preparing the Group's and the Parent Company's financial statements. The IFRS that may affect the financial statements of the Group or the Parent Company are described below. Other new or amended standards or interpretations published by IASB are not expected to have any impact on the Group's or the Parent Company's financial statements.
In 2018, Essity continued it preparations for the transition to the new standard IFRS 16 Leases. Leases have been analyzed and evaluated, system support for managing leases has been implemented and the organization has received training in the new standard and the new system support. When the standard becomes effective on January 1, 2019, Essity will apply the modified retrospective approach, entailing an adjustment of the opening balance with the cumulative effect of initially applying the standard on the first date of initial application and that comparative years will not be restated.
The lease liability is measured at the present value of the outstanding lease payments and the right-of-use asset for all leases totals an amount corresponding to the lease liability, adjusted for any prepaid lease payments and accrued lease payments recognized on December 31, 2018. For onerous leases, Essity has chosen to adjust the value of the right-of-use asset downward in an amount that in the 2018 year-end accounts was recognized as non-current and current provision. Only marginal reclassifications of accrued and prepaid lease payments and adjustments of provisions have taken place. An incremental borrowing rate has been set by currency. The average incremental borrowing rate on January 1, 2019 was approximately 3%. The transition does not have any impact on equity.
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. In its application of the standard, Essity has determined that a time horizon of five years can generally be applied to leases of offices and distribution centers with no fixed end date even if the formal lease term is shorter.
The following preliminary adjustments are recognized in Essity's balance sheet on January 1, 2019 when the standard became effective. The right-ofuse assets largely comprise leases for offices and distribution centers:
| 3,694 |
|---|
| 2,990 |
| 694 |
| 26 |
| 36 |
Essity assesses that IFRS 16 will have a slightly positive impact on EBITA and a slightly negative impact on financial items. Total assets will increase as a result of an increase in non-current assets and net debt.
| SEKm | |
|---|---|
| Operating future minimum lease payments, December 31, 2018, according to Note G2 on page 105 |
3,967 |
| Present-value calculated with the Group's incremental borrowing rate at January 1, 2019 |
–486 |
| Excluding short-term leases and leases with a low value | –10 |
| Renewal options that are expected to be utilized | 213 |
| Lease liabilities at January 1, 2019 | 3,684 |
In 2017, a new interpretation was issued regarding the recognition of taxes, IFRIC 23. The interpretation clarifies how the recognition and measurement
of uncertain tax positions is to be conducted. The new interpretation will apply from January 1, 2019. A retrospective approach or a modified retrospective approach is permitted. Essity has chosen the modified retrospective approach, meaning that comparative figures are not restated. In conjunction with the 2018 annual accounts, the Group evaluated the effects of the interpretation and determined that no material changes are expected, with the exception of the reclassification of Essity's current and non-current provisions to tax liabilities in an amount of SEK 713m in the opening balance for 2019.
The preparation of financial statements in conformity with IFRS and generally accepted Swedish accounting principles requires assessments and assumptions to be made that affect recognized asset and liability items and income and expense items, respectively, 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.
In Essity's opinion, the areas that are impacted the most by assumptions and estimates are:
Goodwill, D1 Intangible assets, page 85
Pensions, C5 Remuneration after employment, page 82
Taxes, B5 Income taxes, page 78
Provisions, D6 Other provisions, page 88
Essity's assessments and assumptions are presented in the respective notes.
Group companies are consolidated from the date the Group exercises control or influence over the company according to the definitions provided under the respective category of Group company below. Divested Group companies are included in the consolidated accounts until the date the Group ceases to control or exercise influence over the companies. Intra-Group transactions have been eliminated.
The Parent Company recognizes all holdings in Group companies at cost after deduction for any accumulated impairment losses.
All companies over which Essity Aktiebolag (publ) has control are included as subsidiaries. The definition of control is that Essity has the ability to control the subsidiary, is entitled to a return and has the power to influence the activities that impact this return. The consolidated financial statements are prepared in accordance with the purchase method.
Essity classifies its joint arrangements as joint venture or joint operation. A joint venture entitles the joint owners to the net assets of the investment and is therefore recognized according to the equity method. 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.
Associates are companies in which the Group exercises a significant influence without the partly owned company being a subsidiary or a joint arrangement. Normally, this means that the Group owns between 20% and 50% of the votes. Accounting for associates is carried out according to the equity method and they are initially measured at cost.
For further information, see note F3 Joint ventures and associates on page 100.
Essity's Parent Company has Swedish kronor (SEK) as its functional 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. The financial statements of Group companies are translated to the Group's presentation currency, which is SEK in the case of Essity. 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 subsidiaries' 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 subsidiary 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 subsidiary are to be translated, in a manner corresponding to the net assets in the company, from their functional currency to the presentation 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 total 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, while any other unrealized change is recognized in equity under other comprehensive income.
Government grants are measured at fair value when there is reasonable assurance the grants will be received and that 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.
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 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-month 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 |
Accumulated return on capital employed is calculated as 12-month 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 for the two most recent quarters. |
A central ratio for measuring return on capital tied up in operations, excluding items affecting comparability. |
|||
| SEKm | 2018 | 2017 | 2016 | ||
| ADJUSTED RETURN ON CAPITAL EMPLOYED, ROCE | |||||
| EBITA | 11,560 | 12,550 | 9,347 | ||
| Items affecting comparability | 1,375 | 855 | 2,645 | ||
| Adjusted EBITA | 12,935 | 13,405 | 11,992 | ||
| Average capital employed 107,575 |
90,167 | 73,145 | |||
| Adjusted return on capital employed, ROCE | 12.0% | 14.9% | 16.4% |
| 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. invested in the company. |
Shows, from a shareholder perspective, the return excluding items affecting comparability that is generated on the owners' capital that is |
|||
| Equity | The equity reported in the consolidated balance sheet consists of taxed equity increased by the equity portion of the Group's untaxed reserves and non controlling interests. The deferred tax liability in untaxed reserves has been calculated on the basis of the corporate tax rate that has been approved and will take effect given that the reserves are expected to be realized. |
Equity is the difference between the Group's assets and liabilities, which corresponds to the Group's equity contributed by owners and the Group's accumulated profits. |
|||
| Equity per share | Equity in relation to the average number of shares outstanding that exist in Essity Aktiebolag (publ). |
A measure of the amount of equity that exists per share 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 This measure shows the amount of total capital that is used in the sheet's total assets, excluding interest-bearing assets and pension assets, less operations and is thus one of the components for measuring the total liabilities, excluding interest-bearing liabilities and pension liabilities. return from operations. |
||||
| SEKm | 2018 | 2017 | 2016 | ||
| CAPITAL EMPLOYED | |||||
| Total assets | 154,266 | 147,016 | 114,284 | ||
| Financial assets –5,181 |
–6,912 | –6,973 | |||
| Non-current, non-interest-bearing liabilities –9,037 |
–8,650 | –5,399 | |||
| Current, non-interest-bearing liabilities –30,745 |
–29,417 | –27,159 | |||
| Capital employed | 109,303 | 102,037 | 74,753 | ||
| CAPITAL EMPLOYED | |||||
| Personal Care | 41,768 | 39,447 | 13,665 | ||
| Consumer Tissue | 44,915 | 43,569 | 40,082 | ||
| Professional Hygiene | 22,153 | 20,034 | 21,253 | ||
| Other | 467 | –1,013 | –247 | ||
| Capital employed | 109,303 | 102,037 | 74,753 | ||
| 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 that 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 | 2018 | 2017 | 2016 | ||
| WORKING CAPITAL | |||||
| Inventories | 15,234 | 13,739 | 10,944 | ||
| Trade receivables | 18,687 | 17,607 | 15,843 | ||
| Other current receivables | 2,599 | 2,549 | 2,390 | ||
| Trade payables | –15,911 | –14,748 | –12,972 | ||
| Other current liabilities | –12,792 | –12,569 | –11,863 | ||
| Other | –249 | –677 | –199 |
Working capital 7,568 5,901 4,143
| 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 equivalents and interest-bearing current and non-current receivables. |
Net debt is the most relevant measure for showing the company's total debt financing. |
||
| SEKm | 2018 | 2017 2016 |
||
| NET DEBT | ||||
| Surplus in funded pension plans | 1,117 | 1,148 335 |
||
| Non-current financial assets | 634 | 552 717 |
||
| Current financial assets | 422 | 1,105 1,677 |
||
| Cash and cash equivalents | 3,008 | 4,107 4,244 |
||
| Financial assets | 5,181 | 6,912 6,973 |
||
| Non-current financial liabilities | 43,500 | 47,637 31,299 |
||
| Provisions for pensions | 5,258 | 4,541 5,273 |
||
| Current financial liabilities | 10,827 | 7,201 5,574 |
||
| Financial liabilities | 59,585 | 59,379 42,146 |
||
| Net debt | 54,404 | 52,467 35,173 |
||
| Non-IFRS performance measure | Description | Reason for use of the measure | ||
| Debt/equity ratio | Expressed as net debt in relation to equity. | Helps show financial risk and is the most useful measure for management to monitor the level of the company's indebtedness. |
||
| Debt payment capacity | Expressed as cash surplus in relation to closing net debt. | A financial measure that shows the company's capacity to repay its debt. |
||
| Net debt/EBITDA | Calculated as the closing balance of net debt in relation to 12 months A financial measure that shows the company's capacity rolling EBITDA. to repay its debt. |
|||
| Net debt/Adjusted EBITDA | Calculated as the closing balance of net debt in relation to 12 months A financial measure that shows the company's capacity to rolling EBITDA, excluding items affecting comparability. repay its debt, adjusted for the impact of items affecting comparability. |
|||
| Interest coverage ratio | Calculated according to the net method where operating profit is This ratio indicates a company's ability to cover its interest divided by financial items. expenses. |
| 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 | disposals. | The change in total organic sales for the period compared with the preceding period excluding exchange rate effects and effects from acquisitions and between different periods. |
This measure is of major importance for management in its monitoring of underlying net sales driven by changes in volume, price and product mix for comparable units |
||
| SEKm | 2018 | 2017 | 2016 | ||
| ORGANIC NET SALES | |||||
| Personal Care | |||||
| Organic net sales | 1,213 | 586 | 865 | ||
| Exchange rate effects | 1,173 | 48 | –1,313 | ||
| Acquisitions/Divestments | 2,371 | 6,301 | –245 | ||
| Recognized change | 4,757 | 6,935 | –693 | ||
| Consumer Tissue | |||||
| Organic net sales | 1,089 | 231 | 1,110 | ||
| Exchange rate effects | 1,832 | 223 | –1,207 | ||
| Acquisitions/Divestments | 190 | 0 | 0 | ||
| Recognized change | 3,111 | 454 | –97 | ||
| Professional Hygiene | |||||
| Organic net sales | 516 | 411 | 708 | ||
| Exchange rate effects | 780 | 137 | –168 | ||
| Acquisitions/Divestments | 22 | 150 | 2,934 | ||
| Recognized change | 1,318 | 698 | 3,474 | ||
| Group | |||||
| Organic net sales | 2,868 | 1,169 | 2,718 | ||
| Exchange rate effects | 3,785 | 406 | –2,688 | ||
| Acquisitions/Divestments | 2,582 | 6,452 | 2,689 | ||
| Recognized change | 9,235 | 8,027 | 2,719 | ||
| ORGANIC NET SALES, % | 2018 | 2017 | 2016 | ||
| Previous period sales | 109,265 | 101,238 | 98,519 | ||
| Organic net sales | 2,868 | 1,169 | 2,718 | ||
| Total organic sales for the period | 112,133 | 102,407 | 101,237 | ||
| Organic net sales, % | 2.6% | 1% | 3% |
| 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 selling and administrative costs. Adjusted gross profit excludes items affecting comparability. |
| Operating surplus margin | Operating surplus as a percentage of net sales for the year. | This measure is a complement to operating margin, as it shows the cash surplus in relation to net sales. |
| 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 surplus 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 surplus from operations adjusted for the impact of items affecting comparability. |
| Operating profit before amortiza tion of acquisition-related intangi ble assets/EBITA |
Calculated as operating profit after depreciation/amortization of tangible and intangible assets but before amortization 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 of tangible and intangible assets but before amortization 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 even adjusted for the impact of items affecting comparability. |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets/EBITDA. |
|||
| Operating profit | 10,759 | 11,905 | 9,008 |
| Amortization of acquisition-related intangible assets | 732 | 560 | 159 |
| Depreciation/amortization | 5,443 | 5,162 | 4,906 |
| Items affecting comparability, depreciation/amortization | 0 | 2 | 79 |
| Impairment | 19 | 0 | 0 |
| Items affecting comparability, impairment | 445 | 301 | 377 |
| Items affecting comparability, impairment of acquisition-related intangible assets |
69 | 85 | 180 |
| EBITDA | 17,467 | 18,015 | 14,709 |
| Items affecting comparability excluding depreciation/amortization and impairment |
930 | 554 | 2,189 |
| Adjusted operating profit before depreciation, amortization and impair ment of property, plant and equipment and intangible assets/EBITDA. |
18,397 | 18,569 | 16,898 |
| SEKm | 2018 | 2017 | 2016 |
| Adjusted operating profit before amortization of acquisition-related intangible assets/EBITA |
|||
| Operating profit | 10,759 | 11,905 | 9,008 |
| Amortization of acquisition-related intangible assets | 732 | 560 | 159 |
| Items affecting comparability, amortization of acquisition-related intangible assets |
69 | 85 | 180 |
| Operating profit before amortization of acquisition-related intangible assets/EBITA |
11,560 | 12,550 | 9,347 |
| EBITA margin | 9.8% | 11.5% | 9.2% |
| Items affecting comparability, cost of goods sold | 1,437 | 509 | 532 |
| Items affecting comparability, sales, general and administration | –62 | 346 | 2,113 |
| Adjusted operating profit before amortization of acquisition-related intangible assets/EBITA |
12,935 | 13,405 | 11,992 |
| Adjusted EBITA margin | 10.9% | 12.3% | 11.8% |
| Non-IFRS performance measure | Description | Reason for use of the measure | |||
|---|---|---|---|---|---|
| Items affecting comparability | Under items affecting comparability, Essity includes costs in connection with acquisitions, restructuring, impairment and other specific events. The latter item includes items not covered by acquisitions, restructuring and impairment but 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 page 77. |
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 stripped 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 selling and administrative costs. |
|||
| EBITA margin | Operating profit before amortization of acquisition-related intangible assets as a percentage of net sales for the period. |
The measure is a good complement to enable 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 year. |
The measure is a good complement to enable margin comparisons 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 year. | The operating margin is a key measure together with sales growth and capital turnover ratio for monitoring value creation. |
|||
| Adjusted operating margin | Operating profit, excluding items affecting comparability, as a percentage of net sales for the year. |
Adjusted operating margin is 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 Group's profit centers and provides a better understanding of earnings performance of the operations than the non adjusted operating profit. |
|||
| SEKm | 2018 | 2017 | 2016 | ||
| ADJUSTED OPERATING PROFIT | |||||
| Operating profit | 10,759 | 11,905 | 9,008 | ||
| Items affecting comparability | 1,444 | 940 | 2,825 | ||
| Adjusted operating profit Adjusted operating margin |
12,203 10.3% |
12,845 11.8% |
11,833 11.7% |
||
| 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 operating profit before tax, excluding items affecting comparability. |
This is a useful measure for showing total profit for the company including financing, but not affected by taxes and items that affect comparability with previous periods. |
|||
| Non-IFRS performance measure | Description | Reason for use of the measure | |||
| 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 | 2018 | 2017 | 2016 | ||
| ADJUSTED TAX | |||||
| Tax | –1,050 | –1,938 | –3,931 | ||
| Tax relating to items affecting comparability Adjusted tax |
–440 –1,490 |
–253 –2,191 |
–424 –4,355 |
||
| Adjusted profit for the period | Profit for the period after deducting items affecting comparability. | Shows the period's total underlying earnings capacity 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 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, 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 | ||
| Operating cash surplus | excluded. | Calculated as operating profit with a reversal of depreciation, amortization and impairment of tangible and intangible assets. Share of profits of associates and joint ventures, items affecting comparability and capital gains/losses are |
This measure shows the cash flow generated by profit and is part of the follow-up of cash flow. |
|
| Operating cash flow | restructuring costs. | Consists of the sum of operating cash surplus and change in working capital, with deductions for current capital expenditures in non-current assets and |
This is an important control measure used internally within the organization that shows the combined cash flow from operating activities including all parts that the units have control over themselves. |
|
| SEKm | 2018 | 2017 | 2016 | |
| OPERATING CASH FLOW | ||||
| Personal Care | ||||
| Operating cash surplus | 7,821 | 7,238 | 5,314 | |
| Change in working capital | –410 | –237 | 289 | |
| Current capital expenditures | –1,328 | –1,282 | –805 | |
| Restructuring costs, etc. | –271 | –266 | –75 | |
| Operating cash flow | 5,812 | 5,453 | 4,723 | |
| Consumer Tissue | ||||
| Operating cash surplus | 5,612 | 6,163 | 6,455 | |
| Change in working capital | 94 | –425 | 891 | |
| Current capital expenditures | –1,770 | –1,749 | –1,892 | |
| Restructuring costs, etc. | –245 | –139 | –255 | |
| Operating cash flow | 3,691 | 3,850 | 5,199 | |
| Professional Hygiene | ||||
| Operating cash surplus | 5,630 | 5,649 | 5,515 | |
| Change in working capital | –565 | 73 | –30 | |
| Current capital expenditures | –1,022 | –719 | –1,267 | |
| Restructuring costs, etc. | –365 | –592 | –83 | |
| Operating cash flow | 3,678 | 4,411 | 4,135 |
| Non-IFRS performance measure | Description | Reason for use of the measure |
|---|---|---|
| Cash flow from current operations | Operating cash flow less net financial items and tax payments and taking into account other financial cash flow. |
This measure illustrates the cash flow generated by operations and that can potentially be used for strategic initiatives such as strategic capital expenditures or acquisitions. |
| Strategic capital expenditures in non-current assets |
Strategic capital expenditures increase the company's future cash flow through capital expenditures to expand facilities, or new technologies that boost competitiveness. |
Shows the size of the capital expenditures that are made in expansion and other growth measures. |
| Current capital expenditures | Investments to maintain competitiveness, such as maintenance, rationalization and replacement measures or investments of an environmental nature. |
Shows the size of the capital expenditures required to maintain existing manufacturing capacity. |
From January 1, 2018, Essity applies IFRS 15 Revenue from Contracts with Customers that regulates revenue recognition and disclosure requirements for commercial agreements (contracts) with customers. The standard is applied retrospectively from the date of initial application (modified retrospective method) and pertains to commercial agreements with customers in which delivery of goods/services is divided into separately identifiable performance obligations that are recognized independently. No transitional effects arose in connection with the transition to IFRS 15, which is why equity did not need to be adjusted when the new standard was introduced and also no reclassifications were made.
Essity primarily generates revenue from the sale of finished products to, for example, the retail sector, companies, industries and the healthcare sector. Revenue from sales of services occurs to a certain extent but nevertheless 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 20–27. 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.
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. Delivery of goods and services is normally invoiced in connection with, or directly after, delivery and recognized at a specific point in time. No revenue is recognized over time. Disclosures regarding remaining performance obligations on the balance sheet date are not provided in accordance with the exemption in IFRS 15 for contracts with customers that have a term of less than one year.
The transaction price primarily comprises the fixed price of the quantity sold less estimated volume discounts. Marketing subsidies and discount coupons exist to only a highly limited extent that reduce Essity's recognized revenue.
Volume discounts are calculated by assessing the probable discount outcome and making provisions continuously throughout the year every time the accounts are closed and are determined at year-end in accordance with the sales volume to each customer. The provision recognized as a liability is reduced in the subsequent 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 coupons 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 essential grants customers no right of return except when the products are faulty. When products are returned, 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 from the customer when the goods are returned. 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.
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 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.
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 27). Expenses for these dispensers are recognized as prepaid expenses under Other non-current assets under 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 – sold to, is based on sales to the countries where Essity has its customers, known as its "footprint."
| SEKm | Personal Care |
Consumer Tissue |
Professional Hygiene |
Other operations |
Total, Group |
|---|---|---|---|---|---|
| 2018 fiscal year | |||||
| 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 |
| SEKm | Personal Care |
Consumer Tissue |
Professional Hygiene |
Other operations |
Total, Group |
|---|---|---|---|---|---|
| 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 |
| Personal | Consumer | Professional | Other | Total, | |
| SEKm | Care | Tissue | Hygiene | operations | Group |
| 2017 fiscal year1) | |||||
| Revenue from contracts with customers | |||||
| Sale of finished products | 40,580 | 42,014 | 26,696 | –35 | 109,255 |
| Sale of services | 6 | 4 | 10 | ||
| IS Total revenues from contracts with customers Geographic markets |
40,586 | 42,014 | 26,700 | –35 | 109,265 |
| Europe | 23,532 | 26,439 | 11,422 | 61,393 | |
| North America | 4,200 | 38 | 12,122 | 16,360 | |
| Latin America | 7,077 | 4,916 | 1,423 | 13,416 | |
| Asia | 4,224 | 10,474 | 1,513 | 16,211 | |
| Other | 1,553 | 147 | 220 | –35 | 1,885 |
| IS Total revenues from contracts with customers | 40,586 | 42,014 | 26,700 | –35 | 109,265 |
| Product category | |||||
| Incontinence Products | 17,885 | 17,885 | |||
| Baby Care | 8,906 | 8,906 | |||
| Feminine Care Medical Solutions |
6,658 6,301 |
6,658 6,301 |
|||
| Consumer Tissue | 42,014 | 42,014 | |||
| Professional Hygiene | 26,700 | 26,700 | |||
| Other | 836 | –35 | 801 | ||
| IS Total revenues from contracts with customers | 40,586 | 42,014 | 26,700 | –35 | 109,265 |
| 1) Comparative data is prepared according to previous accounting principles. | |||||
| SEKm | Personal Care |
Consumer Tissue |
Professional Hygiene |
Other operations |
Total, Group |
| 2016 fiscal year1) | |||||
| Revenue from contracts with customers | |||||
| Sale of finished products | 33,646 | 41,560 | 25,996 | 26 | 101,228 |
| Sale of services | 5 | – | 5 | – | 10 |
| IS Total revenues from contracts with customers | 33,651 | 41,560 | 26,001 | 26 | 101,238 |
| Geographic markets | |||||
| Europe | 19,933 | 26,777 | 11,129 | 57,839 | |
| North America | 2,617 | 45 | 12,133 | 14,795 | |
| Latin America | 6,445 | 4,731 | 1,255 | 12,431 | |
| Asia | 3,705 | 9,862 | 1,289 | 14,856 | |
| Other | 951 | 145 | 195 | 26 | 1,317 |
| IS Total revenues from contracts with customers | 33,651 | 41,560 | 26,001 | 26 | 101,238 |
| Product category | |||||
| Incontinence Products | 17,312 | 17,312 | |||
| Baby Care | 9,126 | 9,126 | |||
| Feminine Care | 6,440 | 6,440 | |||
| Medical Solutions | – | – | |||
| Consumer Tissue | 41,560 | 41,560 | |||
| Professional Hygiene | 26,001 | 26,001 | |||
| Other | 773 | 26 | 799 | ||
| IS Total revenues from contracts with customers | 33,651 | 41,560 | 26,001 | 26 | 101,238 |
1) Comparative data is prepared according to previous accounting principles.
| SEKm | Note | 2018 | 2017 | 2016 |
|---|---|---|---|---|
| TE3:1 Trade receivables | E3 | 18,687 | 17,607 | 15,843 |
| Contractual liabilities – bonuses and discounts to customers |
D5 | 4,773 | 4,401 | 4,039 |
| Contractual liabilities – advance payments from customers |
96 | 99 | 78 |
Trade receivables increased by SEK 1,080m in 2018, of which SEK 160m is primarily attributable to acquisitions within Familia, in which Essity owns a 50% stake, refer to Note F6 on page 103.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| TE3:2 Value, January 1 | 484 | 506 | 296 |
| Acquisitions | – | – | 2221) |
| Costs for the year | 358 | 351 | 295 |
| Depreciation/amortization | –344 | –328 | –324 |
| Translation differences | 40 | –45 | 17 |
| Value, December 31 | 538 | 484 | 506 |
1) Asset included in the acquisition of Wausau.
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.
Personal Care's offering includes Incontinence Products, Baby Care, Feminine Care and Medical Solutions. Products are sold under brands including Jobst, Leukoplast, Libero, Libresse, Nosotras, Saba and the globally leading brand TENA, and as retailer brands. Distribution channels for the products are the retail trade, online sales, pharmacies and care institutions.
Consumer Tissue's offering includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Products are sold under brands including Edet, Lotus, Regio, Tempo, Vinda and Zewa, and as retailer brands. Distribution channels for the products are the retail trade and online sales.
Professional Hygiene's offering, with the globally leading brand Tork, comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand lotion, hand sanitizers, dispensers, cleaning and wiping products, IoT sensor technology as well as service and maintenance. Professional hygiene 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 online sales.
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. Accordingly, the business unit manager's main tasks are to address the markets from a sales perspective.
No business segments 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 the income statement and are measured in the corresponding manner as for the income statement in the consolidated accounts.
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 |
|---|---|---|---|---|---|---|
| 2018 fiscal year | ||||||
| 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 associates | 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 |
| Investments/acquisitions | –2,567 | –3,460 | –1,345 | –237 | – | –7,609 |
| Depreciation/amortization | –2,126 | –2,287 | –1,643 | –119 | – | –6,175 |
| Expenses, in addition to depreciation/amortization, not matched by payments | 29 | 36 | 194 | –23 | – | 236 |
| NET SALES BY REGION | ||||||
| Europe | 58% | 62% | 44% | 56% | ||
| North America | 11% | – | 42% | 14% | ||
| Latin America | 17% | 12% | 6% | 13% | ||
| Asia | 10% | 26% | 7% | 15% | ||
| Other | 4% | – | 1% | 2% | ||
| Total | 100% | 100% | 100% | 100% | ||
| Mature markets | 64% | 56% | 81% | 65% | ||
| Emerging markets | 36% | 44% | 19% | 35% | ||
| Total | 100% | 100% | 100% | 100% |
| SEKm | Personal Care |
Consumer Tissue |
Professional Hygiene |
Other operations |
Eliminations | Total, Group |
|---|---|---|---|---|---|---|
| 2017 fiscal year | ||||||
| REVENUES | ||||||
| IS TB2:2 Net sales | 40,586 | 42,014 | 26,700 | –35 | 109,265 | |
| RESULT | ||||||
| Adjusted operating profit/loss before amortization of | ||||||
| acquisition-related intangible assets | 5,937 | 4,084 | 4,004 | –620 | – | 13,405 |
| Amortization of acquisition-related intangible assets | –506 | –6 | –48 | – | – | –560 |
| Adjusted operating profit/loss per operating segment | 5,431 | 4,078 | 3,956 | –620 | – | 12,845 |
| TB2:1 Items affecting comparability | –457 | 135 | –160 | –458 | – | –940 |
| IS Operating profit/loss | 4,974 | 4,213 | 3,796 | –1,078 | – | 11,905 |
| IS Financial income | 158 | |||||
| IS Financial expenses | –1,340 | |||||
| IS Tax expense for the period | –1,938 | |||||
| IS Profit for the period | 8,785 | |||||
| OTHER DISCLOSURES | ||||||
| Assets | 54,468 | 58,200 | 28,076 | 3,706 | –5,407 | 139,043 |
| BS Participations in joint ventures and associates | 273 | 589 | 174 | 26 | – | 1,062 |
| Unallocated financial assets | – | – | – | 6,911 | – | 6,911 |
| BS Total assets | 54,741 | 58,789 | 28,250 | 10,643 | –5,407 | 147,016 |
| Investments/acquisitions | –28,156 | –2,974 | –894 | –185 | – | –32,209 |
| Depreciation/amortization Expenses, in addition to depreciation/amortization, not matched by payments |
–1,815 48 |
–2,134 21 |
–1,669 67 |
–106 –69 |
– – |
–5,724 67 |
| NET SALES BY REGION | ||||||
| Europe North America |
58% 10% |
63% – |
43% 45% |
56% 15% |
||
| Latin America | 18% | 12% | 5% | 12% | ||
| Asia | 10% | 25% | 6% | 15% | ||
| Other | 4% | – | 1% | 2% | ||
| Total | 100% | 100% | 100% | 100% | ||
| Mature markets | 63% | 56% | 82% | 65% | ||
| Emerging markets | 37% | 44% | 18% | 35% | ||
| Total | 100% | 100% | 100% | 100% | ||
| Personal | Consumer | Professional | Other | Total, | ||
| SEKm | Care | Tissue | Hygiene | operations | Eliminations | Group |
| 2016 fiscal year | ||||||
| REVENUES | ||||||
| IS TB2:2 Net sales | 33,651 | 41,560 | 26,001 | 26 | – | 101,238 |
| RESULT | ||||||
| Adjusted operating profit/loss before amortization of | ||||||
| acquisition-related intangible assets | 4,283 | 4,450 | 3,836 | –577 | – | 11,992 |
| Amortization of acquisition-related intangible assets | –28 | –68 | –63 | – | – | –159 |
| Adjusted operating profit/loss per operating segment | 4,255 | 4,382 | 3,773 | –577 | – | 11,833 |
| TB2:1 Items affecting comparability | –1,011 | –944 | –871 | 1 | – | –2,825 |
| IS Operating profit/loss | 3,244 | 3,438 | 2,902 | –576 | – | 9,008 |
| IS Financial income | 202 | |||||
| IS Financial expenses | –1,037 | |||||
| IS Tax expense for the period | –3,931 | |||||
| IS Profit for the period | 4,242 | |||||
| OTHER DISCLOSURES | ||||||
| Assets | 22,483 | 55,180 | 29,905 | 3,305 | –4,658 | 106,215 |
| BS Participations in joint ventures and associates | 346 | 599 | 196 | –45 | – | 1,096 |
| Unallocated financial assets | 6,973 | 6,973 | ||||
| BS Total assets | 22,829 | 55,779 | 30,101 | 10,233 | –4,658 | 114,284 |
| Investments/acquisitions Depreciation/amortization |
–2,207 –1,077 |
–2,420 –2,040 |
–7,989 –1,702 |
–313 –87 |
– – |
–12,929 –4,906 |
| Expenses, in addition to depreciation/amortization, not matched by payments | 8 | 32 | 17 | –38 | – | 19 |
| NET SALES BY REGION | ||||||
| Europe | 59% | 65% | 43% | 57% | ||
| North America | 8% | – | 46% | 15% | ||
| Latin America | 19% | 11% | 5% | 12% | ||
| Asia | 11% | 24% | 5% | 15% | ||
| Other | 3% | – | 1% | 1% | ||
| Total | 100% | 100% | 100% | 100% | ||
| Mature markets | 59% | 58% | 84% | 65% | ||
| Emerging markets Total |
41% 100% |
42% 100% |
16% 100% |
35% 100% |
| Consumer | Professional | ||||
|---|---|---|---|---|---|
| SEKm | Personal Care | Tissue | Hygiene | Other | Total |
| 2018 fiscal year | |||||
| 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 |
| 2017 fiscal year | |||||
| Items affecting comparability – cost of goods sold | –272 | 81 | –318 | – | –509 |
| Items affecting comparability – sales, general and administration | –102 | 54 | 160 | –458 | –346 |
| Items affecting comparability – acquisition-related intangible assets | –83 | – | –2 | – | –85 |
| Total | –457 | 135 | –160 | –458 | –940 |
| 2016 fiscal year | |||||
| Items affecting comparability – cost of goods sold | –109 | –239 | –186 | 2 | –532 |
| Items affecting comparability – sales, general and administration | –836 | –705 | –570 | –2 | –2,113 |
| Items affecting comparability – acquisition-related intangible assets | –66 | – | –115 | 1 | –180 |
| Total | –1,011 | –944 | –871 | 1 | –2,825 |
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 2018, 2017 or 2016 from which it generated income that accounted for more than 10% of the company's net sales. Essity's ten largest customers account for 23.6% (22.9; 26.6) of the company's sales.
| Net sales – sold to1) | Net sales – sold by1) 2018 2017 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | 2016 | |||||||||
| TB2:2 Group by country Sweden |
SEKm 2,636 |
% 2 |
SEKm 2,518 |
% 2 |
SEKm 2,501 |
% 2 |
SEKm 3,143 |
% 2 |
SEKm 2,908 |
% 3 |
SEKm 2,742 |
% 3 |
| EU excl. Sweden | ||||||||||||
| Germany France |
13,115 10,234 |
11 9 |
11,400 9,510 |
11 9 |
9,927 9,079 |
10 9 |
13,713 10,491 |
12 9 |
11,956 9,721 |
11 9 |
10,446 9,212 |
10 9 |
| UK | 8,421 | 7 | 7,832 | 7 | 8,267 | 8 | 8,492 | 7 | 7,865 | 7 | 8,276 | 8 |
| Spain | 6,005 | 5 | 5,665 | 5 | 5,489 | 5 | 6,087 | 5 | 5,748 | 5 | 5,622 | 6 |
| Netherlands | 3,696 | 3 | 3,286 | 3 | 2,965 | 3 | 3,892 | 3 | 3,503 | 3 | 3,235 | 3 |
| Italy | 3,541 | 3 | 3,236 | 3 | 2,913 | 3 | 3,907 | 3 | 3,636 | 3 | 3,224 | 3 |
| Austria | 1,824 | 2 | 1,713 | 2 | 1,563 | 2 | 2,003 | 2 | 1,802 | 2 | 1,679 | 2 |
| Belgium | 1,589 | 1 | 1,467 | 1 | 1,433 | 1 | 1,696 | 1 | 1,560 | 1 | 1,521 | 2 |
| Finland | 1,531 | 1 | 1,435 | 1 | 1,430 | 1 | 1,520 | 1 | 1,456 | 1 | 1,467 | 1 |
| Denmark | 1,151 | 1 | 995 | 1 | 930 | 1 | 1,098 | 1 | 967 | 1 | 953 | 1 |
| Hungary | 1,057 | 1 | 916 | 1 | 795 | 1 | 1,075 | 1 | 943 | 1 | 850 | 1 |
| Poland Czech Republic |
918 633 |
1 1 |
792 570 |
1 1 |
727 534 |
1 1 |
971 607 |
1 1 |
820 546 |
1 0 |
694 503 |
1 0 |
| Greece | 536 | 1 | 583 | 1 | 573 | 1 | 345 | 1 | 344 | 0 | 384 | 0 |
| Ireland | 502 | 1 | 441 | 0 | 422 | 0 | 430 | 1 | 387 | 0 | 387 | 0 |
| Portugal | 392 | 0 | 358 | 0 | 360 | 0 | 332 | 0 | 299 | 0 | 257 | 0 |
| Romania | 377 | 0 | 313 | 0 | 265 | 0 | 346 | 0 | 309 | 0 | 272 | 0 |
| Croatia | 318 | 0 | 273 | 0 | 274 | 0 | – | – | – | – | – | – |
| Slovakia | 270 | 0 | 272 | 0 | 242 | 0 | 479 | 0 | 427 | 0 | 388 | 0 |
| Lithuania | 206 | 0 | 187 | 0 | 182 | 0 | 206 | 0 | 187 | 0 | 182 | 0 |
| Rest of EU excl. Sweden | 709 | 1 | 700 | 1 | 673 | 1 | 296 | 0 | 293 | 0 | 307 | 0 |
| Total EU excl. Sweden | 57,025 | 48 | 51,944 | 48 | 49,043 | 48 | 57,986 | 49 | 52,769 | 48 | 49,859 | 49 |
| Rest of Europe | ||||||||||||
| Russia | 3,225 | 3 | 3,209 | 3 | 2,879 | 3 | 3,440 | 3 | 3,443 | 3 | 3,061 | 3 |
| Switzerland | 1,347 | 1 | 1,299 | 1 | 1,231 | 1 | 1,295 | 1 | 1,252 | 1 | 1,195 | 1 |
| Norway | 1,271 | 1 | 1,184 | 1 | 1,111 | 1 | 1,211 | 1 | 1,144 | 1 | 1,117 | 1 |
| Turkey | 556 | 1 | 595 | 1 | 486 | 0 | 601 | 1 | 663 | 1 | 537 | 1 |
| Ukraine | 338 | 0 | 288 | 0 | 291 | 0 | 298 | 0 | 255 | 0 | 264 | 0 |
| Rest of Europe, excl. EU | 419 | 0 | 356 | 0 | 297 | 0 | – | – | – | – | – | – |
| Total, Rest of Europe | 7,156 | 6 | 6,931 | 6 | 6,295 | 6 | 6,845 | 6 | 6,757 | 6 | 6,174 | 6 |
| TOTAL EUROPE | 66,817 | 56 | 61,393 | 56 | 57,839 | 57 | 67,974 | 57 | 62,434 | 57 | 58,775 | 58 |
| North America | ||||||||||||
| US | 14,617 | 12 | 14,422 | 13 | 13,115 | 13 | 14,681 | 12 | 14,449 | 13 | 13,324 | 13 |
| Canada | 2,024 | 2 | 1,933 | 2 | 1,676 | 2 | 2,046 | 2 | 1,958 | 2 | 1,525 | 2 |
| Rest of North America | 6 | 0 | 5 | 0 | 4 | 0 | – | – | – | – | – | – |
| TOTAL NORTH AMERICA | 16,647 | 14 | 16,360 | 15 | 14,795 | 15 | 16,727 | 14 | 16,407 | 15 | 14,849 | 15 |
| Latin America | ||||||||||||
| Mexico | 4,822 | 4 | 4,223 | 4 | 4,015 | 4 | 5,355 | 5 | 4,736 | 4 | 4,509 | 4 |
| Colombia | 3,955 | 3 | 3,765 | 4 | 3,433 | 3 | 4,155 | 4 | 4,352 | 4 | 3,978 | 4 |
| Ecuador | 1,510 | 1 | 1,332 | 1 | 1,291 | 1 | 1,486 | 1 | 1,315 | 1 | 1,291 | 1 |
| Chile | 1,018 | 1 | 1,105 | 1 | 1,022 | 1 | 1,013 | 1 | 1,096 | 1 | 1,015 | 1 |
| Brazil | 606 | 1 | 658 | 1 | 460 | 0 | 605 | 1 | 658 | 1 | 460 | 0 |
| Costa Rica | 476 | 1 | 476 | 0 | 495 | 0 | 472 | 0 | 479 | 0 | 499 | 0 |
| Peru | 462 | 0 | 241 | 0 | 252 | 0 | 425 | 0 | 16 | 0 | 12 | 0 |
| Dominican Republic Argentina |
431 374 |
0 1 |
265 410 |
0 0 |
255 345 |
0 0 |
419 386 |
0 0 |
109 417 |
0 0 |
121 372 |
0 0 |
| Nicaragua | 172 | 0 | 170 | 0 | 159 | 0 | – | – | – | – | 0 | 0 |
| Rest of Latin America | 889 | 1 | 771 | 1 | 704 | 1 | 235 | 0 | 105 | 0 | 94 | – |
| TOTAL LATIN AMERICA | 14,715 | 13 | 13,416 | 12 | 12,431 | 12 | 14,551 | 12 | 13,283 | 12 | 12,351 | 12 |
| Asia China |
12,371 | 10 | 10,982 | 10 | 10,089 | 10 | 12,178 | 10 | 10,843 | 10 | 11,272 | 11 |
| Malaysia | 1,544 | 1 | 1,326 | 1 | 1,292 | 1 | 1,858 | 2 | 1,631 | 1 | 1,679 | 2 |
| Hong Kong | 1,171 | 1 | 1,104 | 1 | 1,109 | 1 | 1,509 | 1 | 1,358 | 1 | – | – |
| Japan | 852 | 1 | 757 | 1 | 653 | 1 | 699 | 1 | 653 | 1 | 574 | 1 |
| Taiwan | 364 | 1 | 352 | 1 | 333 | 0 | 373 | 1 | 362 | 0 | 378 | 0 |
| Singapore | 240 | 0 | 216 | 0 | 206 | 0 | 202 | 0 | 185 | 0 | 183 | 0 |
| India | 222 | 0 | 182 | 0 | 163 | 0 | 219 | 0 | 180 | 0 | 163 | 0 |
| Rest of Asia | 1,406 | 1 | 1,292 | 1 | 1,011 | 1 | 670 | 1 | 533 | 0 | 272 | 0 |
| TOTAL ASIA | 18,170 | 15 | 16,211 | 15 | 14,856 | 15 | 17,708 | 16 | 15,745 | 15 | 14,521 | 14 |
| Rest of the world | ||||||||||||
| South Africa | 326 | 1 | 264 | 0 | 121 | 0 | 435 | 0 | 356 | 0 | 79 | 0 |
| Tunisia | 262 | 0 | 252 | 0 | 305 | 0 | 447 | 0 | 497 | 0 | 546 | 1 |
| Libya | 142 | 0 | 187 | 0 | – | – | – | – | – | – | – | – |
| Morocco | 139 | 0 | 107 | 0 | 107 | 0 | 68 | 0 | 51 | 0 | 43 | 0 |
| Other rest of the world | 1,282 | 1 | 1,075 | 2 | 784 | 1 | 590 | 1 | 492 | 0 | 74 | 0 |
| TOTAL, REST OF THE WORLD | 2,151 | 2 | 1,885 | 2 | 1,317 | 1 | 1,540 | 1 | 1,396 | 1 | 742 | 1 |
| Total, Group | 118,500 | 100 | 109,265 | 100 | 101,238 | 100 | 118,500 | 100 109,265 | 100 | 101,238 | 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.
| Average number of employees | Non-current assets1) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Of whom | Of whom | Of whom | Of whom | Of whom | Of whom | 2018 | 2017 | 2016 | ||||
| TB2:2 Group by country | 2018 | men, % | women, % | 2017 | men, % | women, % | 2016 | men, % | women, % | SEKm | SEKm | SEKm |
| Sweden | 2,062 | 55 | 45 | 2,075 | 56 | 44 | 1,990 | 56 | 44 | 2,331 | 2,648 | 5,294 |
| EU excl. Sweden | – | – | ||||||||||
| Germany | 4,513 | 74 | 26 | 4,194 | 75 | 25 | 3,368 | 81 | 19 | 22,346 | 18,537 | 6,376 |
| France | 2,619 | 68 | 32 | 2,619 | 69 | 31 | 2,470 | 75 | 25 | 8,517 | 9,580 | 5,254 |
| UK | 1,614 | 76 | 24 | 1,589 | 77 | 23 | 1,505 | 81 | 19 | 5,166 | 5,209 | 4,160 |
| Spain | 1,242 | 75 | 25 | 1,213 | 75 | 25 | 1,182 | 75 | 25 | 3,646 | 3,826 | 3,707 |
| Netherlands | 1,256 | 82 | 18 | 1,269 | 82 | 18 | 1,198 | 84 | 16 | 2,695 | 2,915 | 2,187 |
| Slovakia | 937 | 63 | 37 | 953 | 63 | 37 | 746 | 71 | 29 | 1,053 | 1,116 | 652 |
| Italy | 860 | 75 | 25 | 869 | 76 | 24 | 851 | 77 | 23 | 3,001 | 3,263 | 2,567 |
| Poland | 826 | 72 | 28 | 742 | 71 | 29 | 687 | 71 | 29 | 1,864 | 1,468 | 1,081 |
| Austria | 610 | 81 | 19 | 624 | 82 | 18 | 616 | 82 | 18 | 707 | 819 | 728 |
| Belgium | 474 | 79 | 21 | 419 | 78 | 22 | 374 | 79 | 21 | 629 | 731 | 465 |
| Finland | 300 | 74 | 26 | 311 | 73 | 27 | 311 | 72 | 28 | 773 | 803 | 811 |
| Hungary | 134 | 42 | 58 | 138 | 43 | 57 | 134 | 42 | 58 | 3,211 | 6 | 6 |
| Denmark | 96 | 40 | 60 | 95 | 38 | 62 | 91 | 36 | 64 | 3 | 3 | 3 |
| Czech Republic | 62 | 46 | 54 | 65 | 42 | 58 | 67 | 37 | 63 | 1 | 1 | 1 |
| Greece | 49 | 54 | 46 | 51 | 55 | 45 | 53 | 55 | 45 | 11 | 11 | 14 |
| Romania | 33 | 36 | 64 | 32 | 38 | 62 | 31 | 39 | 61 | 14 | – | 10 |
| Lithuania | 25 | 48 | 52 | 25 | 48 | 52 | 25 | 48 | 52 | – | – | – |
| Portugal | 22 | 57 | 43 | 22 | 55 | 45 | 21 | 52 | 48 | 75 | 72 | 71 |
| Ireland | 14 | 64 | 36 | 14 | 64 | 36 | 15 | 67 | 33 | 29 | 28 | 27 |
| Croatia | 12 | 35 | 65 | 11 | 36 | 64 | 9 | 33 | 67 | – | 13 | – |
| Rest of EU excl. Sweden | 17 | 22 | 78 | 24 | 17 | 83 | 22 | 18 | 82 | – | – | – |
| Total EU excl. Sweden | 15,715 | 73 | 27 | 15,279 | 73 | 27 | 13,776 | 77 | 23 | 53,741 | 48,401 | 28,120 |
| Rest of Europe | ||||||||||||
| Russia | 1,346 | 61 | 39 | 1,391 | 60 | 40 | 1,374 | 60 | 40 | 1,468 | 1,709 | 1,817 |
| Turkey | 231 | 81 | 19 | 235 | 81 | 19 | 235 | 80 | 20 | 187 | 333 | 402 |
| Norway | 111 | 41 | 59 | 107 | 38 | 62 | 104 | 38 | 62 | 2 | 2 | 2 |
| Ukraine | 68 | 44 | 56 | 69 | 48 | 52 | 68 | 47 | 53 | 5 | 5 | 4 |
| Switzerland | 34 | 35 | 65 | 38 | 34 | 66 | 30 | 37 | 63 | 65 | 201 | 88 |
| Rest of Europe, excl. EU | 4 | – | 100 | – | – | – | – | – | – | – | – | – |
| Total, Rest of Europe | 1,794 | 62 | 38 | 1,840 | 61 | 39 | 1,811 | 60 | 40 | 1,727 | 2,250 | 2,313 |
| TOTAL EUROPE | 19,571 | 70 | 30 | 19,194 | 70 | 30 | 17,577 | 73 | 27 | 57,799 | 53,299 | 35,727 |
| North America | ||||||||||||
| US | 3,473 | 71 | 29 | 3,588 | 73 | 27 | 3,376 | 76 | 24 | 18,478 | 17,400 | 14,686 |
| Canada | 345 | 61 | 39 | 325 | 62 | 38 | 283 | 65 | 35 | 563 | 591 | 261 |
| Rest of North America | – | – | – | – | – | – | – | – | – | – | – | – |
| TOTAL NORTH AMERICA | 3,818 | 70 | 30 | 3,913 | 72 | 28 | 3,659 | 75 | 25 | 19,041 | 17,991 | 14,947 |
| Latin America | ||||||||||||
| Colombia | 3,703 | 68 | 32 | 3,718 | 72 | 28 | 3,561 | 69 | 31 | 2,037 | 2,516 | 2,104 |
| Mexico | 3,060 | 70 | 30 | 2,871 | 69 | 31 | 2,389 | 76 | 24 | 4,510 | 3,968 | 3,370 |
| Ecuador | 1,171 | 65 | 35 | 1,068 | 66 | 34 | 1,104 | 66 | 34 | 613 | 279 | 305 |
| Brazil | 781 | 60 | 40 | 784 | 59 | 41 | 507 | 62 | 38 | 718 | 1,383 | 816 |
| Chile | 468 | 74 | 26 | 622 | 77 | 23 | 596 | 80 | 20 | 679 | 973 | 884 |
| Argentina | 335 | 63 | 37 | 359 | 60 | 40 | 345 | 60 | 40 | 60 | 53 | 69 |
| Dominican Republic | 261 | 65 | 35 | 141 | 68 | 32 | 115 | 73 | 27 | 246 | 158 | 10 |
| Peru | 131 | 26 | 74 | 15 | 53 | 47 | 12 | 50 | 50 | 400 | – | – |
| Costa Rica | 91 | 56 | 44 | 87 | 51 | 49 | 89 | 54 | 46 | 2 | 2 | 3 |
| Nicaragua | 4 | 38 | 62 | 6 | 17 | 83 | 8 | 37 | 63 | – | – | 1 |
| Rest of Latin America | 46 | 49 | 51 | 23 | 39 | 61 | 23 | 52 | 48 | 2 | – | 1 |
| TOTAL LATIN AMERICA | 10,051 | 67 | 33 | 9,694 | 68 | 32 | 8,749 | 70 | 30 | 9,267 | 9,332 | 7,563 |
| Asia | ||||||||||||
| China | 9,450 | 57 | 43 | 9,457 | 56 | 44 | 8,957 | 55 | 45 | 15,797 | 14,219 | 13,022 |
| Malaysia | 1,307 | 43 | 57 | 1,351 | 45 | 55 | 1,399 | 45 | 55 | 912 | 814 | 845 |
| India | 449 | 86 | 14 | 429 | 87 | 13 | 229 | 96 | 4 | 75 | 616 | – |
| Taiwan | 268 | 61 | 39 | 265 | 57 | 43 | 268 | 56 | 44 | 649 | 602 | 602 |
| Japan | 148 | 42 | 58 | 142 | 39 | 61 | 99 | 21 | 79 | 36 | 421 | 4 |
| Hong Kong | 83 | 24 | 76 | 85 | 26 | 74 | 75 | 39 | 61 | 638 | 1,108 | 1,323 |
| Singapore | 30 | 32 | 68 | 32 | 34 | 66 | 30 | 30 | 70 | 11 | 11 | 9 |
| Rest of Asia | 386 | 56 | 44 | 294 | 58 | 42 | 60 | 43 | 57 | 685 | 973 | 171 |
| TOTAL ASIA | 12,121 | 56 | 44 | 12,055 | 55 | 45 | 11,117 | 54 | 46 | 18,803 | 18,764 | 15,976 |
| Rest of the world | ||||||||||||
| Tunisia | 922 | 89 | 11 | 920 | 88 | 12 | 894 | 88 | 12 | 116 | 805 | 170 |
| South Africa | 437 | 43 | 57 | 330 | 41 | 59 | 20 | 35 | 65 | 725 | – | 3 |
| Morocco | 62 | 55 | 45 | 56 | 52 | 48 | 13 | 46 | 54 | – | 1 | 1 |
| Libya | – | – | – | – | – | – | – | – | – | – | 139 | – |
| Other rest of the world | 240 | 58 | 42 | 223 | 64 | 36 | 120 | 91 | 9 | 950 | 1,272 | 25 |
| TOTAL, REST OF THE WORLD | 1,661 | 71 | 29 | 1,529 | 73 | 27 | 1,047 | 87 | 13 | 1,791 | 2,217 | 199 |
| Total, Group | 47,222 | 66 | 34 | 46,385 | 66 | 34 | 42,149 | 68 | 32 | 106,701 101,603 | 74,412 |
1) Non-current assets comprise goodwill, other intangible assets, buildings, land, machinery and equipment.
Operating expenses by function and type of cost
| Operating expenses by function | |
|---|---|
| -------------------------------- | -- |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| IS Cost of goods sold | –85,058 –76,899 –72,438 | ||
| IS Sales, general and administration | –20,570 –19,130 –16,965 | ||
| IS Amortization of acquisition-related intangible assets | –732 | –560 | –159 |
| IS TB3:1 Items affecting comparability | –1,444 | –940 | –2,825 |
| Total | –107,804 –97,529 –92,387 |
Refer also to page 130 for a description of costs.
| Operating expenses by type of cost | ||||
|---|---|---|---|---|
| SEKm | Note | 2018 | 2017 | 2016 |
| TB3:2 Other income | 897 | 1,045 | 970 | |
| Change in inventory of finished products and products in progress1) |
196 | 172 | –82 | |
| Raw materials and consumables1) | –43,771 | –38,191 | –36,442 | |
| Personnel costs1) | C1 | –22,021 | –20,142 | –17,983 |
| TB3:3 Other operating expenses1) | –36,412 | –34,444 | –33,242 | |
| Amortization of intangible assets1) | D1 | –1,049 | –853 | –380 |
| Depreciation of property, plant and equipment1) | D2 | –5,126 | –4,871 | –4,764 |
| Impairment of intangible assets1) | D1 | –105 | –132 | –137 |
| Impairment of property, plant and equipment1) | D2 | –428 | –254 | –420 |
| Share in profits of associates1) | –278 | – | – | |
| Revaluation of previously owned shares in associates1) |
F6 | 225 | 72 | – |
| Gain on divestment1) 2) | 68 | 69 | 93 | |
| Total | –107,804 | –97,529 | –92,387 |
1) Including items affecting comparability.
2) Including transaction costs and excluding reversal of realized translation differences in divested companies to profit or loss.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Impairment of inventory of finished products and products in progress |
–61 | –4 | –156 |
| Raw materials and consumables | – | – | –102 |
| Personnel costs | –700 | –69 | –76 |
| Other operating expenses | –183 | –620 | –1,948 |
| Amortization of intangible assets | – | –2 | –43 |
| Depreciation of property, plant and equipment | – | – | –36 |
| Impairment of intangible assets | –105 | –132 | –137 |
| Impairment of property, plant and equipment | –410 | –254 | –420 |
| Impairment losses recognized in associates | –278 | – | – |
| Revaluation of previously owned shares in associates | 225 | 72 | – |
| Gain on divestment | 68 | 69 | 93 |
| Total | –1,444 | –940 | –2,825 |
| SEKm | 2018 | |
|---|---|---|
| Costs for restructuring measures at production facilities of Professional Hygiene and Consumer Tissue |
–1,222 | |
| Impairment in the associate Asaleo Care Ltd. | –278 | |
| Increase in participations in joint venture in Latin America | 165 | |
| Dissolution of reserve for foreign tax | 288 | |
| Restructuring costs relating to the Group-wide savings program |
–131 | |
| Other | –266 | |
| Total | –1,444 |
| Total | –2,825 |
|---|---|
| Other | –87 |
| Transaction costs BSN medical | –143 |
| Costs in conjunction with the acquisition of Wausau Paper Corp. |
–204 |
| Costs for closure of baby diaper operation in Mexico |
–174 |
| Costs for closure of operation in India | –374 |
| Costs for closure of tissue production plants in Spain and France |
–757 |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Sales not included in core operations | 897 | 1,045 | 970 |
| Total | 897 | 1,045 | 970 |
Other revenue includes rental revenue, 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.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Transport expenses | –8,290 | –7,425 | –7,120 |
| Energy costs1) | –4,775 | –4,498 | –4,448 |
| Purchased finished goods for resale | –5,144 | –5,053 | –3,739 |
| Marketing costs | –6,031 | –5,777 | –5,504 |
| Repairs and maintenance | –2,546 | –2,436 | –2,537 |
| IT, telephony and lease of premises | –1,633 | –1,380 | –1,445 |
| Other operating expenses, production | –3,919 | –3,671 | –3,291 |
| Other operating expenses, distribution, sales and administration |
–3,674 | –3,644 | –3,090 |
| Other | –400 | –560 | –2,068 |
| Total | –36,412 –34,444 –33,242 |
1) After deduction for revenues from energy in the amount of SEK 327m (227; 194).
Exchange rate effects had a negative impact of SEK –189m (–10; –97) on operating profit. Government grants received reduced operating expenses by SEK 55m (65; 41). Costs for research and development amounted to SEK –1,320m (–1,239; –1,211) during the period.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| EY | |||
| Audit assignments | –64 | –58 | –49 |
| Auditing activities other than the audit assignment | –2 | –4 | – |
| Tax consultancy services | –1 | –1 | – |
| Other assignments | –3 | –2 | –4 |
| Total EY | –70 | –65 | –53 |
| Other auditors | |||
| Audit assignments | –17 | –19 | –18 |
| Auditing activities other than the audit assignment | – | – | –1 |
| Tax consultancy services | –5 | –2 | –16 |
| Other assignments | –9 | –3 | –13 |
| Total other auditors | –31 | –24 | –48 |
| Total | –101 | –89 | –101 |
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. Interest attributable to income tax and withholding taxes deducted at source on intra-Group transactions are also recognized as current income tax.
Deferred tax is calculated based on temporary differences between the carrying amounts and the taxable values of assets and liabilities and for tax loss carryforwards and other unutilized tax deductions in so far as 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 in holding in subsidiaries, joint ventures or associates, 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 within equity.
Tax liabilities and tax assets are recognized net when Essity has a legal right to offset.
For companies that operate globally and thus apply significantly different taxation legislation, determining deferred tax asset and tax liability is very complicated. This requires that assessments and assumptions are made to determine the value of the deferred tax asset and deferred tax liability on the balance sheet date. Future changes to taxation legislation and trends in the business climate will impact the company's future taxable profits and thus its possibility to utilize deferred tax assets on loss carryforwards or other temporary differences. Accordingly, a changed assessment of the probability of future taxable profits could have a positive or negative effect.
Key assessments and assumptions are also made regarding recognition of provisions and contingent liabilities relating to tax risks. For further information, see Note D6 Other provisions on page 88 and Note G3 Contingent liabilities and pledged assets on page 106.
| Tax expense (+), tax income (–) | ||||||
|---|---|---|---|---|---|---|
| SEKm | 2018 | % | 2017 | % | 2016 | % |
| Current tax | ||||||
| Income tax for the period | 2,207 | 23.0 | 2,927 | 27.3 | 2,888 | 35.3 |
| Adjustments for prior periods | –1,324 | –13.8 | –112 | –1.0 | 1,654 | 20.2 |
| Current tax expense | 883 | 9.2 | 2,815 | 26.3 | 4,542 | 55.5 |
| Deferred tax | ||||||
| Changes in temporary differences | 226 | 1.9 | –759 | –7.1 | –509 | –6.2 |
| Adjustments for prior periods | 37 | –0.8 | 77 | 0.7 | –387 | –4.7 |
| Revaluations | –96 | 0.6 | –195 | –1.8 | 285 | 3.5 |
| TB5:2 TB5:3 Deferred tax | ||||||
| expense | 167 | 1.7 | –877 | –8.2 | –611 | –7.4 |
| IS Tax expense | 1,050 | 10.9 | 1,938 | 18.1 | 3,931 | 48.1 |
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 | 2018 | % | 2017 | % | 2016 | % |
|---|---|---|---|---|---|---|
| IS Profit before tax | 9,602 | 10,723 | 8,173 | |||
| IS Tax expense | 1,050 | 10.9 | 1,938 | 18.1 | 3,931 | 48.1 |
| Expected tax expense | 2,144 | 22.3 | 2,381 | 22.2 | 1,790 | 21.9 |
| Difference | –1,094 | –11.4 | –443 | –4.1 | 2,141 | 26.2 |
| The difference is explained by: | ||||||
| Permanent differences between accounting and taxable result |
||||||
| Effects of subsidiary financing1) | –35 | –0.4 | –303 | –2.8 | –152 | –1.9 |
| Effects of acquisitions and divestments2) |
–106 | –0.9 | 2 | 0.0 | 53 | 0.6 |
| Taxes relating to profit-taking | 42 | 0.4 | 35 | 0.3 | 37 | 0.5 |
| Other permanent effects3) | 272 | 2.3 | 147 | 1.4 | 372 | 4.6 |
| Taxes related to prior periods4) | –1,287 | –14.5 | –35 | –0.3 | 1,267 | 15.5 |
| Changes in the value of deferred tax assets5) |
60 | 2.1 | 311 | 2.9 | 670 | 8.2 |
| Changes in tax rates6) | –40 | –0.4 | –600 | –5.6 | –106 | –1.3 |
| Total | –1,094 | –11.4 | –443 | –4.1 | 2,141 | 26.2 |
1) The effects are principally attributable to financing of the operations in the US, Germany, France and Belgium. For 2017, the effects relate to financing of the US business and include non-recurring effects of the restructuring of debt from the Netherlands to the US.
2) The effects of acquisitions and divestments relate essentially to acquisitions and the revaluation of existing holdings in operations pertaining to Peru and Bolivia.
3) Other permanent effects include, in addition to a number of items of low value, 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. For 2017, the item includes non-deductible costs for tax on non-current assets of SEK 67m that arose in connection with the split of the SCA Group. The year 2016 relates primarily to non-deductible costs for ongoing competition cases.
4) Taxes attributable to prior periods relate 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. In 2016, a provision of SEK 1,223m was recognized for costs related to the tax dispute
in Sweden. 5) The change in value of deferred tax assets relates 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. The change in 2017 relates mainly to the revaluation of loss carryforwards in the US of SEK 139m and in Brazil of SEK 156m. The change in 2016 relates mainly to the revaluation of loss carryforwards in Spain of SEK 227m, in Brazil of SEK 185m and in India of SEK 213m.
6) Effects relating to changed tax rates are attributable to the revaluation of deferred taxes, especially in Sweden, France and the UK. For 2017, the effects are primarily attributable to the revaluation of deferred taxes in the US.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Value, January 1 | –216 | 175 | –60 |
| TB5:1 Current tax expense | 883 | 2,815 | 4,542 |
| CF TB5:1 Paid tax | –2,466 | –2,971 | –3,782 |
| Other changes from acquisitions, divestments and reclassifications |
240 | –50 | –154 |
| Transactions with shareholders | 0 | –194 | –366 |
| Translation differences | 3 | 9 | –5 |
| Value, December 31 | –1,556 | –216 | 175 |
| BS of which current tax liability | 570 | 553 | 915 |
| BS of which current tax asset | 2,126 | 769 | 740 |
| Country | Current tax expense |
Deferred tax expense |
Total tax expense |
Paid tax |
|---|---|---|---|---|
| Germany | 492 | 16 | 508 | –382 |
| US | 30 | 330 | 360 | –5 |
| Colombia | 159 | 8 | 167 | –287 |
| Mexico | 144 | 23 | 167 | –163 |
| Italy | 95 | 30 | 125 | –88 |
| Hong Kong | 97 | 2 | 99 | –78 |
| Belgium | 106 | –22 | 84 | –100 |
| Ecuador | 85 | –2 | 83 | –66 |
| Russia | 71 | 5 | 76 | –58 |
| Austria | 69 | 0 | 69 | –127 |
| UK | –40 | 103 | 63 | 5 |
| Malaysia | 52 | –2 | 50 | –58 |
| Finland | 56 | –8 | 48 | –53 |
| Japan | 45 | 1 | 46 | –53 |
| Norway | 38 | 4 | 42 | –45 |
| Denmark | 38 | 1 | 39 | –39 |
| Slovakia | 44 | –19 | 25 | –48 |
| Switzerland | 25 | 0 | 25 | –42 |
| Czech Republic | 21 | 0 | 21 | –28 |
| Costa Rica | 22 | –4 | 18 | –19 |
| Spain | 46 | –28 | 18 | –80 |
| Poland | 57 | –65 | –8 | –40 |
| Chile | 5 | –28 | –23 | –15 |
| France | 33 | –239 | –206 | –200 |
| Netherlands | –280 | –17 | –297 | –100 |
| Sweden | –885 | 164 | –721 | –63 |
| Other countries1) | 258 | –86 | 172 | –234 |
| CF IS Total | 883 | 167 | 1,050 | –2,466 |
1) Other countries comprise a large number of countries where the tax expense and tax payments for the respective countries are of a low amount.
| SEKm | Value, January 1 |
Deferred tax expense |
Other changes2) |
Trans lation differ ences |
Value, Decem ber 31 |
|---|---|---|---|---|---|
| Non-current intangible assets | 5,542 | 46 | 2 | 254 | 5,844 |
| Property, plant and equipment |
3,392 | –127 | –10 | 171 | 3,426 |
| Non-current financial assets | –116 | 128 | –125 | –8 | –121 |
| Current assets | –349 | –8 | –6 | –28 | –391 |
| Provisions | –493 | –151 | –50 | –42 | –736 |
| Liabilities | –974 | –36 | 29 | –9 | –990 |
| Tax credits and tax loss carry forwards |
–2,289 | 563 | –7 | –83 | –1,816 |
| Other | 145 | –248 | 0 | 1 | –102 |
| BS Total1) | 4,858 | 167 | –167 | 256 | 5,114 |
1) The net closing deferred tax liability comprises deferred tax assets of SEK 2,158m (2,232; 1,457) and
deferred tax liabilities of SEK 7,272m (7,090; 3,872). 2) Other changes mainly include deferred tax recognized directly in other comprehensive income
within equity according to IAS 19 of SEK –201m and IFRS 9 of SEK 21m.
| TB5:3 Preceding periods' deferred tax liability (+), tax asset (–), SEKm | |
|---|---|
| YEAR | Value, January 1 |
Deferred tax expense |
Other changes |
Translation differences |
Transac tions with share holders |
Acquisi tions and divest ments |
Value, Decem ber 31 |
|---|---|---|---|---|---|---|---|
| BS 2017 | 2,415 | –877 | –224 | –94 | 0 | 3,638 | 4,858 |
| BS 2016 | 2,700 | –611 | 589 | 211 | –232 | –242 | 2,415 |
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 –1,816m.
Loss carryforwards for which no deferred tax assets were recognized amounted to SEK 6,470m (6,251; 4,648), gross, at December 31, 2018. The change in uncapitalized tax loss carryforwards for the period includes SEK 600m that has expired in Belgium and SEK 204m that was either utilized or capitalized. The tax value of uncapitalized tax loss carryforwards amounted to SEK 1,748m (1,852; 1,373). 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 | 2018 | 2017 | 2016 | |||
| Within 1 year | 48 | 325 | 85 | |||
| 2 years | 305 | 136 | 917 | |||
| 3 years | 17 | 67 | 1 | |||
| 4 years | 100 | 28 | 1 | |||
| 5 years or more | 1,499 | 1,143 | 988 | |||
| Indefinite life | 4,501 | 4,552 | 2,656 | |||
| Total | 6,470 | 6,251 | 4,648 |
No remuneration was paid to senior executives in Essity for work in this company during 2016. In conjunction with the distribution of Essity Aktiebolag (publ), costs for senior executives were allocated from SCA to Essity for 2016. Remuneration of senior executives in Essity for 2017 and 2018 was paid in its entirety from Essity.
| Personnel costs | |
|---|---|
| SEKm | Note | 2018 | 2017 | 2016 |
|---|---|---|---|---|
| Salaries and remuneration | –15,403 –14,562 –12,801 | |||
| TC3:1 of which Executive Management Team | –124 | –126 | –131 | |
| of which Board | C4 | –9 | –9 | –8 |
| Pension costs | –1,433 | –1,193 | –1,208 | |
| of which defined benefit pension costs | C5 | –528 | –425 | –541 |
| of which other pension costs | –905 | –768 | –667 | |
| Other social security costs | –3,594 | –3,213 | –2,840 | |
| Other personnel costs | –1,591 | –1,174 | –1,134 | |
| Total1) | –22,021 –20,142 –17,983 |
1) Costs for implemented efficiency-enhancement activities of SEK –700m (–69; –67) are included in total personnel costs.
| 2018 | 2017 | 2016 | |
|---|---|---|---|
| Average number of employees | 47,222 | 46,385 | 42,149 |
| of whom women, % | 34 | 34 | 32 |
| Number of employees who joined the Group during the period |
6,981 | 13,585 | 8,150 |
| of whom, through acquisitions | 36 | 5,518 | |
| Number of employees who left the Group during the period | 7,815 | 7,321 | 5,994 |
| of which restructuring | 544 | 584 | 262 |
| of which retirement | 383 | 418 | 304 |
| Personnel turnover, excl. restructuring, retirement, % | 15 | 14 | 13 |
| Personnel turnover, excl. restructuring, retirements, temporary employees, % |
13 | – | – |
| of which wholly owned companies | 5 | – | – |
| Diversity | |||
| Women, of total number of Board members and senior executives, % |
39 | 42 | 42 |
| Women, of total number of Board members (excl. members appointed by the employees) and senior executives, % |
45 | 48 | 43 |
| Women in executive management, % | 25 | 36 | 33 |
| Nationalities, senior management1), number | 17 | 18 | 21 |
| Nationalities, senior and middle management1), number | 39 | 36 | 32 |
| Female managers, senior management1), % | 26 | 27 | 25 |
| Female managers, senior and middle management1), % | 27 | 23 | 27 |
| Age distribution, % | |||
| Employees under 20 years of age, % | 1 | 1 | 1 |
| 21–30 years | 21 | 22 | 24 |
| 31–40 years | 33 | 33 | 32 |
| 41–50 years | 25 | 25 | 25 |
| 51–60 years | 17 | 16 | 16 |
| Employees over 60 years of age, % | 3 | 3 | 2 |
| Investments in skills-enhancement activities | |||
| total, SEKm | 141 | 152 | 141 |
| per employee, SEK | 3,000 | 3,300 | 3,400 |
| Value added per employee | 661 | 666 | 613 |
| Return on human capital | 1.50 | 1.59 | 1.50 |
The figures for the number of employees who left the Group during the period include both voluntary resignations and retirements. In addition, a significant portion relates to summer jobs for students and seasonal work. In 2018, Essity had employees in 66 countries (65; 60).
Proportion of university graduates, % 23 22 22
31–40 years, 33% 41–50 years, 25% 51–60 years, 17% >60 years, 3% 21–30 years, 21%
Essity has two variable remuneration programs: Short-term incentive (STI) and Long-term incentive (LTI). Variable remuneration is capped at a specific percentage of fixed salary.
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.
For the LTI target, the outcome and size of the remuneration 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. The latter index contains competitors' and consumer companies' TSR over a three-year period. Essity's performance target is higher TSR for the company than the benchmark index (maximum outcome requires the outcome to be 5% better than the benchmark index).
All variable remuneration under STI and LTI is paid in cash to employees. Accordingly, the programs do not have any dilutive effect. Participants in the LTI program undertake to personally 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.
The outcome of the STI and LTI targets is evaluated during the year and expensed or recognized as liabilities on an ongoing basis until payment is made in the following year.
Essity's assessment is that the variable remuneration falls under the application area for IAS 19.
Senior executives refer to the President, who is also the CEO, the Executive Vice President, Business Unit Presidents in Essity and equivalents, and the Central Staff Managers.
The 2018 Annual General Meeting (AGM) adopted the following guidelines for remuneration of senior executives.
"Remuneration of senior executives will be a fixed salary, variable remuneration, additional benefits and pension. The total remuneration is to correspond to market practice and be competitive in the senior executive's field of profession and linked to the executive's responsibility and authority.
The variable remuneration is to be limited and linked to the fixed remuneration, based on performance results in relation to the annual and long-term established targets.
In the event of termination of employment, the notice period should normally be up to two years if termination is initiated by the company, and up to one year, when initiated by the senior executive. Severance pay should not exist.
Pension benefits should, to the extent possible, only contain defined contribution pension benefits and entitle the executive to receive a pension from the age of 65. Variable remuneration is not part of pensionable income.
The board of directors shall be entitled to deviate from the adopted guidelines if, in an individual case, there are special reasons for doing so. The guidelines shall not prevail over mandatory conditions under labour law or collective agreements. Neither do they apply to existing agreements."
The company applied the guidelines approved by the AGM in the following manner.
The fixed salary is to be in proportion to the individual's position and the authority and responsibilities this entails. 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 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%, while the corresponding limit for other senior executives is 90%. 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%. The STI goals set for the Business Unit Presidents are mainly based on operating cash flow, capital efficiency, EBITA margin and organic sales growth for each business unit. The goal for the CEO and others reporting directly to him is based primarily on the Group's profit before tax, EBITA margin, operating cash flow and organic sales growth. Furthermore, for certain senior executives, goals for cost efficiency and innovation also apply, accounting for 20–30% 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. The established 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).
For the CEO, Executive Vice President and Central Staff Managers, STI resulted in 5–17% of fixed salary for 2018. STI resulted in variable remuneration corresponding to 9–30% of fixed salary for the Business Unit Presidents. The LTI target was achieved for 2016–2018, resulting in a maximum outcome for the CEO and other senior executives.
Other benefits pertain, in some cases, to a company car, commuter reimbursement and health insurance.
| TC3:1 Remuneration and other benefits during the year 2018 | ||||
|---|---|---|---|---|
| -- | ------------------------------------------------------------ | -- | -- | -- |
| SEK | Fixed salary | Variable remuneration1) |
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 Head of 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.
| 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.
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, with retirement pension benefits limited to a maximum salary income of 7.5 income base amounts. The retirement age for the CEO is 65. Five other executives are covered by corresponding defined contribution pension benefits with an annual premium of approximately 30–40% and pension age of 65. One senior executive in Sweden has 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.
No remuneration was paid to senior executives in Essity for work in this company during 2016. In conjunction with the distribution of Essity Aktiebolag (publ), costs for senior executives were allocated from SCA to Essity for 2016. Remuneration of senior executives in Essity for 2017 and 2018 was paid in its entirety from Essity.
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.
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 senior executives 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.
The Board proposes that the 2019 Annual General Meeting adopt unchanged guidelines for remuneration of senior executives of Essity. With the salary situation prevailing in 2019 with 12 senior executives, the maximum outcome of variable remuneration could entail a cost for the Group, excluding social security costs, of approximately SEK 71m.
| SEK | Fixed salary | Variable remuneration1) |
Other benefits |
Total salaries and remuneration |
|---|---|---|---|---|
| President and CEO Magnus Groth |
12,000,000 | 10,152,0002) | 90,137 | 22,242,137 |
| Other senior executives (13 people) |
55,925,897 | 45,407,3573) | 2,636,314 | 103,969,568 |
| Total | 67,925,897 | 55,559,357 | 2,726,451 | 126,211,705 |
1) Variable remuneration covers the 2017 fiscal year but is paid in 2018.
2) Of which LTI program SEK 6,000,000.
3) Of which LTI program SEK 27,962,950.
| Total | 20,842,198 |
|---|---|
| Other senior executives (13 people) 3) | 15,806,197 |
| President and CEO Magnus Groth 2) | 5,036,001 |
| SEK |
1) The pension costs pertain to the costs that affected profit for 2017, excluding special payroll tax. 2) Outstanding pension obligations amount to SEK 18,858,000.
3) Outstanding pension obligations amount to SEK 77,684,265.
| SEK | Fixed salary | Variable remuneration1) |
Other benefits | Total salaries and remuneration |
|---|---|---|---|---|
| President and CEO Magnus Groth |
11,000,000 | 8,998,0002) | 87,738 | 20,085,738 |
| Other senior executives (14 people) |
58,739,016 | 45,611,9973) | 6,127,411 | 110,478,424 |
| Total | 69,739,016 | 54,609,997 | 6,215,149 | 130,564,162 |
1) Variable remuneration covers the 2016 fiscal year but is paid in 2017.
2) Of which LTI program SEK 5,500,000. 3) Of which LTI program SEK 29,225,605.
| SEK | |
|---|---|
| President and CEO Magnus Groth2) | 4,495,961 |
| Other senior executives (12 people)3) | 19,647,387 |
| Total | 24,143,348 |
1) The pension costs pertain to the costs that affected profit for 2016, excluding special payroll tax. 2) Outstanding pension obligations amount to SEK 15,741,000.
3) Outstanding pension obligations amount to SEK 131,665,322.
For former presidents and CEOs, Essity has outstanding, non-funded obligations amounting to SEK 185m. 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.
No remuneration was paid to Board members of Essity Aktiebolag (publ) for Board work in this company during 2016. In conjunction with the distribution of Essity Aktiebolag (publ), costs for Board members were allocated from SCA to Essity for 2016. Remuneration of Board members in Essity Aktiebolag (publ) for 2017 was paid in its entirety from Essity Aktiebolag (publ). Remuneration to non-executive Board members of Essity Aktiebolag (publ) refers to the fees approved at the AGM on April 4, 2018 for the period until the next AGM in April 2019. No remuneration is paid to the President and CEO and other employees.
| Board fee | Audit Committee fee | Remuneration Committee fee | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEK | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Pär Boman (Chairman) | 2,220,000 | 2,100,000 | 2,100,000 | 264,000 | 250,000 | 200,000 | 143,000 | 135,000 | 135,000 | 2,627,000 | 2,485,000 | 2,435,000 |
| Ewa Björling | 740,000 | 700,000 | 700,000 | 740,000 | 700,000 | 700,000 | ||||||
| Maija-Liisa Friman | 740,000 | 700,000 | 700,000 | 740,000 | 700,000 | 700,000 | ||||||
| Annemarie Gardshol | 740,000 | 700,000 | 700,000 | 740,000 | 700,000 | 700,000 | ||||||
| Louise Svanberg | 740,000 | 700,000 | 700,000 | 111,000 | 105,000 | 105,000 | 851,000 | 805,000 | 805,000 | |||
| Johan Malmquist | 700,000 | 700,000 | 700,000 | 700,000 | ||||||||
| Bert Nordberg | 740,000 | 700,000 | 700,000 | 264,000 | 250,000 | 200,000 | 111,000 | 105,000 | 105,000 | 1,115,000 | 1,055,000 | 1,005,000 |
| Barbara Milian Thoralfsson | 740,000 | 700,000 | 700,000 | 349,000 | 330,000 | 250,000 | 1,089,000 | 1,030,000 | 950,000 | |||
| Lars Rebien Sørensen | 740,000 | 700,000 | 740,000 | 700,000 | ||||||||
| Total | 7,400,000 | 7,700,000 | 7,000,000 | 877,000 | 830,000 | 650,000 | 365,000 | 345,000 | 345,000 | 8,642,000 | 8,875,000 | 7,995,000 |
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 on page 83). 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, as are the actuarial gains or losses.
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.
Some Group companies provide post-retirement healthcare benefits. The obligation and anticipated costs for these benefits has been calculated and recognized in a similar manner to that applying to defined benefit pension plans.
Severance pay is recognized as a payroll expense when the Group has an obligation to compensate employees whose employment was terminated early.
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 TC5:5 . The sensitivity of the recognized provision with respect to key actuarial assumptions is described in TC5:6 .
| Provisions for pensions and similar obligations | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| TC5:2 Defined benefit obligations | 33,082 | 33,007 | 30,638 |
| TC5:3 Fair value of plan assets | –29,648 | –30,418 | –26,363 |
| TC5:4 Effect of asset ceiling | 707 | 804 | 663 |
| TC5:1 Provision for pensions, net | 4,141 | 3,393 | 4,938 |
Surpluses in funded plans recognized as financial non-current assets amounted to BS SEK 1,117m (1,148; 335) on the balance sheet date and provisions for pensions totaled BS SEK 5,258m (4,541; 5,273). Defined benefit obligations include obligations in an amount of SEK 2,380m (2,313; 2,268) pertaining to unfunded plans.
Essity has both defined contribution and defined benefit pension plans in a number of subsidiaries. The most significant defined benefit pension plans in the respective countries are described below.
| SEKm Country |
Active | Paid-up pension policies |
Pensioners | Total obligation |
Plan assets, fair value |
Effect of asset ceiling |
Net | Duration of obligation, years |
|---|---|---|---|---|---|---|---|---|
| Netherlands | 2,184 | 1,148 | 1,307 | 4,639 | –4,194 | – | 445 | 22 |
| UK | – | 8,744 | 6,895 | 15,639 | –16,033 | – | –394 | 19 |
| Sweden | 1,586 | 1,012 | 1,097 | 3,695 | –2,640 | 707 | 1,762 | 19 |
| Germany | 2,039 | 555 | 1,370 | 3,964 | –3,667 | – | 297 | 17 |
| US | 511 | 1,368 | 1,703 | 3,582 | –2,780 | – | 802 | 12 |
| Other | 1,407 | – | 156 | 1,563 | –334 | – | 1,229 | 13 |
| Total | 7,727 | 12,827 | 12,528 | 33,082 | –29,648 | 707 | 4,141 |
The plan is a defined benefit plan with premiums paid by the company and the employee. The plan is managed by an independent fund. Surpluses in the fund remain in the fund assets but can be utilized in the form of premium discounts. The plan is based on average salary and includes retirement pension, beneficiaries' pension and disability pension. The plan is obligated to meet the minimum legislated funding level. The plan applies a duration matching strategy to control the interest rate risk.
The plan is a defined benefit plan with contributions paid by the company. The plan consists of retirement pension, beneficiaries' pension and disability pension. The plan was closed to new participants in 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. Any surpluses in the pension plan remain in the plan. Whilst ongoing contributions have ceased, deficit contributions remain payable until 31 March 2023 under the current Schedule of Contributions. Should the plan go into surplus during this period then deficit contributions would cease for as long as the surplus remained . The plan is obligated to meet the minimum funding level according to an agreement with the pension plan.
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
Costs for the period for defined benefit plans
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Current service cost, after deduction for premiums paid by the employees |
–589 | –564 | –511 |
| Past service cost | 36 | 104 | –25 |
| Pension-tax expense | –33 | –32 | –27 |
| Remeasurement, net | 9 | –7 | –5 |
| Net interest income/expense | –83 | –136 | –117 |
| Pension costs before effects of settlements | –660 | –635 | –685 |
| Settlements | 16 | 42 | – |
| Pension costs after effects of settlements | –644 | –593 | –685 |
plan that provides retirement pension based on final salary. The ITP2 plan provides pension 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.
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 the US, 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.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Value, January 1 | 33,007 | 30,638 | 25,561 |
| Current service cost | 601 | 575 | 524 |
| Interest expense | 811 | 858 | 922 |
| Past service cost | –36 | –104 | 25 |
| Pension-tax expense | 33 | 32 | 27 |
| Settlements and transfers | –251 | 212 | –16 |
| Acquisitions and disposals | 2 | 972 | 2,168 |
| Benefits paid | –1,445 | –1,114 | –1,062 |
| Pension taxes paid | –12 | –5 | –49 |
| Remeasurement: financial assumptions | –1,102 | 1,332 | 3,966 |
| Remeasurement: demographic assumptions | –26 | –198 | –35 |
| Remeasurement: experience-based assumptions | 304 | –57 | –571 |
| Pension taxes pertaining to remeasurement | 69 | 55 | 30 |
| Transactions with shareholders | – | – | 22 |
| Translation differences | 1,127 | –189 | –874 |
| Value, December 31 | 33,082 | 33,007 | 30,638 |
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 unexpectedly high or low employee turnover or salary increases.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Fair value, January 1 | –30,418 –26,363 –23,839 | ||
| Interest income | –747 | –740 | –843 |
| Acquisitions and disposals | – | –661 | –1,473 |
| Contributions by plan participants | –12 | –11 | –13 |
| Contributions by the employer | –1,019 | –1,367 | –959 |
| Benefits paid, excluding settlements | 1,368 | 1,110 | 1,054 |
| Benefits paid for settlements | 226 | –226 | 30 |
| Return in excess of recognized interest income | 1,909 | –2,316 | –1,782 |
| Administrative expenses for pension obligations | 42 | 32 | 40 |
| Transactions with shareholders | – | – | 443 |
| Translation differences | –997 | 124 | 979 |
| Fair value, December 31 | –29,648 –30,418 –26,363 |
Interest-bearing securities, 39% Properties, real estate, 7% Other, 3% Shares and mutual funds, 51%
The plan assets are distributed according to the following classes of assets, 2017:
Interest-bearing securities, 31% Properties, real estate, 5% Other, 3% Shares and mutual funds, 61%
The plan assets are distributed according to the following classes of assets, 2016:
Interest-bearing securities, 32% Properties, real estate, 5% Other, 3% Shares and mutual funds, 60%
92% (95; 95) of the plan assets on the balance sheet date were traded on active markets in which market quotations are used for the valuation of assets. As in the preceding year, no financial instruments issued by Essity are included in the fair value of plan assets at December 31, 2018.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Value, January 1 | 804 | 663 | 1,162 |
| Interest expense | 19 | 18 | 38 |
| Transactions with shareholders | – | – | –498 |
| Other changes to asset ceiling | –116 | 123 | –39 |
| Value, December 31 | 707 | 804 | 663 |
Effect of asset ceiling pertains to funds in two Swedish foundations that can be used for possible future undertakings for early retirement for certain categories of employees.
| United | Nether | |||
|---|---|---|---|---|
| US | ||||
| 2.26 | 2.72 | 1.87 | 1.94 | 4.30 |
| 3.25 | N/A | 3.00 | 3.00 | N/A |
| 2.00 | 3.00 | 1.75 | 1.75 | N/A |
| 22 | 22 | 20 | 21 | 20 |
| 25 | 24 | 24 | 24 | 22 |
| 2.39 | 2.50 | 1.61 | 1.77 | 3.70 |
| 3.25 | 3.00 | 2.85 | 2.85 | N/A |
| 2.00 | 3.00 | 1.60 | 1.60 | N/A |
| 22 | 22 | 19 | 22 | 20 |
| 25 | 24 | 23 | 24 | 22 |
| 2.73 | 2.72 | 1.31 | 1.80 | 4.13 |
| 2.75 | 3.00 | 2.85 | 2.85 | N/A |
| 1.50 | 3.00 | 1.60 | 1.60 | N/A |
| 22 | 22 | 19 | 22 | 20 |
| 25 | 25 | 23 | 24 | 22 |
| Sweden | Kingdom | Germany | lands |
1) Life expectancy, expressed in years, for an individual currently aged 65.
The sensitivity of the defined benefit obligations with respect to the changes in the principal actuarial assumptions is as follows:
| SEKm | |
|---|---|
| Discount rate +0.25% | 1,361 |
| Price inflation, incl. salary inflation +0.25% | –1,047 |
| Life expectancy +1 year | –1,321 |
The above sensitivity analysis is calculated by changing one assumption while the others remain constant.
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.
The budgeted contributions for the company's defined benefit pension plans for 2019 were calculated at SEK 1,017m. Contributions for multiemployer plans for 2019 were calculated at SEK 43m.
Goodwill arises in connection with business combinations where the consideration transferred exceeds the fair value of the acquired net assets. Goodwill is recognized at cost less accumulated impairment and is an intangible asset with an indefinite useful life. This means that goodwill is not amortized, but rather is 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 associates or joint ventures is included in the carrying amount of the respective associate or joint venture.
Trademarks arise either in connection with company acquisitions or through agreements to purchase trademarks. Trademarks are recognized at cost after any accumulated amortization and accumulated impairment. Trademarks that have an indefinite useful life are not amortized, but rather are 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.
Intangible assets also include patents, licenses and other similar rights. Acquired assets of this type are recognized at cost and are amortized on a straight-line basis during their anticipated useful life, which varies between three and 20 years.
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 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 during the estimated useful life of the asset. The amortization period is between five and ten years.
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.
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 measured and recognized at market value as of the date when the allocation is received. During the period, the intangible asset is expensed in pace with carbon dioxide emissions made at the same time the deferred income is reversed by the corresponding amount in the form of income, 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.
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 with an addition for real price reductions and cost inflation 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).
| Goodwill | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Accumulated costs | 33,887 | 31,956 | 19,428 |
| Accumulated impairment | –334 | –259 | –175 |
| Total | 33,553 | 31,697 | 19,253 |
| Value, January 1 | 31,697 | 19,253 | 15,412 |
| Company acquisitions | 311 | 13,290 | 3,375 |
| Company divestments | – | – | – |
| Reclassifications | –7 | – | – |
| Impairment | –49 | –84 | –135 |
| Translation differences | 1,601 | –762 | 601 |
| BS Value, December 31 | 33,553 | 31,697 | 19,253 |
| Trademarks | Technologies, Customer relations and similar rights |
Capitalized development costs | Total Other intangible assets |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Accumulated costs | 14,438 | 13,840 | 6,782 | 11,863 | 11,404 | 4,472 | 447 | 352 | 12 | 26,748 | 25,596 | 11,266 |
| Accumulated amortization | –446 | –358 | –318 | –4,312 | –3,412 | –2,890 | –87 | –43 | –12 | –4,845 | –3,813 | –3,220 |
| Accumulated impairment | –446 | –365 | –452 | –73 | –65 | –5 | – | – | – | –519 | –430 | –457 |
| Total | 13,546 | 13,117 | 6,012 | 7,478 | 7,927 | 1,577 | 360 | 309 | – | 21,384 | 21,353 | 7,589 |
| Value, January 1 | 13,117 | 6,012 | 5,871 | 7,927 | 1,577 | 1,404 | 309 | – | 1 | 21,353 | 7,589 | 7,276 |
| Investments | – | – | – | 153 | 749 | 155 | 77 | 71 | – | 230 | 820 | 155 |
| Sales and disposals | – | – | – | –4 | –21 | –1 | – | – | – | –4 | –21 | –1 |
| Company acquisitions | 9 | 7,095 | 33 | 68 | 6,112 | 180 | – | 265 | – | 77 | 13,472 | 213 |
| Reclassifications | – | 28 | – | –59 | 285 | 128 | – | – | – | –59 | 313 | 128 |
| Amortization 1) | –78 | –68 | –59 | –929 | –754 | –321 | –42 | –31 | – | –1,049 | –853 | –380 |
| Impairment | –56 | – | – | – | –48 | –2 | – | – | – | –56 | –48 | –2 |
| Translation differences | 554 | 50 | 167 | 322 | 27 | 34 | 16 | 4 | –1 | 892 | 81 | 200 |
| Value, December 31 | 13,546 | 13,117 | 6,012 | 7,478 | 7,927 | 1,577 | 360 | 309 | – | 21,384 | 21,353 | 7,589 |
| TD1:1 Emission allowances, net value | 91 | 71 | 76 | |||||||||
| BS Value, December 31 including emission allowances |
21,475 | 21,424 | 7,665 | |||||||||
1) Amortization of Trademarks and Customer relations is included in Sales, general and administration while Technologies and Other intangible assets is included in Cost of goods sold.
Annual testing for impairment of goodwill is carried out in the fourth quarter. The testing showed that no impairment was needed for 2018, 2017 or 2016. 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, mainly attributable to the operating segment Personal Care, were impaired by SEK –105m.
| Goodwill Trademarks |
WACC, before tax % | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Personal Care | 17,029 | 16,039 | 3,036 | 8,524 | 8,230 | 1,109 | 9.8 | 9.5 | 11.3 |
| Consumer Tissue | 9,625 | 9,276 | 9,335 | 5,016 | 4,878 | 4,891 | 9.4 | 9.2 | 8.3 |
| Professional Hygiene | 6,899 | 6,382 | 6,882 | 6 | 9 | 12 | 8.1 | 8.2 | 8.3 |
| Total | 33,553 | 31,697 | 19,253 | 13,546 | 13,117 | 6,012 |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Accumulated costs | 91 | 71 | 88 |
| Accumulated revaluation of surplus | 0 | 0 | –12 |
| Total | 91 | 71 | 76 |
| Value, January 1 | 71 | 76 | 75 |
| Emission allowances received | 59 | 47 | 58 |
| Purchases | 25 | 17 | – |
| Settlement with the government | –68 | –71 | –64 |
| Revaluation of surplus | 0 | 0 | –1 |
| Translation differences | 4 | 2 | 8 |
| Value, December 31 | 91 | 71 | 76 |
Property, plant and equipment is recognized 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. The cost of properties and production facilities included in major projects includes 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.
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 |
| Buildings | Land and land improvements | Machinery and equipment | Construction in progress | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Accumulated costs | 23,255 | 21,158 | 20,253 | 4,276 | 4,014 | 3,887 | 80,511 | 73,111 | 71,071 | 4,970 | 4,678 | 3,901 |
| Accumulated amortization | –10,010 | –8,800 | –8,097 | –599 | –542 | –498 | –48,983 –43,710 –41,577 | – | –1 | –24 | ||
| Accumulated impairment | –271 | –295 | –331 | –51 | –26 | –64 | –1,392 | –1,073 | –992 | –33 | –32 | –35 |
| Total | 12,974 | 12,063 | 11,825 | 3,626 | 3,446 | 3,325 | 30,136 | 28,328 | 28,502 | 4,937 | 4,645 | 3,842 |
| Value, January 1 | 12,063 | 11,825 | 10,979 | 3,446 | 3,325 | 3,429 | 28,328 | 28,502 | 25,220 | 4,645 | 3,842 | 2,774 |
| Investments | 102 | 607 | 191 | 22 | 22 | 26 | 1,601 | 1,394 | 2,054 | 4,950 | 4,170 | 3,979 |
| Sales and disposals | –20 | –17 | –12 | –46 | –5 | –11 | –90 | –78 | –107 | –18 | –1 | – |
| Company acquisitions | 79 | 299 | 511 | 71 | 64 | 27 | 145 | 767 | 2,290 | 86 | 221 | 68 |
| Company divestments | – | –14 | – | – | –1 | 10 | – | –16 | – | – | – | – |
| Reclassifications | 1,134 | 389 | 505 | 87 | 113 | –161 | 3,714 | 2,779 | 2,297 | –4,895 | –3,507 | –3,066 |
| Amortization1) | –793 | –730 | –707 | –42 | –47 | –44 | –4,291 | –4,094 | –3,989 | – | – | –24 |
| Impairment | –23 | –65 | –159 | –30 | –11 | –102 | –372 | –178 | –127 | –3 | – | –32 |
| Translation differences | 432 | –231 | 517 | 118 | –14 | 151 | 1,101 | –748 | 864 | 172 | –80 | 143 |
| Value, December 31 | 12,974 | 12,063 | 11,825 | 3,626 | 3,446 | 3,325 | 30,136 | 28,328 | 28,502 | 4,937 | 4,645 | 3,842 |
1) Included primarily in Cost of goods sold.
| Total property, plant and equipment | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Accumulated costs | 113,012 102,961 | 99,112 | |
| Accumulated amortization | –59,592 –53,053 –50,196 | ||
| Accumulated impairment | –1,747 | –1,426 | –1,422 |
| Total | 51,673 | 48,482 | 47,494 |
| Value, January 1 | 48,482 | 47,494 | 42,402 |
| Investments | 6,675 | 6,193 | 6,250 |
| Sales and disposals | –174 | –101 | –130 |
| Company acquisitions | 381 | 1,351 | 2,896 |
| Company divestments | – | –31 | 10 |
| Reclassifications | 40 | –226 | –425 |
| Amortization1) | –5,126 | –4,871 | –4,764 |
| Impairment | –428 | –254 | –420 |
| Translation differences | 1,823 | –1,073 | 1,675 |
| BS Value, December 31 | 51,673 | 48,482 | 47,494 |
1) Included primarily in Cost of goods sold.
Impairment losses for the year totaling SEK –428m are mainly related to restructuring measures at production facilities in Professional Hygiene and Consumer Tissue.
During the period, interest was capitalized in machinery and equipment in an amount of SEK 24m (41; 19) and in construction in progress in an amount of SEK 0m (–; 31). The average interest rate used was 5% (5; 10).
Contract obligations relating to the acquisition of fixed assets amounted to SEK 3,563m at year end.
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 sales price is the calculated sales price received for normal business transactions less calculated sales costs.
| Inventories | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Raw materials and consumables | 3,937 | 4,162 | 3,156 |
| Spare parts and supplies | 1,656 | 1,513 | 1,443 |
| Products in progress | 1,546 | 1,420 | 1,262 |
| Finished products | 8,090 | 6,641 | 5,080 |
| Advance payments to suppliers | 5 | 3 | 3 |
| BS Total | 15,234 | 13,739 | 10,944 |
Impairment of inventories amounted to SEK 85m (47; 288), of which SEK 61m (4; 258) was recognized in conjunction with restructuring as an item affecting comparability, refer to Note B3 Operating expenses on page 77.
| Other current receivables | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| VAT receivables | 999 | 891 | 707 |
| Prepaid expenses and accrued income | 542 | 496 | 485 |
| Suppliers with debit balance | 43 | 256 | 155 |
| Receivables for electricity and gas | 134 | 116 | 103 |
| Receivables from authorities | 75 | 85 | 103 |
| Derivatives | 324 | 208 | 314 |
| Other receivables | 482 | 497 | 466 |
| BS Total | 2,599 | 2,549 | 2,333 |
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Other non-current liabilities | |||
| Derivatives | 8 | 5 | 2 |
| Other non-current liabilities | 63 | 74 | 70 |
| BS Total | 71 | 79 | 72 |
| Of which items that fall due for payment later than within five years |
17 | 17 | 28 |
| Other current liabilities | |||
| Derivatives | 35 | 42 | 76 |
| TD5:1 Accrued expenses and prepaid income | 10,190 | 9,575 | 8,843 |
| Other operating liabilities | 1,694 | 1,987 | 1,809 |
| VAT liabilities | 873 | 965 | 876 |
| BS Total | 12,792 | 12,569 | 11,604 |
| 2018 | 2017 | 2016 |
|---|---|---|
| 394 | 371 | 375 |
| 689 | 621 | 625 |
| 967 | 1,150 | 1,039 |
| 4,773 | 4,401 | 4,039 |
| 3,367 | 3,032 | 2,765 |
| 10,190 | 9,575 | 8,843 |
Provisions are recognized in the consolidated balance sheet when there is a legal or informal obligation arising from events that have occurred 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.
The amount of the provisions made relating to national competition investigations is based on the company's best assessment, which was determined in consultation with local expertise in the field.
In respect of tax risks, these are also based on Essity's best assessment, which in most cases is determined in consultation with local tax experts.
| SEKm | Efficiency programs Tax risks |
Environ ment |
Legal disputes |
Other | Total | |
|---|---|---|---|---|---|---|
| Value, January 1 | 555 | 890 | 66 | 820 | 697 | 3,028 |
| Provisions | 966 | 182 | 89 | 244 | 45 | 1,526 |
| Utilization | –421 | –1 | –68 | –10 | –169 | –669 |
| Reclassifications | –1 | 76 | – | – | –19 | 56 |
| Dissolutions | –103 | –419 | – | –66 | –265 | –853 |
| Translation differences | 27 | 3 | 4 | 20 | 24 | 78 |
| Value, December 31 | 1,023 | 731 | 91 | 1,008 | 313 | 3,166 |
| Provisions comprise: | ||||||
| BS Short-term component | 1,472 | |||||
| BS Long-term component | 1,694 |
| SEKm | 2017 | 2016 |
|---|---|---|
| Value, January 1 | 2,816 | 1,775 |
| Provisions | 958 | 2,165 |
| Company acquisitions | 191 | – |
| Utilization | –619 | –1,110 |
| Reclassifications | 77 | 15 |
| Dissolutions | –416 | –65 |
| Translation differences | 21 | 36 |
| Value, December 31 | 3,028 | 2,816 |
1) The timing of provisions totaling SEK 221m cannot be assessed.
2) At the end of January 2019, the Supreme Court in Spain dismissed Essity's appeal regarding breaches of competition law, meaning that Essity must pay fines of EUR 35m, corresponding to SEK 360m, in 2019. The amount has been recognized as a non-current provision in the 2018 year-end accounts but will be reclassified to current liabilities in the first quarter of 2019.
Provisions for the period for Efficiency programs are mainly attributable to restructuring measures at the production facilities of Professional Hygiene and Consumer Tissue. Provisions for the period for Tax risks relate mainly to uncertainty concerning the outcome of ongoing tax audits. Of the provisions for the period for Environment, SEK 89m pertains to a liability for carbon dioxide emissions, which will be paid out in 2019. Provisions for the period for Legal disputes relate mainly to an increased provision in a case for which a provision has already been made.
Dissolutions for the period for Efficiency programs are related to a dozen different restructuring programs from previous years. Dissolution for the period for Tax risks is primarily attributable to a tax dispute in Denmark. Dissolutions for the period for Legal disputes relate to a case in Hungary. Other dissolutions are attributable to a new assessment of risk relating to foreign tax of a non-recurring nature on non-current assets outside Sweden arising from the split of SCA into two listed companies.
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 Tax risks relate mainly to uncertainty concerning the restructuring programs implemented and the outcome of ongoing tax audits. Provisions for Environment pertain mainly to a liability for carbon dioxide emissions. Provisions for legal disputes mainly consist of reserves for cases relating to Spain, Chile, the Andean Community (CAN) and France. Other provisions mainly comprise reserves in connection with foreign tax of a non-recurring nature on non-current assets outside Sweden and grants received for future investment commitments in Italy.
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 recognized 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.
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 92. The fair value of short-term loans 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 is carried out in accordance with IFRS 9 in 2018. Under IFRS 9, financial assets are to be classified on the basis of the company's business model and the purpose of contractual cash flows.
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.
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 87m recognized in this category.
Financial assets that do not fulfill the requirements as stated in the categories stated 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 93.
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 93.
In 2017 and 2016, Essity classified it's financial instruments in accordance with IAS 39 in the following categories.
Assets are classified in this category when the intention is to sell in the short term.
This category also includes derivatives with positive market values not recognized using hedge accounting. Only financial derivatives were classified in this category during 2017 and 2016.
Financial assets that have determinable payments and that Essity intends to hold to maturity are included in this category. Assets in this category are measured at amortized cost applying the effective interest method, which means they are accrued so that a constant return is obtained.
This category comprises loan receivables that have determinable payments and are not quoted in an active market, as well as trade receivables. Receivables arise when Essity provides money, goods or services directly to another party with the intention to collect the contractual cash flows at maturity. Assets in this category are measured at amortized cost less a potential provision for impairment.
This category includes assets that are available for sale or that have not been classified in any of the other categories. These assets are measured at fair value through other comprehensive income.
This category includes derivatives with negative fair values that are not used for hedge accounting and financial liabilities held for trading. Liabilities in this category are continuously measured at fair value and changes in value are recognized in profit or loss. Only derivatives were classified in this category during 2017 and 2016.
This category includes financial liabilities that are not held for trading. These are recognized initially at fair value, net after transaction costs, and subsequently at amortized cost according to the effective interest method.
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 93.
| Measure | |||||
|---|---|---|---|---|---|
| SEKm | Note | ment level | 2018 | 2017 | 2016 |
| Financial assets measured at fair value through profit or loss |
|||||
| Derivatives – Non-current financial | |||||
| assets | E2 | 2 | 36 | 13 | 52 |
| Derivatives – Other non-current assets | 2 | – | – | 48 | |
| Derivatives – Current financial assets | E2 | 2 | 198 | 771 | 169 |
| Derivatives – Other current receivables | D4 | 2 | 59 | 33 | 171 |
| Total | 293 | 817 | 440 | ||
| Financial liabilities measured at fair value through profit or loss |
|||||
| Non-current financial liabilities | E4 | 2 | 16,083 | 16,292 | 16,021 |
| Current financial liabilities | E4 | 2 | 905 | – | 425 |
| Derivatives – Non-current financial | |||||
| liabilities | E4 | 2 | 58 | 21 | 19 |
| Derivatives – Current financial liabilities | E4 | 2 | 327 | 396 | 502 |
| Derivatives – Other current liabilities | D5 | 2 | 14 | 18 | 55 |
| Total | 17,387 | 16,727 | 17,022 | ||
| Loan and trade receivables measured at amortized cost |
|||||
| Non-current financial assets | E2 | – | 28 | 27 | 24 |
| Current financial assets | E2 | – | 95 | 274 | 61 |
| Trade receivables | E3 | – | 18,687 | 17,607 | 15,843 |
| Cash and cash equivalents | E2 | – | 3,008 | 4,107 | 4,244 |
| Total | 21,818 | 22,015 | 20,172 | ||
| Financial assets measured at fair value through other comprehensive income |
|||||
| Non-current financial assets | E2 | 1 | 87 | – | – |
| Available-for-sale financial assets | |||||
| Non-current financial assets | E2 | 1 | – | 87 | 82 |
| Financial liabilities measured at amortized cost |
|||||
| Non-current financial liabilities | E4 | – | 27,359 | 31,312 | 15,256 |
| Current financial liabilities | E4 | – | 9,580 | 6,689 | 4,059 |
| Trade payables | – | – | 15,911 | 14,748 | 12,972 |
| Total | 52,850 | 52,749 | 32,287 | ||
| Derivatives used for hedge accounting |
|||||
| Non-current financial assets | E2 | 2 | 483 | 425 | 556 |
| Other non-current assets | – | 2 | 85 | 78 | 106 |
| Other current receivables | D4 | 2 | 265 | 175 | 143 |
| Current financial assets | E2 | 2 | 129 | 60 | 14 |
| Total | 962 | 738 | 819 | ||
| Non-current financial liabilities | E4 | 2 | – | 12 | 3 |
| Other non-current liabilities | D5 | 2 | 8 | 5 | 2 |
| Current financial liabilities | E4 | 2 | 15 | 116 | 103 |
| Other current liabilities | D5 | 2 | 21 | 24 | 21 |
| Total | 44 | 157 | 129 |
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 92.
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 | |||||||
|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | |||||
| SEKm | Note | Financial instruments |
Of which deri vatives |
Financial instruments |
Of which deri vatives |
Financial instruments |
Of which deri vatives |
| Assets | |||||||
| Financial assets, cash and cash equivalents |
E2 | 4,064 | 846 | 5,764 | 1,269 | 5,202 | 791 |
| Other non current assets |
85 | 85 | 78 | 78 | 154 | 154 | |
| Trade receivables |
E3 | 18,687 | – | 17,607 | – | 15,843 | – |
| Other current receivables |
D4 | 324 | 324 | 208 | 208 | 314 | 314 |
| Total | 23,160 | 1,255 | 23,657 | 1,555 | 21,513 | 1,259 | |
| Liabilities | |||||||
| Financial liabilities |
E4 | 54,327 | 400 | 54,838 | 545 | 36,388 | 627 |
| Other non current liabilities |
D5 | 8 | 8 | 5 | 5 | 2 | 2 |
| Trade payables | 15,911 | – | 14,748 | – | 12,972 | – | |
| Other current liabilities |
D5 | 35 | 35 | 42 | 42 | 76 | 76 |
| Total | 70,281 | 443 | 69,633 | 592 | 49,438 | 705 |
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.
| Carrying amount | |||||
|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | ||
| Non-current financial assets | |||||
| Financial assets measured at fair value through other comprehensive income |
87 | – | – | ||
| Available-for-sale financial assets | – | 87 | 82 | ||
| Financial assets measured at amortized cost | |||||
| Loan receivables, other | 28 | 27 | 24 | ||
| Derivatives | 519 | 438 | 608 | ||
| BS Total | 634 | 552 | 714 | ||
| Current financial assets | |||||
| Financial assets measured at amortized cost | |||||
| Financial assets | 22 | 19 | 19 | ||
| Loan receivables, other | 73 | 255 | 42 | ||
| Derivatives | 327 | 831 | 183 | ||
| BS Total | 422 | 1,105 | 244 | ||
| Cash and cash equivalents | |||||
| Cash and bank balances | 2,611 | 3,365 | 2,888 | ||
| Current investments < 3 months | 397 | 742 | 1,356 | ||
| BS Total | 3,008 | 4,107 | 4,244 | ||
| Total financial assets, cash and cash equivalents | 4,064 | 5,764 | 5,202 |
Financial assets measured at fair value through comprehensive income relate to an equity instrument which on transition to IFRS 9 was irrevocably classified in this category without any option of recirculation due to the longterm 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 C5 Remuneration after termination of employment on page 82. For 2017 and 2016, this asset was recognized in Available-for-sale financial assets. 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, 2018 include SEK 2,260m (1,974; 1,672) 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. These cash and cash equivalents can also be used to repay local debts in the respective countries. Such liabilities in these countries amounts to SEK 1,045m (821; 1,361).
Trade receivables are recognized at amortized cost after a provision is made for doubtful receivables. As of 2018, provisions for doubtful receivables are made using the simplified impairment method that can be selected according to the expected loss model in IFRS 9 for trade receivables with an amount that corresponds to the expected credit losses for the remaining terms of all outstanding trade receivables as per the balance sheet date. The calculation of the impairment requirement for doubtful receivables is based on a combination of a collective and individual assessment. A collective assessment is based on experience from the historical confirmed total credit loss level in relation to total 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. The collective assessment is therefore adjusted 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 changes, such as financial crises or natural disasters.
At the beginning of 2018, confirmed credit losses on trade receivables for the years 2014–2017 averaged 0.03% of net sales. In conjunction with the implementation of IFRS 9, Essity has, on the basis of this loss level, recognized a non-recurring effect in the opening balance for 2018 and reduced trade receivables by SEK 9m and equity by SEK 7m after deferred tax on account of the changed accounting principles.
Previously, the impairment of trade receivables was based on the incurred loss model, according to which individual provisions were made for trade receivables that were not expected to be received due to known financial problems of the customer or when payment had not been received for older, overdue trade receivables despite several reminders and overdue notices. The major difference compared with the earlier principle is that Essity now also makes a provision for expected credit losses on trade receivables that have not fallen due or have fallen due for less than 90 days.
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. Note G5 Changes due to new accounting rules on page 107 describes the transition method and effects of the transition to IFRS 9 for estimation of credit losses on trade receivables.
| Trade receivables | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Trade receivables, gross | 18,963 | 17,864 | 16,116 |
| Provision to reserves for doubtful receivables | –276 | –257 | –273 |
| BS TE3:1 Total | 18,687 | 17,607 | 15,843 |
| TE3:1 Analysis of credit risk exposure in trade receivables | |||||
|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | ||
| Trade receivables, not overdue (net) | 16,191 | 15,529 | 14,175 | ||
| Trade receivables, overdue (net) | |||||
| < 30 days | 1,486 | 1,389 | 1,161 | ||
| 30–90 days | 593 | 425 | 276 | ||
| > 90 days | 417 | 264 | 231 | ||
| Trade receivables, overdue (net) | 2,496 | 2,078 | 1,668 | ||
| Total | 18,687 | 17,607 | 15,843 |
Essity's customer structure is dispersed, with customers in many different areas of business. In 2018, Essity's ten largest customers accounted for 23.6% (22.9; 26.6) of Essity's sales. The single largest customer accounted for 4.4% (3.6; 4.0) of sales.
Including confirmed credit losses in 2018, the average confirmed credit losses on trade receivables over the past five years has declined from 0.03% to 0.02% of net sales. This, combined with Essity's overall assessment that the credit risk in the countries where Essity conducts the majority of its sales has not changed materially in 2018, has meant that only a minor adjustment has been made to the collective assessment (see accounting principles above) regarding the expected impairment requirement for doubtful receivables.
In total, the Group has collateral mainly in the form of credit insurance taken out amounting to SEK 939m (1,329; 867). Of this amount, SEK 107m (203; 59) relates to the category trade receivables overdue but not impaired.
| Provision to reserves for doubtful receivables | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Value, January 1 | –257 | –273 | –209 |
| Provision for possible credit losses | –52 | –61 | –95 |
| Confirmed losses | 15 | 12 | 21 |
| Increase due to acquisitions | – | –53 | – |
| Decrease due to reversal of provisions for possible credit losses |
23 | 116 | 15 |
| Translation differences | –6 | 2 | –5 |
| Value, December 31 | –276 | –257 | –273 |
The expense for the period for doubtful receivables amounted to SEK –28m (–55; –80).
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 recognized 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.
| Financial liabilities | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Current financial liabilities | |||
| Amortization within one year | 347 | 269 | 256 |
| Bond issues | 3,005 | 2,946 | – |
| Derivatives | 342 | 512 | 604 |
| Loans with maturities of less than one year | 6,948 | 3,305 | 4,132 |
| Accrued financial expenses | 185 | 169 | 97 |
| BS Total1) | 10,827 | 7,201 | 5,089 |
| Non-current financial liabilities | |||
| Bond issues | 34,247 | 35,687 | 18,708 |
| Derivatives | 58 | 33 | 23 |
| Other non-current loans with maturities > 1 year < 5 years | 6,884 | 9,876 | 8,078 |
| Other non-current loans with maturities > 5 years | 2,311 | 2,041 | 4,490 |
| BS Total | 43,500 | 47,637 | 31,299 |
| Total financial liabilities | 54,327 | 54,838 | 36,388 |
| Fair value of financial liabilities | 54,434 | 54,227 | 36,719 |
1) Fair value of current loans is estimated to be the same as the carrying amount.
Essity has a Euro Medium Term Note (EMTN) program with a program amount of EUR 6,000m (SEK 61,633) for issuing bonds in the European capital market. As of December 31, 2018, a nominal EUR 3,728m (4,188; 2,217) was outstanding with a remaining maturity of 4.2 years (4.7; 4.8).
| Issued | Maturity | Carrying amount, SEKm |
Fair value, SEKm |
Interest rate, % |
|---|---|---|---|---|
| Notes SEK 500m | 2019 | 500 | 500 | 2.5 |
| Notes SEK 900m | 2019 | 905 | 900 | 0.75 |
| Notes SEK 1,000m | 2019 | 1,000 | 1,000 | –0.15 |
| Notes SEK 600m | 2019 | 601 | 601 | –0.32 |
| Notes EUR 300m | 2020 | 3,112 | 3,103 | 0.50 |
| Notes EUR 500m | 2021 | 5,149 | 5,161 | 0.50 |
| Notes EUR 600m | 2022 | 6,136 | 6,182 | 0.63 |
| Notes EUR 500m | 2023 | 5,458 | 5,517 | 2.50 |
| Notes EUR 600m | 2024 | 6,139 | 6,216 | 1.13 |
| Notes EUR 300m | 2025 | 3,153 | 3,083 | 1.13 |
| Notes EUR 500m | 2027 | 5,100 | 5,165 | 1.63 |
| Total | 37,253 | 37,428 |
| Non-current financial liabilities | Carrying amount, SEKm |
Fair value, SEKm |
|---|---|---|
| Other non-current loans with maturities > 1 year < 5 years | 6,884 | 7,025 |
| Other non-current loans with maturities > 5 years | 2,311 | 2,284 |
| Total | 9,195 | 9,309 |
Essity has a Swedish and a Belgian commercial paper program that can be utilized for current borrowing.
| Program size | Issued SEKm |
|---|---|
| Commercial paper SEK 15,000m | 551 |
| Commercial paper EUR 800m | 2,880 |
| Total | 3,431 |
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.
| Nominal | Maturity | Total SEKm |
Utilized SEKm |
Unutilized SEKm |
|
|---|---|---|---|---|---|
| Syndicated credit facilities | EUR 1,000m | 2021 | 10,277 | – | 10,277 |
| EUR 1,000m | 2024 | 10,277 | – | 10,277 | |
| Total | 20,554 | – | 20,554 |
1) Gross debt includes accrued interest in the amount of SEK 318m.
After additions for net pension provisions and with deductions for cash and cash equivalents, interest-bearing receivables and capital investment shares, the net debt was SEK 54,404m (52,467; 35,173). For a description of the methods used by Essity to manage its refinancing risk, refer to the Risks and risk management section on page 33.
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 38.
| Less than 1 year |
Between 1 and 3 years |
Between 3 and 5 years |
More than 5 years |
|---|---|---|---|
| 10,998 | 14,864 | 13,686 | 16,975 |
| 0 | 0 | 0 | – |
| 22 | 8 | – | – |
| 15,786 | 125 | – | – |
| 26,806 | 14,997 | 13,686 | 16,975 |
| 57,937 | 2,101 | 466 | |
| 7,014 | 10,814 | 18,277 | 21,255 |
| –11 | –22 | –4 | – |
| 11 | 3 | – | – |
| 14,589 | 159 | – | – |
| 21,603 | 10,954 | 18,273 | 21,255 |
| 65,401 | 1,921 | 1,414 | – |
| 4,791 | 10,069 | 10,964 | 11,475 |
| –6 | –16 | –11 | – |
| 29 | 1 | – | – |
| 12,790 | 182 | – | – |
| 17,604 | 10,236 | 10,953 | 11,475 |
| 38,315 | 2,392 | 51 | 1,373 |
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.
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 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.
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. Cash flow hedges relating to interest expenses are recognized in net financial items.
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.
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.
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 | ||||||||
| 2018 | ||||||||||||
| Nominal | 80,623 | 60,744 | 17,935 | 1,944 | ||||||||
| Asset | 1,255 | 370 | 489 | 396 | ||||||||
| Liability | 443 | 412 | 1 | 30 | ||||||||
| 2017 | ||||||||||||
| Nominal | 86,503 | 69,073 | 15,885 | 1,545 | ||||||||
| Asset | 1,555 | 891 | 425 | 239 | ||||||||
| Liability | 592 | 565 | 12 | 15 | ||||||||
| 2016 | ||||||||||||
| Nominal | 56,599 | 38,695 | 16,094 | 1,810 | ||||||||
| Asset | 1,259 | 351 | 561 | 347 | ||||||||
| Liability | 705 | 664 | 11 | 30 |
1) Nominal SEK 69,588m (100,661; 110,115) is outstanding before the right of set-off.
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 33. The table above shows the derivatives that impacted the Group's balance sheet on December 31, 2018. For more information relating to derivatives in the balance sheet, see Note E1 Financial instruments by category on page 90.
| SEKm | Assets | Liabilities |
|---|---|---|
| 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 |
| December 31, 2017 | ||
| Gross amount | 1,669 | 706 |
| Offsettable amount | –114 | –114 |
| Net amount recognized in the balance sheet | 1,555 | 592 |
| ISDA agreements whose transactions are not offset in the balance sheet |
–471 | –471 |
| Net after offsetting in accordance with ISDA agreements | 1,084 | 121 |
| December 31, 2016 | ||
| Gross amount | 2,394 | 1,840 |
| Offsettable amount | –1,135 | –1,135 |
| Net amount recognized in the balance sheet | 1,259 | 705 |
| ISDA agreements whose transactions are not offset in the balance sheet |
–288 | –288 |
| Net after offsetting in accordance with ISDA agreements | 971 | 417 |
Hedges pertaining to transaction exposure had an impact of SEK 92m (–106; 64) on operating profit for the period. At year-end, the net market value amounted to SEK 0m (–9; 45). Currency hedges increased the cost of non-current assets by SEK 1m (increased: 10; reduced: 5). At year-end, the net market value amounted to SEK –1m (20; 24). Energy derivatives had an impact of SEK 396m (90; –239) on operating profit for the period. Energy derivatives had an outstanding market value of SEK 366m (225; 317) at year-end. Derivatives impacted net interest items in an amount of SEK –362m (–289; –68). The net market value of outstanding interest rate derivatives amounted to SEK 489m (413; 550) at year-end. For further information relating to net financial items, see Note E7 Financial income and expenses on page 96.
Essity has performed sensitivity analysis calculations on the financial instruments' risk at December 31, 2018 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 7m (54; 4).
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 0m (0; 1). 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 299m (214; 203). In addition to the earnings impact, equity would have increased/decreased by SEK 136m (120; 107). 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.
The various risk management strategies are presented in the Risks and risk management section on page 33. 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 income statement. Hedge accounting is not 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, which came into effect on January 1, 2018, provides the option of hedging risk components. In 2018, 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.
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 2018, SEK 0m (0, 0) was recognized in profit or loss as ineffectiveness concerning the cash flow hedges. Currency derivatives mature within one year, while energy derivatives mature in December 2020.
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 performance measures 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 –122m (–1,968, –437). This result is largely due to hedges of net investments in USD and EUR. In 2018, 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 353m (170; 167). In total at year-end, Essity hedged net investments outside Sweden amounting to SEK –18,794m. The Essity Group's total foreign net investments at year-end amounted to SEK 65,679m. Primarily currency derivatives are used to hedge net investments. Loans in foreign currency (EUR) were also used to hedge net investments in 2018.
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 Net financial items under the item Fair value hedges, unrealized. See Note E7 Financial income and expenses on page 96.
| 2018 | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| 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 | 60 | 7 | 11 | 0 | |||
| Currency derivatives – cash flow hedges | Other current receivables | 270 | 3 | 267 | 26 | 159 | 6 | |
| Currency derivatives – cash flow hedges | Other non-current liabilities | 13 | 2 | 72 | 1 | |||
| Currency derivatives – cash flow hedges | Other current liabilities | 179 | 4 | 266 | 13 | 171 | 5 | |
| Energy derivatives – cash flow hedges | Other non-current assets | 588 | 85 | 544 | 70 | 498 | 106 | |
| Energy derivatives – cash flow hedges | Other current receivables | 901 | 262 | 712 | 146 | 655 | 135 | |
| Energy derivatives – cash flow hedges | Other non-current liabilities | 128 | 8 | 63 | 3 | 13 | 1 | |
| Energy derivatives – cash flow hedges | Other current liabilities | 281 | 17 | 148 | 11 | 188 | 17 | |
| Currency derivatives – hedging of net investments | Non-current financial assets | – | – | |||||
| Currency derivatives – hedging of net investments | Current financial assets | 10,470 | 143 | 4,303 | 60 | 12,839 | 704 | |
| Currency derivatives – hedging of net investments | Non-current financial liabilities | – | – | |||||
| Currency derivatives – hedging of net investments | Current financial liabilities | 2,726 | 15 | 18,599 | 230 | 26,276 | 537 |
| 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 |
| 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 | 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 | |||
| 2017 | |||||||
| Current derivatives | |||||||
| 2018 | |||||||
| Non-current derivatives | |||||||
| 2019 | 900 | –2 | 2 | 0 | 12 | Stibor +0.506 | |
| 2020 | 2,952 | –6 | 7 | 1 | 33 | Euribor 6m +0.2827–0.2829 | |
| 2021 | 4,920 | –10 | 12 | 2 | 12 | Euribor 6m +0.5502–0.5527 | |
| 2022 | 226 | –4 | 4 | 0 | 9 | Euribor 3m +0.698 | |
| 2023 | 3,936 | –80 | 114 | 34 | 346 | Euribor 6m +0.7215–0.73165 | |
| 2025 | 2,952 | –40 | 35 | –5 | 25 | Euribor 6m +0.514–0.5168 | |
| 15,886 | –142 | 174 | 32 | 425 | 12 | ||
| 2016 | |||||||
| Current derivatives | |||||||
| 2017 | 419 | –45 | 45 | 0 | 5 | 5 | USDLibor +0.8 |
| Non-current derivatives | |||||||
| 2019 | 900 | 12 | –12 | 0 | 15 | Stibor +0.506 | |
| 2020 | 2,867 | 38 | –35 | 3 | 38 | Euribor 6m +0.2827–0.2829 | |
| 2021 | 4,779 | –16 | 13 | –3 | 3 | Euribor 6m +0.5502–0.5527 | |
| 2022 | 271 | 48 | –48 | 0 | 13 | Euribor 3m +0.698 | |
| 2023 | 3,823 | 160 | –148 | 12 | 426 | Euribor 6m +0.7215–0.73165 | |
| 2025 | 2,867 | 140 | –128 | 12 | 64 | Euribor 6m +0.514–0.5168 | |
| 15,926 | 337 | –313 | 24 | 561 | 8 |
| SEKm | Asset | Liability | Net | Tax | Hedge reserve after tax |
Recirculated before tax |
Line in the income statement/ balance sheet |
|---|---|---|---|---|---|---|---|
| 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 | ||
| 2017 | |||||||
| Derivatives with hedge accounting in hedge reserve | |||||||
| Cash flow hedges | |||||||
| Energy risk | 216 | –14 | 202 | –50 | 152 | –69 | 3) |
| Currency risk | 33 | –15 | 18 | –4 | 14 | 23 | 4) |
| Total | 249 | –29 | 220 | –54 | 166 | ||
| Derivatives with hedge accounting without hedge reserve | |||||||
| Hedges of net investments in foreign operations | |||||||
| Currency risk2) | 60 | –230 | –170 | ||||
| Fair value hedges | |||||||
| Interest rate risk | 425 | –12 | 413 | ||||
| Total | 734 | –271 | 463 | –54 | 166 | ||
| 2016 | |||||||
| Derivatives with hedge accounting in hedge reserve | |||||||
| Cash flow hedges | |||||||
| Energy risk | 241 | –18 | 223 | –59 | 164 | 269 | 3) |
| Currency risk | 6 | –6 | – | – | – | –14 | 4) |
| Total | 247 | –24 | 223 | –59 | 164 | ||
| Derivatives with hedge accounting without hedge reserve | |||||||
| Hedges of net investments in foreign operations | |||||||
| Currency risk2) | 704 | –537 | 167 | ||||
| Fair value hedges | |||||||
| Interest rate risk | 561 | –8 | 553 | ||||
| Total | 1,512 | –569 | 943 | –59 | 164 |
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 Buildings, land, machinery and equipment
The results from hedging of net investments in foreign operations are recognized in the translation reserve, refer to Note E8 Shareholders' equity on page 96. The results from fair value hedges are recognized directly in profit or loss.
Currency derivatives relating to hedging of transaction exposure mature mainly during the first quarter of 2019. With unchanged exchange rates, profit after tax will be affected in an amount of SEK 0m (neg. 1; pos. 2). Currency derivatives relating to hedging of the cost of non-current assets have a maturity spread until November 2019. With unchanged exchange rates, the cost of non-current assets will increase by SEK 1m (decrease: 15; increase: 2) after tax. The derivatives intended to hedge energy costs in the Group mature during 2019 and 2020. With unchanged prices, the Group's profit after tax will be affected positively in an amount of SEK 245m (pos: 152; pos: 164).
| Financial income and expenses | |
|---|---|
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Results from shares and participations in other companies |
|||
| Dividend | 2 | 2 | 2 |
| Interest income and similar profit items | |||
| Interest income, investments | 85 | 156 | 186 |
| Other financial income | 4 | – | 14 |
| Total financial income | 91 | 158 | 202 |
| Interest expenses and similar loss items | |||
| Interest expenses, borrowing | –836 | –882 | –843 |
| Interest expenses, derivatives | –354 | –321 | –92 |
| Fair value hedges, unrealized | –8 | 32 | 24 |
| Other financial expenses | –50 | –169 | –126 |
| Total financial expenses | –1,248 | –1,340 | –1,037 |
| Total | –1,157 | –1,182 | –835 |
Other financial income and expenses include an exchange difference of SEK 4m (–70; 14).
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. When these shares are sold, the sales proceeds are included in retained earnings in the equity pertaining to owners of the Parent.
Furthermore, transactions considered to be transfers between companies that are jointly controlled are recognized as separate transactions with shareholders as shown below.
Equity totaled SEK 54,899m (49,570; 39,580) at December 31, 2018. The following tables show the distribution and profit for the period.
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 123m (83; 103) higher/lower. Sensitivity analysis calculations have been performed on the risk to which Essity was exposed at December 31, 2018 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 38.
| SEKm | Share capital |
TE8:1 Reserves |
Retained earnings |
Equity attributable to Essity's shareholders |
Non controlling interests |
Total 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 recognized in profit or loss | 7,886 | 7,886 | 666 | 8,552 | ||
| Other comprehensive income for the period | ||||||
| Items that may not be reclassified to the income statement | ||||||
| Actuarial gains/losses on defined benefit pension plans1) | –1,038 | –1,038 | 2 | –1,036 | ||
| Measured at 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 associates | 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 | |
| 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 | |||
| Dividend, SEK 5.75 per share 2) | –4,038 | –4,038 | –397 | –4,435 | ||
| BS Value, December 31 | 2,350 | 5,003 | 39,788 | 47,141 | 7,758 | 54,899 |
| Value, January 1, 2017 0 4,061 29,143 33,204 6,376 39,580 IS Profit for the period recognized in profit or loss 8,116 8,116 669 8,785 Other comprehensive income for the period Items that may not be reclassified to the income statement Actuarial gains/losses on defined benefit pension plans1) 1,065 1,065 –4 1,061 TE8:2 Income tax attributable to components in other comprehensive income –218 –218 – –218 847 847 –4 843 Items that have been or may be reclassified subsequently to the income statement Available-for-sale financial assets: Result from measurement at fair value recognized in equity 0 0 Cash flow hedges: Result from remeasurement of derivatives recognized in equity 35 35 35 Transferred to profit or loss for the period –56 –56 –56 Transferred to cost of hedged investments 10 10 10 Acquired cash flow hedges 4 –4 – – Translation differences in foreign operations 628 628 –308 320 Gains/losses from hedges of net investments in foreign operations –1,968 –1,968 –1,968 Other comprehensive income from associates –22 –22 –22 TE8:2 Income tax attributable to components in other comprehensive income 440 –1 439 439 Other comprehensive income for the period, net of tax –907 820 –87 –312 –399 Comprehensive income for the period –907 8,936 8,029 357 8,386 Bonus issue 2,350 –2,350 – – Private placement to non-controlling interests 504 504 465 969 Private placement to non-controlling interests, dilution –290 –290 290 – Acquisition of non-controlling interests – 78 78 Transactions with shareholders 842 842 – 842 Dividend to non-controlling interests – –285 –285 BS Value, December 31 2,350 3,154 36,785 42,289 7,281 49,570 Value, January 1, 2016 0 1,501 41,485 42,986 5,289 48,275 IS Profit for the period recognized in profit or loss 3,800 3,800 442 4,242 Other comprehensive income for the period Items that may not be reclassified to the income statement Actuarial gains/losses on defined benefit pension plans1) –1,570 –1,570 1 –1,569 TE8:2 Income tax attributable to components in other comprehensive income 421 421 – 421 –1,149 –1,149 1 –1,148 Items that have been or may be reclassified subsequently to the income statement Available-for-sale financial assets: Result from measurement at fair value recognized in equity –1 –1 –1 Cash flow hedges: Result from remeasurement of derivatives recognized in equity 275 275 275 Transferred to profit or loss for the period 274 274 274 Transferred to cost of hedged investments –19 –19 –19 Translation differences in foreign operations 2,508 2,508 234 2,742 Gains/losses from hedges of net investments in foreign operations –437 –437 –437 Other comprehensive income from associates 12 12 12 TE8:2 Income tax attributable to components in other comprehensive income –40 –1 –41 –41 Other comprehensive income for the period, net of tax 2,560 –1,138 1,422 235 1,657 Comprehensive income for the period 2,560 2,662 5,222 677 5,899 Private placement to non-controlling interests 240 240 199 439 Private placement to non-controlling interests, dilution –110 –110 110 – Issue expenses, private placement –4 –4 –4 –8 Acquisition of non-controlling interests –799 –799 643 –156 Acquisition of non-controlling interests, dilution 348 348 –348 – Transactions with shareholders –14,679 –14,679 – –14,679 Dividend to non-controlling interests – –190 –190 BS Value, December 31 0 4,061 29,143 33,204 6,376 39,580 |
SEKm | Share capital |
TE8:1 Reserves |
Retained earnings |
Equity attributable to Essity's shareholders |
Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|
1) Including payroll tax.
2) Dividend of SEK 5.75 per share pertains to owners of the Parent. For the 2018 fiscal year, the Board of Directors has decided to propose a divided of SEK 5.75 per share to the Annual General Meeting.
| Fair value through | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revaluation reserve1) | Hedge reserve2) | Available-for-sale assets | comprehensive income | Translation reserve | |||||||||||
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Value, January 1 | 107 | 107 | 107 | 166 | 164 | –229 | 6 | 6 | 7 | – | 2,875 | 3,784 | 1,616 | ||
| Reclassification | –6 | 6 | |||||||||||||
| Measured at fair value through other comprehensive income |
–5 | ||||||||||||||
| Available-for-sale financial assets: | |||||||||||||||
| Result from measurement at fair value recognized in equity |
–1 | ||||||||||||||
| Cash flow hedges: | |||||||||||||||
| Result from remeasurement of derivatives recognized in equity |
471 | 35 | 275 | ||||||||||||
| Transferred to profit or loss for the period | –378 | –56 | 274 | ||||||||||||
| Transferred to cost of hedged investments |
– | 10 | –19 | ||||||||||||
| Acquired cash flow hedges | 4 | ||||||||||||||
| Translation differences in foreign operations3) | 6 | 2 | –1 | 2 | 1,868 | 626 | 2,509 | ||||||||
| Gains/losses from hedges of net investments in foreign operations |
–122 –1,968 | –437 | |||||||||||||
| Tax on items recognized directly in/transferred from equity |
–21 | 7 | –136 | 1 | 26 | 433 | 96 | ||||||||
| Other comprehensive income for the period, net of tax |
78 | 2 | 393 | –6 | –1 | 4 | 1,772 | –909 | 2,168 | ||||||
| Transfer from equity to cost of hedged investments, net of tax |
1 | ||||||||||||||
| Value, December 31 | 107 | 107 | 107 | 245 | 166 | 164 | – | 6 | 6 | 4 | 4,647 | 2,875 | 3,784 |
1) Revaluation reserve includes effect on equity of step acquisitions.
2) See also Note E6 Derivatives and hedge accounting on page 93 for details of when gains or losses are expected to be recognized.
3) Transfer to profit or loss of realized exchange gains/losses relating to divested companies is included in the amount of SEK 0m (–19; –13).
| income | 2018 | 2017 | 2016 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 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 | –1,036 | 175 | –861 | 1,061 | –218 | 843 | –1,569 | 421 | –1,148 |
| Measured at fair value through other comprehensive income | –5 | 1 | –4 | ||||||
| Available-for-sale financial assets | – | – | – | – | – | – | –1 | – | –1 |
| Cash flow hedges | 93 | –21 | 72 | –11 | 7 | –4 | 530 | –136 | 394 |
| Translation differences in foreign operations | 2,080 | – | 2,080 | 320 | – | 320 | 2,742 | – | 2,742 |
| Other comprehensive income from associates | 23 | –1 | 22 | –22 | –1 | –23 | 12 | –1 | 11 |
| Gains/losses from hedges of net investments in foreign operations | –122 | 26 | –96 | –1,968 | 433 | –1,535 | –437 | 96 | –341 |
| Other comprehensive income for the period | 1,033 | 180 | 1,213 | –620 | 221 | –399 | 1,277 | 380 | 1,657 |
At December 31, 2018, the debt/equity ratio amounted to 0.99 (1.06; 0.89). Changes in liabilities and equity are described in the Financial position section on page 32. 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 33. The Essity share section on page 6 outlines Essity's dividend policy, while its capital structure is described in the Objectives, targets and outcomes section on page 12.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Dividend/Group contribution | – | –255 | –4,637 |
| Contributions received | – | 903 | 1,271 |
| Tax effect | – | 194 | 599 |
| Transfer of net assets till SCA's forest products business1) |
– | – | –11,912 |
| Total | – | 842 | –14,679 |
1) The take over by Essity Aktiebolag (publ) on December 30, 2016 of the majority of the external financing that existed within SCA is the reason for the major change in transactions with shareholders in equity in 2016. For further information, see note G4 Transactions with related parties on page 106.
The companies over which Essity has control are consolidated as subsidiaries. Control means that Essity has sufficient influence to control the activities of the subsidiary, has the right to its returns, has control over its exposure and is able to impact the return of the company through its influence. Most of the Group's subsidiaries 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; Essity also has control of these companies, despite the fact that there are significant non-controlling interests in the companies.
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 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 subsidiary that do not lead to a loss of controlling influence are recognized as an equity transaction.
The Group's participations in major subsidiaries at December 31, 2018 are presented below. The following selection of wholly owned subsidiaries and subsidiaries with significant non-controlling interests includes companies with external sales in excess of SEK 500m in 2018.
| Company name | Corp. Reg. No. | Domicile | Share of equity at December 31, 2018 |
Share of equity at December 31, 2017 |
Share of equity at December 31, 2016 |
|---|---|---|---|---|---|
| Essity France SAS | 509 395 109 | Saint-Ouen, France | 100 | 100 | 100 |
| Essity Holding Nederlands B.V. | 30-135 724 | Zeist, Netherlands | 100 | 100 | 100 |
| SCA Hygiene Products (Fluff) 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 | 55 |
| 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 |
| 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 |
| Productos Familia del Sancela Ecuador S.A.1) | 1791314379001 | Quito, Ecuador | 50 | 50 | 50 |
| Essity Norway AS | 915 620 019 | Oslo, Norway | 100 | 100 | 100 |
| Essity Switzerland AG | CH-020.3.917.992-8 | Schenkon, Switzerland | 99 | 99 | 99 |
| 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 | – |
| BSN Radiante SAS | 652 880 519 | Le Mans, France | 100 | 100 | – |
| BSN Medical Distribution Limited | 04381725 | Willerby, UK | 100 | 100 | – |
| BSN Medical Inc. | 3269728 | North Carolina, USA | 100 | 100 | – |
| BSN-Jobst GmbH | HRB 3482 | Emmerich, Germany | 100 | 100 | – |
| Essity Canary Islands, SL (Sociedad Unipersonal) | B35089242 | Telde, Spain | 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 |
1) Essity has a small number of jointly owned subsidiaries with significant non-controlling interests, see TF2:1 on page 100.
Vinda is one of China's largest hygiene companies. Essity has been a shareholder in Vinda since 2007, became its majority shareholder in late 2013 and has consolidated Vinda's financials since the first quarter of 2014. In 2014, Essity divested its hygiene business in China, Hong Kong and Macau for integration with Vinda. In 2016, Essity's divestment of its business in Southeast Asia, Taiwan and South Korea for integration with Vinda was approved by the company's independent shareholders and the transaction was completed on April 1, 2016. Following this transaction, Essity's holding amounted to 54.6%. In 2017, Vinda acquired a property via a private placement that diluted Essity's holding to 52%. Vinda's market capitalization on the Hong Kong stock exchange was SEK 16,868m (19,705; 19,329) at the end of the period.
Familia is 50% owned by Essity and 49.8% owned by the Gomez family. Essity is considered to have a controlling influence over Familia, despite the fact that Essity does not hold a majority of shares in the company. Essity is deemed to have a controlling influence 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. During the year, Familia acquired another subsidiary, see Note F6 on page 103.
Financial information is disclosed below for both subsidiaries. Financial information has not been disclosed for other subsidiaries since no other individual subsidiary had a material impact on the Group's earnings and position.
These balance sheets have been presented taking into consideration the recognition of Vinda and Familia in Essity's consolidated financial statements, whereby consideration was given to adjustments for surplus values in connection with acquisitions.
| Vinda1) | Familia1) | |||||
|---|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 | 2018 | 20173) | 20163) |
| Condensed income statement | ||||||
| Net sales | 16,543 | 14,728 | 13,297 | 7,001 | 6,283 | 6,075 |
| Operating profit before depreciation/amortization of acquisition-related assets2) | 1,133 | 1,074 | 1,038 | 939 | 934 | 501 |
| Operating profit2) | 1,127 | 1,067 | 1,038 | 947 | 934 | 501 |
| Profit for the period | 720 | 670 | 685 | 631 | 649 | 236 |
| of which attributable to owners of the Parent | 374 | 348 | 374 | 317 | 316 | 115 |
| Other comprehensive income for the period | 161 | 163 | –94 | –22 | –325 | 383 |
| of which attributable to owners of the Parent | 84 | 85 | –51 | –61 | –152 | 204 |
| Comprehensive income for the period | 881 | 833 | 591 | 609 | 324 | 619 |
| of which attributable to owners of the Parent | 458 | 433 | 323 | 256 | 164 | 319 |
| of which attributable to non-controlling interests | 423 | 400 | 268 | 353 | 160 | 300 |
| Dividend to non-controlling interests | 125 | 107 | 55 | 227 | 122 | 87 |
| Condensed balance sheet | ||||||
| Non-current assets | 19,834 | 18,324 | 17,327 | 3,231 | 2,450 | 2,681 |
| Current assets | 6,552 | 6,209 | 5,669 | 3,101 | 3,131 | 2,837 |
| Total | 26,386 | 24,533 | 22,996 | 6,332 | 5,581 | 5,518 |
| Equity attributable to owners of the Parent | 8,373 | 7,871 | 7,573 | 1,975 | 1,946 | 1,905 |
| Equity attributable to non-controlling interests | 5,753 | 5,348 | 4,503 | 1,888 | 1,762 | 1,724 |
| Non-current liabilities | 5,799 | 5,730 | 5,394 | 811 | 394 | 475 |
| Current liabilities | 6,461 | 5,584 | 5,526 | 1,658 | 1,479 | 1,414 |
| Total | 26,386 | 24,533 | 22,996 | 6,332 | 5,581 | 5,518 |
| Cash flow from operating activities | 1,474 | 1,080 | 2,439 | 877 | 969 | 569 |
| Cash flow from investing activities | –1,310 | –1,401 | –1,129 | –714 | –203 | –60 |
| Cash flow from financing activities | –63 | –329 | –583 | –634 | –435 | –349 |
| Cash flow for the period | 101 | –650 | 727 | –471 | 331 | 160 |
1) For more information about the companies, refer to the list of major subsidiaries on Page 99.
2) For Familia, items affecting comparability in the amount of SEK 41m (52; –232) are included. 3) Other comprehensive income and the Balance sheets for the 2017 and 2016 fiscal years have been adjusted for Familia.
Essity classifies its joint arrangements as joint ventures or joint operations, which are presented in Note F4 Joint operations on page 102.
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 associates 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 subsidiaries. Essity's single largest joint venture is Bunzl & Biach G.m.b.H., Vienna, which supplies the business with raw materials.
Associates are companies in which the Group exercises a significant influence without the partly owned company being a subsidiary or a joint arrangement. Normally, this means that the Group owns between 20% and 50% of the votes. Accounting for associates 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 subsidiaries and the carrying amount for associates 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 associates and joint ventures." Share of profits is calculated on the basis of Essity's share of equity in the respective associate.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Joint ventures | |||
| Value, January 1 | 144 | 130 | 114 |
| Net increase in joint ventures1) | 19 | 9 | 10 |
| Reclassification between joint ventures and associates | – | – | – |
| Translation differences | 8 | 5 | 6 |
| Value, December 31 | 171 | 144 | 130 |
| Associates | |||
| Value, January 1 | 918 | 966 | 927 |
| Company acquisitions | – | 3 | – |
| Company divestments | –3 | – | –40 |
| Net increase in associates1) | –21 | –28 | 11 |
| Impairment of associates | –278 | – | – |
| Reclassification between associates and subsidiaries | –6 | –8 | – |
| Translation differences | –4 | –15 | 68 |
| Value, December 31 | 606 | 918 | 966 |
| BS TF3:1 Value, December 31, joint ventures and associates |
777 | 1,062 | 1,096 |
1) Net increase for the period includes the Group's share of the profit after tax of joint ventures and associates, as well as items recognized directly in equity (both after deductions for any non-controlling interests), in addition to an adjustment for dividends received during the period, which amounted to SEK 7m (5; 2) for joint ventures and SEK 79m (171; 147) for associates.
Asaleo Care Ltd 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.
In 2015, 2016 and 2017, the company implemented a program to repurchase shares from the market, in which Essity did not participate. This has caused Essity's participation in Asaleo Care to increase to 36.2%. 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. Essity has recognized this as an item affecting comparability, see Note B3 on page 77.
Bunzl & Biach is a joint venture that operates in the recovered paper market and supplies raw materials to Essity's business.
| Joint ventures | Associates | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Bunzl & Biach | Asaleo Care Ltd | Total | |||||||
| SEKm | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Condensed income statement | |||||||||
| Net sales | 1,471 | 1,123 | 955 | 3,623 | 3,829 | 3,851 | 5,094 | 4,952 | 4,806 |
| Depreciation/amortization | –13 | –11 | –11 | –169 | –188 | –185 | –182 | –199 | –196 |
| Operating profit/loss | 47 | 28 | 22 | –803 | 604 | 597 | –756 | 632 | 619 |
| Interest income | – | – | – | 3 | – | 2 | 3 | – | 2 |
| Interest expenses | – | – | – | –98 | –76 | –67 | –98 | –76 | –67 |
| Other financial items | 1 | 1 | 1 | –3 | – | –2 | –2 | 1 | –1 |
| Tax expense | –14 | –7 | – | 219 | –154 | –155 | 205 | –161 | –155 |
| Profit/loss for the period | 34 | 22 | 23 | –682 | 374 | 375 | –648 | 396 | 398 |
| Other comprehensive income for the period | – | – | – | 62 | –61 | 31 | 62 | –61 | 31 |
| Comprehensive income for the period | 34 | 22 | 23 | –620 | 313 | 406 | –586 | 335 | 429 |
| Condensed balance sheet | |||||||||
| Non-current assets | 147 | 120 | 118 | 2,482 | 3,402 | 3,600 | 2,629 | 3,522 | 3,718 |
| Cash and cash equivalents | 12 | 19 | 15 | 426 | 194 | 199 | 438 | 213 | 214 |
| Other current assets | 238 | 174 | 120 | 1,140 | 1,250 | 1,269 | 1,378 | 1,424 | 1,389 |
| Total assets | 397 | 313 | 253 | 4,048 | 4,846 | 5,068 | 4,445 | 5,159 | 5,321 |
| Non-current financial liabilities | 118 | 92 | 60 | 2,061 | 1,975 | 2,121 | 2,179 | 2,067 | 2,181 |
| Other non-current liabilities | 67 | 47 | 46 | 72 | 257 | 252 | 139 | 304 | 298 |
| Current financial liabilities | – | – | – | 1 | 8 | 28 | 1 | 8 | 28 |
| Other current liabilities | 34 | 30 | 25 | 850 | 703 | 652 | 884 | 733 | 677 |
| Total liabilities | 219 | 169 | 131 | 2,984 | 2,943 | 3,053 | 3,203 | 3,112 | 3,184 |
| Net assets | 178 | 144 | 122 | 1,064 | 1,903 | 2,015 | 1,242 | 2,047 | 2,137 |
| Group share of net assets | 87 | 71 | 60 | 385 | 688 | 725 | 472 | 759 | 785 |
| Fair value adjustment | 71 | 62 | 58 | 178 | 182 | 178 | 249 | 244 | 236 |
| Carrying amount of the companies | 158 | 133 | 118 | 563 | 870 | 903 | 721 | 1,003 | 1,021 |
| Carrying amount of other joint ventures | 13 | 11 | 12 | – | – | – | 13 | 11 | 12 |
| Carrying amount of other associates | – | – | – | 43 | 48 | 63 | 43 | 48 | 63 |
| BS TF3:2 Carrying amount of joint ventures | |||||||||
| and associates | 171 | 144 | 130 | 606 | 918 | 966 | 777 | 1,062 | 1,096 |
| Market value, December 31 | 3,144 | 5,232 | 5,296 |
| Company name | Corp. Reg. No. | Domicile | Share of equity at December 31, 2018, % |
Share of equity at December 31, 2017, % |
Share of equity at December 31, 2016, % |
Carrying amount December 31, 2018, SEKm |
Carrying amount December 31, 2017, SEKm |
Carrying amount December 31, 2016, SEKm |
|---|---|---|---|---|---|---|---|---|
| Joint ventures | ||||||||
| Bunzl & Biach GmbH | FN79555v | Vienna, Austria | 49 | 49 | 49 | 158 | 133 | 118 |
| Other | 13 | 11 | 12 | |||||
| Associates | ||||||||
| Asaleo Care Ltd | 61 154 461 300 | Melbourne, Australia | 36 | 36 | 36 | 563 | 870 | 903 |
| Other | 43 | 48 | 63 | |||||
| BS TF3:1 Carrying amount, December 31 | 777 | 1,062 | 1,096 |
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 subsidiaries. Essity recognizes its proportional share of the company's assets, liabilities, income and expenses in its financial statements. A small number of companies within Essity are deemed to be joint operations, namely Uni-Charm Mölnlycke, ProNARO and Nokianvirran Energia, in which the parties to the agreement acquire all products and services from the companies and the companies are operated with near-zero profit.
| Joint operations | |||||
|---|---|---|---|---|---|
| Company name | Corp. Reg. No. Domicile | Share of equity at December 31, 2018 |
Share of equity at December 31, 2017 |
Share of equity at December 31, 2016 |
|
| 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 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 US.
| Shares and participations | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Value, January 1 | 32 | 32 | 33 |
| Increase through acquisitions | 4 | 3 | |
| Divestments | –8 | –3 | –1 |
| Translation differences | 1 | – | – |
| BS Value, December 31 | 29 | 32 | 32 |
Shares and participations pertain to holdings in other companies that are not classified as subsidiaries, joint arrangements or associates. Since these holdings are of an operating nature, the holdings are not classified as available-for-sale financial assets. Carrying amounts concur with fair value.
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.
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 commercial risk.
Essity applies IFRS 3 Business Combinations for acquisitions. In business combinations, acquired assets and assumed liabilities are identified and classified 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 were not recognized in the acquired unit. If the cost 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.
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 not included in cost, but rather expensed directly.
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.
Acquisitions in 2018 During the first quarter of 2018, the earlier purchase price allocation from 2017 for BSN medical was confirmed (refer to the table on the next page) in which a final valuation of intangible assets in the form of customer relations, brands, technology and goodwill was carried out. In the first quarter of 2018, BSN medical had an impact of SEK 1,971m on consolidated net sales, SEK 407m on adjusted EBITDA and SEK 344m on adjusted EBITA.
In 2018, Familia, in which Essity has a 50% stake, completed three acquisitions. On February 16, the outstanding 50% of the company 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 subsidiary with a minority interest. Prior to the acquisition, the company was consolidated as an associate according to the equity method. Remeasurement was carried out of the previously recognized equity portion at fair value in the amount of SEK 225m and this 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 the company Continental de Negocias S.A, with operations in the Dominican Republic. See Acquisitions in 2017 below for further information. The consideration transferred amounted to SEK 85m. On April 3, the company Industrial Papelera Ecuatoriana S.A (INPAECSA) was acquired with operations in Ecuador. The consideration transferred was SEK 68m. The acquisition did not have any material impact on Essity's net sales or earnings in 2018.
On December 19, 2016, it was announced that an agreement to acquire BSN medical, a leading medical technology company, had been concluded. BSN medical develops, manufactures, markets and sells products within the areas of wound care, compression therapy and orthopedics. The purchase price for the shares amounts to EUR 1,394m, and takeover of net debt to EUR 1,321m. The acquisition is fully debt-funded. The transaction, which was subject to customary regulatory approvals, was closed on April 3, 2017. Goodwill is justified by the synergies that arise as a result of BSN medical's leading market positions in attractive medical technology product cate-
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.
Acquisitions after controlling influence is achieved are recognized as an equity transaction, meaning a transfer between equity attributable to owners of the Parent and non-controlling interests. The same applies for divestments that take place without the loss of a controlling influence.
gories, which create a shared future growth platform in combination with Essity's incontinence business, including the globally leading brand TENA. Furthermore, synergies are generated by being able to utilize a common customer base and sales channels for both businesses, enabling more rapid growth through cross selling. In 2017, restructuring costs amounted to SEK 96m and integration costs to SEK 48m. Costs for the acquisition amounted to SEK 229m, of which SEK 86m was recognized in 2017 and SEK 143m in 2016.
On December 27, Familia acquired the remaining 50% of its joint venture Continental de Negocias S.A in the Dominican Republic. The consideration transferred amounted to SEK 135m. Prior to the acquisition, the acquired company was recognized as an associate according to the equity method. Remeasurement was carried out of the previous equity portion at fair value in the amount of SEK 72m and this is recognized as an item affecting comparability in profit or loss.
Other minor acquisitions amounted to SEK 3m. During the period, liabilities relating to acquisitions in previous years were settled in the amount of SEK 170m, of which SEK 108m related to non-interest-bearing operating liabilities and SEK 62m to a financial debt; the payments mainly concerned two earlier acquisitions in the US within BSN medical.
Since the date of acquisition, BSN medical has had an impact of SEK 6,301m on consolidated net sales, SEK 1,331m on adjusted EBITDA and SEK 1,150m on adjusted EBITA.
Had the acquisition been consolidated from January 1, 2017, the expected sales would have amounted to SEK 8,363m, adjusted EBITDA to SEK 1,767m and adjusted EBITA to SEK 1,526m. This is based on an annualization of the acquisition's impact since the acquisition date.
The acquisition of the remaining 50% in Continental de Negocias on 27 December did not have any impact on the Group's net sales, adjusted EBITDA or EBITA during the period. Had the acquisition been consolidated from January 1, 2017, the estimated sales would have amounted to SEK 123m, adjusted EBITDA to SEK 19m and adjusted EBITA to SEK 19m.
On January 21, 2016, Wausau Paper Corp., one of the largest Professional Hygiene companies in the North American market, was acquired. The consideration transferred amounted to USD 513m (SEK 4,401m). Goodwill is motivated by synergies between Essity and Wausau Paper, including the capacity
to offer customers a broad portfolio of products. The acquisition is expected to generate annual synergies of approximately USD 40m, with full effect three years after closing. Synergies are expected in sourcing, production, logistics, reduced imports, increased volumes of premium products and reduced sales, general and administration costs.
A minor acquisition of Sensassure in Canada was carried out. The consideration transferred amounted to SEK 45m, of which SEK 17m relates to earn-out payments that were made in 2017 (SEK 7m) and 2018 (SEK 10m).
Since the acquisition date, the acquisition of Wausau has had an impact of SEK 2,996m on consolidated net sales, of SEK 272m on adjusted operating profit and of SEK 32m on profit for the period, including items affecting comparability, before tax. If the acquisition had been consolidated from January 1, 2016, the expected net sales would have amounted to SEK 3,164m and profit before tax, including items affecting comparability, to SEK 48m.
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. All acquisition balance sheets for 2018 have essentially been confirmed and only minor deviations may arise in the first quarter of 2019.
| Acquisition balance sheets | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Intangible assets | 77 | 13,472 | 213 |
| Property, plant and equipment | 381 | 1,351 | 2,896 |
| Other non-current assets | 1 | 333 | – |
| Operating assets | 313 | 3,286 | 672 |
| Cash and cash equivalents | 26 | 498 | 14 |
| Provisions and other non-current liabilities | –45 | –4,278 | –71 |
| Net debt excl. cash and cash equivalents | –233 –13,042 | –2,124 | |
| Operating liabilities | –134 | –1,352 | –528 |
| Fair value of net assets | 386 | 268 | 1,072 |
| Goodwill | 311 | 13,290 | 3,375 |
| Consolidated value of share in associates | –8 | –8 | – |
| Revaluation of previously owned shares in associates | –225 | –72 | – |
| Non-controlling interests | – | –78 | – |
| Consideration transferred | 464 | 13,400 | 4,447 |
| Consideration transferred | –464 –13,400 | –4,447 | |
| Earn-out payment | – | – | 19 |
| Settled debt pertaining to acquisitions in earlier years | –23 | –108 | –2 |
| Cash and cash equivalents in acquired companies | 26 | 498 | 14 |
| Settled financial debt pertaining to acquisitions in earlier years |
– | –62 | – |
| CF Effect on Group's cash and cash equivalents, acquisition of operations |
–461 –13,072 | –4,416 | |
| of which recognized as acquisitions of holdings in Investing activities |
–461 –13,070 | –4,416 | |
| of which recognized as acquisitions of non-controlling interests in Financing activities |
– | –2 | – |
| Purchase consideration settled/entered as liability | – | 7 | – |
| Acquired net debt excl. cash and cash equivalents | –233 –13,042 | –2,124 | |
| Settled financial debt pertaining to acquisitions in earlier years |
– | 62 | – |
| OCF Acquisition of operations during the period, including net debt assumed |
–694 –26,045 | –6,540 |
| Preliminary | New | ||
|---|---|---|---|
| SEKm | 2017 | assumptions | Final |
| Intangible assets | 13,472 | – | 13,472 |
| Property, plant and equipment | 1,350 | 18 | 1,368 |
| Other non-current assets | 329 | – | 329 |
| Operating assets | 3,161 | 1 | 3,162 |
| Cash and cash equivalents | 471 | –16 | 455 |
| Provisions and other non-current liabilities | –4,278 | –9 | –4,287 |
| Net debt excl. cash and cash equivalents | –13,038 | –10 –13,048 | |
| Operating liabilities | –1,272 | 5 | –1,267 |
| Fair value of net assets | 195 | –11 | 184 |
| Goodwill | 13,145 | 11 | 13,156 |
| Non-controlling interests | –80 | – | –80 |
| Consideration transferred | 13,260 | – | 13,260 |
| Consideration transferred | –13,260 | – –13,260 | |
| Cash and cash equivalents in acquired companies | 471 | –16 | 455 |
| CF Effect on Group's cash and cash equivalents, | |||
| acquisition of operations | –12,789 | –16 –12,805 | |
| of which recognized as acquisitions of holdings in | |||
| Investing activities | –12,789 | –16 –12,805 | |
| Acquired net debt excl. cash and cash equivalents | –13,038 | –10 –13,048 | |
| OCF Acquisition of operations during the | |||
| period, including net debt assumed | –25,827 | –26 –25,853 |
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. The preliminary purchase price allocation for BSN medical from 2017 was confirmed in 2018 following Essity's conclusion of its valuation of BSN medical's balance sheet, in connection with which minor adjustments were made primarily to property, plant and equipment, cash and cash equivalents and financial liabilities against goodwill, in accordance with the above specification. In addition to this adjustment, inventory included in the acquisition of Continental de Negocias S.A in Dominican Republic at the end of 2017 was revalued upward by SEK 10m, which reduced preliminarily recognized goodwill by SEK 7m after adjustment of deferred tax liability.
No new divestments were carried out during the year. Gain/losses and cash flow relate to earn-out payments for previously divested companies primarily in the US. All capital gains were recognized in items affecting comparability in profit or loss.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Property, plant and equipment | – | 31 | –10 |
| Other non-current assets | – | – | 43 |
| Operating assets | – | 16 | 3 |
| Non-current assets held for sale | – | – | 124 |
| Cash and cash equivalents | – | 1 | 8 |
| Operating liabilities | – | –4 | –15 |
| Gain/loss on sale1) | 68 | –2 | 165 |
| Compensation received | 68 | 42 | 318 |
| Less: | |||
| Receivable for unpaid purchase consideration | – | –12 | – |
| Cash and cash equivalents in divested companies | – | –1 | –8 |
| Add: | |||
| Payment of receivable for purchase consideration | – | – | 59 |
| CF Effect on Group's cash and cash equivalents, | |||
| divestments | 68 | 29 | 369 |
| Less: | |||
| Divested net debt excl. cash and cash equivalents | – | – | – |
| OCF Divestment of operations during the period, including net debt transferred |
68 | 29 | 369 |
1) Excluding reversal of realized translation differences in divested companies to profit or loss. Gain/ loss on disposal is included in items affecting comparability in profit or loss.
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 and 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 | 2018 | 2017 | 2016 |
| Buildings | 31 | 9 | 59 |
| Land | 24 | 18 | 31 |
| Machinery and equipment | 14 | 15 | 66 |
| BS Total | 69 | 42 | 156 |
In 2018, non-current assets held for sale are attributable to the closure of a production plant in the US in the amount of SEK 30m and the closure of an operation in India in the amount of SEK 39m.
Lease agreements are classified and recognized as either operating or finance leases. In cases where a lease essentially entails that the risks and rewards incidental to ownership have been transferred to Essity, the lease agreement is classified as a finance lease. The leased asset is recognized as a non-current asset with a corresponding interest-bearing liability. The initial value of both these items comprises the lower of the fair value of the assets or the present value of the minimum lease payments. Future lease fees are divided between amortization and interest, so that each reporting period is charged with an interest amount that corresponds to a fixed interest rate on the recognized liability for the respective period. The leased asset is depreciated according to the same principles that apply to other assets of the same nature. If it is uncertain whether the asset will be taken over at the end of the leasing period, the asset is depreciated over the lease term if this is shorter than the useful life that applies to other assets of the same nature. Lease agreements in which the risks and rewards incidental to ownership are essentially carried by the lessor are classified as operating leases, and the lease payments are expensed on a straight-line basis over the lease term.
| Leasing expenses | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Operating leases | –980 | –776 | –696 |
| Finance leases, depreciation/amortization | –4 | –2 | –2 |
| Finance leases, interest expense | 0 | 0 | 0 |
| Total | –984 | –778 | –698 |
| Operating leases, future minimum lease payments | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | 2016 |
| Within 1 year | 900 | 572 | 515 |
| Between 1 and 5 years | 1,770 | 975 | 1,209 |
| Later than 5 years | 1,297 | 980 | 1,392 |
| Total | 3,967 | 2,527 | 3,116 |
Operating lease objects comprise a large number of items, including warehouses, offices, other buildings, machinery and equipment, IT equipment, office fixtures and various transport vehicles. The assessment for a number of the objects is that, in actual fact, it is possible to terminate contracts early.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Within 1 year | 1 | 1 | 1 |
| Between 1 and 5 years | 0 | 1 | 1 |
| Later than 5 years | – | – | – |
| Total | 1 | 2 | 2 |
| Of which, interest | 0 | 0 | 0 |
| Present value of future minimum lease payments | 1 | 2 | 2 |
Total payments for finance leases during the period amounted to SEK –1m (–2; –31), of which amortization of debt accounted for SEK –1m (–2; –31). The carrying amount of finance lease assets at year-end amounted to SEK 1m (5; 5).
A contingent liability is recognized when there is a potential or actual obligation arising from events that have occurred 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 | 2018 | 2017 | 2016 |
| Guarantees for | |||
| associates | 3 | 5 | 8 |
| customers and others | 44 | 43 | 39 |
| Other contingent liabilities1) | 333 | 294 | 214 |
| Total | 380 | 342 | 261 |
1) Other contingent liabilities above pertain to recycling fees/taxes for packaging in France, where the claim is subject to a judicial review.
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.
| Total | |||||
|---|---|---|---|---|---|
| SEKm | Pledged assets related to financial liabilities |
Other | 2018 | 2017 | 2016 |
| Real estate mortgages | 27 | – | 27 | 65 | 7 |
| Chattel mortgages | 34 | – | 34 | 31 | 55 |
| Other | 61 | 216 | 277 | 250 | 130 |
| Total | 122 | 216 | 338 | 346 | 192 |
Liabilities for which some of these assets were pledged as collateral amounted to SEK 0m (3; 0).
Up until the split of SCA into two listed companies on June 15, 2017, Essity had a number of transactions with SCA units, both the former Forest Products business areas and the Parent Company Svenska Cellulosa Aktiebolaget SCA. These transactions and dealings are outlined in the table below. In relation to remuneration of senior executives, refer to Note C3 Remuneration of senior executives on page 80 and for disclosures regarding transactions with associates, joint ventures and joint operations to Notes F3 Joint ventures and associates on page 100 and to F4 Joint operations on page 102.
Purchases from Forest Products relate primarily to pulp used in Essity's manufacturing process. Pricing between units has adhered to the transfer pricing policy that applied at the SCA Group. Other income relates to management fees that are invoiced to Forest Products for such items as management functions and which have been allocated to Essity in connection with the preparation of the combined financial statements. The financial income is attributable to the internal bank's lending to Forest Products.
The most significant dealing during the presented fiscal years relates to the lending that Essity has conducted via the internal bank to Forest Products, which is classified as current financial receivables, Group companies. Transactions in the form of lending and reallocation of net debt have been classified as transactions with shareholders in equity, refer to Note E8 Equity on page 96. The take over by Essity Aktiebolag (publ) on December 30, 2016 of the majority of the external financing that existed within SCA in connection with the final allocation of assets and liabilities between Essity and SCA is the reason for the major change in transactions with shareholders in equity in 2016.
The remaining financial dealings between Essity and SCA were settled in conjunction with the split of the Group into two listed companies on June 15, 2017.
| SEKm | 2018 | 2017 | 2016 |
|---|---|---|---|
| Sales | – | – | – |
| Purchases | – | 214 | 511 |
| Other income | – | – | 56 |
| Financial income | – | 70 | 108 |
| Financial expenses | – | –9 | –2 |
| Non-current financial receivables, Group companies | – | – | 3 |
| Current receivables, Group companies | – | – | 57 |
| Of which, trade receivables | – | – | 18 |
| Of which, currency derivatives | – | – | 33 |
| Of which, energy derivatives | – | – | 6 |
| Current financial receivables, Group companies | – | – | 1,433 |
| Non-current liabilities, Group companies | – | – | 48 |
| Of which, currency derivatives | – | – | 12 |
| Of which, energy derivatives | – | – | 36 |
| Current liabilities, Group companies | – | – | 259 |
| Of which, trade payables | – | – | 100 |
| Of which, currency derivatives | – | – | 64 |
| Of which, energy derivatives | – | – | 58 |
| Of which, other current liabilities | – | – | 37 |
| Current financial liabilities, Group companies | – | – | 485 |
The new standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers came into effect on January 1, 2018. This Note presents the effects of the transition to these standards.
Essity applies IFRS 9 prospectively from January 1, 2018. Comparative information has not been restated and is instead recognized according to IAS 39 for 2017 and 2016.
The new standard contains new principles regarding the recognition and measurement of financial assets. The decisive factors are the company's objective and the contractual cash flows of the financial assets. The principles for financial liabilities are largely unchanged.
A review of the Group's financial assets and liabilities according to the new IFRS 9 criteria did not result in any significant changes to Essity's reporting. A non-current financial asset of SEK 87m that was previously classified as available-for-sale financial assets has been classified in the measurement category of fair value through other comprehensive income. No other changes to the measurement of assets and liabilities have been made.
The new impairment model called expected credit loss (ECL) model has the largest impact on trade receivables for Essity. Essity has decided to apply the simplified model whereby loss allowances are made for the full lifetime of the assets. In the first quarter of 2018, Essity recognized a non-recurring effect of SEK 7m after tax in equity due to the changed calculation model for expected credit losses on trade receivables.
On the introduction of IFRS 9, there is the option of continuing to apply IAS 39 to the area of hedge accounting. Essity has decided not to make use of this option and instead also applies IFRS 9 to hedge accounting. All hedging documentation has been updated in accordance with the new rules. The transition to the new hedging rules did not impact amounts recognized in the balance sheet or income statement.
| December 31, 2017 in acc. with IAS 39 |
Transition effect |
January 1, 2018 in acc. with IFRS 9 |
|
|---|---|---|---|
| Assets | |||
| Trade receivables, gross | 17,864 | 17,864 | |
| Provision to reserves for doubtful receivables | –257 | –9 | –266 |
| Trade receivables | 17,607 | –9 | 17,598 |
| Total assets | 17,607 | –9 | 17,598 |
| Equity | |||
| Reserves | 3,154 | 0 | 3,154 |
| Retained earnings | 36,785 | –7 | 36,778 |
| Total equity | 39,939 | –7 | 39,932 |
| Liabilities | |||
| Deferred tax liabilities | 7,090 | –2 | 7,088 |
| Total liabilities | 7,090 | –2 | 7,088 |
The table below shows the changes in measurement due to the change in measurement class.
| Measurement category IFRS 9 | |||
|---|---|---|---|
| Measurement category IAS 39 | Amortized cost | Fair value through com prehensive income |
|
| Financial receivables and liabilities | |||
| Trade receivables | 17,607 | 17,598 | |
| Available-for-sale financial assets | |||
| Equity instruments | 87 | 87 |
The table below shows changes in equity due to reclassification upon the transition to IFRS 9 and the introduction of the expected credit loss model.
| Effects in equity | Provision for available-for sale assets |
Provision for fair value through com prehensive income |
Retained earnings |
|---|---|---|---|
| Closing balance 2017 in acc. with IAS 39 | 6 | 0 | 36,785 |
| Reclassification from Available-for-sale financial assets to Fair value through comprehensive income |
–6 | 6 | |
| Increased provisions for trade receivables | –7 | ||
| Opening balance 2018 in acc. with IFRS 9 | 0 | 6 | 36,778 |
Essity applies IFRS 15 prospectively from January 1, 2018. Comparative information for 2017 and 2016 has not been restated and instead 2017 and 2016 are recognized according to the previous rules, mainly IAS 18, which IFRS 15 replaced (refer to the New and amended accounting standards section under A1 General accounting principles and new accounting rules on page 63). A review of the Group's reporting of revenue from contracts with customers under new IFRS 15 criteria did not result in any changes to Essity's reporting in either the income statement or balance sheet. IFRS 15 contains more disclosure requirements than IAS 18, which are presented in a new Note B1 Net sales – Revenue from contracts with customers on page 70, where Essity's accounting principles for revenue recognition are also outlined. Application of IAS 18 in 2018 would not have resulted in any change in outcomes in either the income statement or balance sheet.
| Income statement IS | |||
|---|---|---|---|
| SEKm | Note | 2018 | 2017 |
| Administrative expenses | –738 | –933 | |
| Other operating income | 192 | 367 | |
| Operating loss | PC1 | –546 | –566 |
| Financial items | PC9 | ||
| Result from participations in subsidiaries | 18,347 | 2,737 | |
| Interest income and similar profit items | 329 | 491 | |
| Interest expenses and similar loss items | –1,028 | –981 | |
| Total financial items | 17,648 | 2,247 | |
| Profit after financial items | 17,102 | 1,681 | |
| Appropriations | PC3 | 0 | –1 |
| Income taxes | PC3 | –940 | 816 |
| Profit for the period | 16,162 | 2,496 | |
| Statement of comprehensive income | |||
| SEKm | 2018 | 2017 | |
| Profit for the period | 16,162 | 2,496 | |
| Other comprehensive income | – | – | |
| Total comprehensive income | 16,162 | 2,496 | |
| Cash flow statement CF | |||
| SEKm | 2018 | 2017 | |
| Operating activities | |||
| Profit after financial items | 17,102 | 1,681 | |
| Adjustment for non-cash items T:1 | 1,893 | 274 | |
| Paid tax | 0 | –4 | |
| Cash flow from operating activities before changes in working capital |
18,995 | 1,951 | |
| Change in operating receivables | 45,190 | –47,654 | |
| Change in operating liabilities 1) | –47,967 | 47,818 | |
| Cash flow from operating activities | 16,218 | 2,115 | |
| Investing activities | |||
| Acquisition of subsidiaries | –7,007 | –14 | |
| Divestment of subsidiaries, gain from merger | – | 5 | |
| Acquisition of fixed assets | –1 | – | |
| Cash flow from investing activities | –7,008 | –9 | |
| Financing activities | |||
| Loans raised | 2,000 | 22,006 | |
| Amortization of debt | –7,172 | –24,710 | |
| Capital contribution received | – | 598 | |
| Dividend paid | –4,038 | – | |
| Cash flow from financing activities | –9,210 | –2,106 | |
| Cash flow for the period | 0 | 0 | |
| Cash and cash equivalents, January 1 | 0 | 0 | |
| Cash and cash equivalents, December 31 2) | 0 | 0 | |
| T:1 Adjustment for non-cash items | 2018 | 2017 | |
| Depreciation/amortization of fixed assets | 2 | 2 |
| 2018 | 2017 |
|---|---|
| 2 | 2 |
| 1,870 | 255 |
| 53 | 5 |
| –32 | 12 |
| 1,893 | 274 |
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.
| Interest and dividends paid and received | 2018 | 2017 |
|---|---|---|
| Dividends received | 16,255 | 4,245 |
| Group contribution received | 105 | 334 |
| Group contribution paid | –678 | –225 |
| Interest paid | –1,004 | –733 |
| Interest received | 250 | 164 |
| Total | 14,928 | 3,785 |
| Change in liabilities attributable to financing activities | Value, | Translation | Value, | |
|---|---|---|---|---|
| SEKm | January 1 | Cash flow | difference | December 31 |
| Non-current interest-bearing liabilities |
41,698 | –3,991 | 1,519 | 39,226 |
| Current interest-bearing liabilities |
4,446 | 2,000 | –16 | 6,430 |
| Current liabilities to subsidiaries |
43,964 | –3,148 | – | 40,816 |
| Current receivables from | ||||
| subsidiaries | 469 | –33 | 0 | –502 |
| Total | 89,639 | –5,172 | 1,503 | 85,970 |
| Balance sheet BS | ||||
| SEKm | Note | 2018 | 2017 | |
| Assets | ||||
| Fixed assets | ||||
| Capitalized development costs | 0 | 0 | ||
| Intangible fixed assets | PC4 | 0 | 0 | |
| Machinery and equipment | 5 | 5 | ||
| Tangible fixed assets | PC5 | 5 | 5 | |
| Participations | PC6 | 174,622 | 167,614 | |
| Receivables from subsidiaries | PC7 | 507 | 435 | |
| Other non-current receivables | 213 | 51 | ||
| Deferred tax assets | PC3 | 105 | 1,046 | |
| Financial fixed assets | 175,447 | 169,146 | ||
| Total fixed assets | 175,452 | 169,151 | ||
| Current assets | ||||
| Receivables from subsidiaries | PC7 | 3,016 | 48,770 | |
| Current tax assets | PC3 | 4 | 4 | |
| Other current receivables | PC8 | 21 | 160 | |
| Total current assets | 3,041 | 48,934 | ||
| Total assets | 178,493 | 218,085 | ||
| Equity, provisions and liabilities |
||||
| Equity | PC11 | |||
| Share capital | 2,350 | 2,350 | ||
| Statutory reserve | 0 | 0 | ||
| Total restricted equity | 2,350 | 2,350 | ||
| Retained earnings | 71,697 | 73,239 | ||
| Profit for the period | 16,162 | 2,496 | ||
| Total non-restricted equity | 87,859 | 75,735 | ||
| Total equity | 90,209 | 78,085 | ||
| Untaxed reserves | PC3 | 1 | 1 | |
| Provisions | ||||
| Provisions for pensions | PC2 | 873 | 878 | |
| Other provisions | 6 | 3 | ||
| Total provisions | 879 | 881 | ||
| Non-current liabilities | ||||
| Liabilities to subsidiaries | PC7 | – | 12 | |
| Non-current interest-bearing liabilities | PC9 | 39,226 | 41,697 | |
| Total non-current liabilities | 39,226 | 41,709 | ||
| Current liabilities | ||||
| Liabilities to subsidiaries | PC7 | 41,249 | 92,461 | |
| Current interest-bearing liabilities | PC9 | 6,430 | 4,446 | |
| Accounts payables | 20 | 30 | ||
| Other current liabilities | PC10 | 479 | 472 | |
| Total current liabilities | 48,178 | 97,409 | ||
| Total equity, provisions and | ||||
| liabilities | 178,493 | 218,085 |
Change in equity (Refer also to Note PC11)
| Retained earnings and | Total | |||
|---|---|---|---|---|
| SEKm | Share capital | Statutory reserve | profit for the period | equity |
| Equity at December 31, 2016 | 0 | 0 | 74,986 | 74,986 |
| Profit for the period | 2,496 | 2,496 | ||
| Bonus issue | 2,350 | 0 | –2,350 | 0 |
| Gain from merger | 5 | 5 | ||
| Capital contribution received | 598 | 598 | ||
| Equity at December 31, 2017 | 2,350 | 0 | 75,735 | 78,085 |
| Profit for the period | 16,162 | 16,162 | ||
| Dividend, SEK 5.75 per share | – | –4,038 | –4,038 | |
| Equity at December 31, 2018 | 2,350 | 0 | 87,859 | 90,209 |
| Operating profit/loss by type of cost | ||||
|---|---|---|---|---|
| SEKm | Note | 2018 | 2017 | |
| Other operating income | 192 | 367 | ||
| Other external costs | –396 | –597 | ||
| Personnel and Board costs | –340 | –334 | ||
| Amortization of capitalized development costs | PC4 | 0 | 0 | |
| Depreciation of tangible fixed assets | PC5 | –2 | –2 | |
| IS Total | –546 | –566 |
The item "Other external costs" includes primarily consultancy fees, travel expenses, lease expenses and management costs.
Remuneration to auditors can be specified as follows:
| SEKm | 2018 | 2017 |
|---|---|---|
| EY | ||
| Audit assignments | –13 | –12 |
| Auditing activities other than the audit assignment | 0 | –1 |
| Tax consultancy services | 0 | – |
| Other assignments | –2 | – |
| Total | –15 | –13 |
The company recognizes all leases as operating leases.
Future payment commitments for non-cancellable operating leases are as follows:
| SEKm | 2018 | 2017 |
|---|---|---|
| Within 1 year | 24 | 24 |
| Between 2 and 5 years | 7 | 29 |
| Later than 5 years | – | – |
| Total | 31 | 53 |
Cost for the period for leasing of assets amounted to SEK –25m (–25). Leased assets comprise means of transportation and office premises.
| SEKm | 2018 | 2017 |
|---|---|---|
| Board of Directors1), President, Executive Vice President and senior executives (4 (5)) |
–67 | –67 |
| of which variable remuneration | –22 | –28 |
| Other employees | –118 | –134 |
| Total | –185 | –201 |
1) Board fees decided by the Annual General Meeting amounted to SEK –9m (–9). For further information, see Notes C1–C4 on page 80.
| SEKm | 2018 | 2017 |
|---|---|---|
| Total social security costs | –147 | –124 |
| of which pension costs2) | –89 | –61 |
2) Of the Parent Company's pension costs, SEK –14m (–16) 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 46m (51).
| SEKm | 2018 | 2017 |
|---|---|---|
| Self-administered pension plans | ||
| Costs excluding interest expense | –38 | –49 |
| Interest expense (recognized in personnel costs) | –5 | –6 |
| Sub-total | –43 | –55 |
| Retirement through insurance | ||
| Insurance premiums | –31 | –18 |
| Other | 4 | 32 |
| Sub-total | –70 | –41 |
| Policyholder tax | 0 | 0 |
| Special payroll tax on pension costs | –16 | –17 |
| Cost of credit insurance, etc. | –3 | –3 |
| Pension costs for the period | –89 | –61 |
Premiums during the year for disability and family pension insurance with Alecta amounted to SEK –2m (–2). Premiums for 2019 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 –8m (–8).
| 2018 | 2017 | |
|---|---|---|
| Sweden | 110 | 116 |
| of whom women, % | 49 | 49 |
| 21–30 | 31–40 | 41–50 | 51–60 | 61- | |
|---|---|---|---|---|---|
| 2018 | years | years | years | years | years |
| 1 | 22 | 40 | 28 | 9 |
Women comprised 50% (46) of Board members and 25% (36) of senior executives.
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.
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, 2018 amounted to SEK 191m (151). In 2018, compensation was received in the amount of SEK 6m (–). The capital value of the pension obligations at December 31, 2018 amounted to SEK 159m (134). Pension payments of SEK –5m (–6) were made in 2018. In 2018, the assets exceeded pension obligations by SEK 32m (17).
The Group's Note C3 Remuneration of senior executives on page 80 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 | 2018 | 2017 |
|---|---|---|
| Value, January 1 | 878 | 839 |
| Compensation received for assumed pension obligations | – | 21 |
| Costs excluding interest expense | 38 | 49 |
| Interest expense (recognized in personnel costs) | 5 | 6 |
| Payment of pensions | –48 | –37 |
| BS Value, December 31 | 873 | 878 |
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 0.6% (0.7). The defined benefit obligations are calculated based on salary levels valid on the respective balance sheet dates. All of the company's pension obligations were transferred from Svenska Cellulosa Aktiebolaget SCA on December 31, 2016. The pension obligations were formerly transferred when the County Administrative Board granted its approval in 2017. Next year's expected payments for the above defined benefit pension plans amount to SEK 52m. Part of the pension obligations are covered by capital redemption policies. The capital redemption policies are reported as other non-current receivables in the balance sheet.
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 | 2018 | 2017 |
| Deferred tax | 940 | –816 |
| Current tax | – | – |
| IS Total | 940 | –816 |
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.
| 2018 | 2017 | |||
|---|---|---|---|---|
| Reconciliation | SEKm | % | SEKm | % |
| IS Profit before tax | 17,102 | 1,680 | ||
| IS Tax expense/income | 940 | 5.5 | –816 | –48.5 |
| Expected tax | 3,763 | 22.0 | 370 | 22.0 |
| Difference | –2,823 | –16.5 | –1,186 | –70.5 |
| The difference is due to: | ||||
| Taxes related to prior periods | 0 | 0.0 | –16 | –0.9 |
| Non-taxable dividends from subsidiaries | –3,576 | –20.9 | –934 | –55.6 |
| Non-taxable Group contributions from subsidiaries1) |
– | – | –529 | –31.5 |
| Non-deductible Group contributions to subsidiaries1) |
713 | 4.2 | 13 | 0.8 |
| Other non-taxable/non-deductible items | 30 | 0.2 | 280 | 16.7 |
| Changed tax rate | 10 | 0.0 | – | – |
| Total | –2,823 | –16.5 | –1,186 | –70.5 |
1) Non-taxable and non-deductible Group contributions relate to repayment from/to the respective subsidiary, which amounts to 78% of the Group contribution.
The Parent Company participates in the Group's tax pooling arrangement and up until 2017, paid the majority of the Group's total Swedish taxes. These were recognized in profit or loss as Group contributions paid and received. The net of paid and received Group contributions per subsidiary amounts to 22% and is the respective subsidiary's share of the tax cost for the Group. As of 2018, another Swedish subsidiary is used to pay the majority of the Group's total Swedish taxes.
| SEKm | 2018 | 2017 |
|---|---|---|
| Value, January 1 | –4 | – |
| Current tax expense | – | – |
| Paid tax | 0 | –4 |
| BS Value, December 31 | –4 | –4 |
| SEKm | 2018 | 2017 |
|---|---|---|
| Changes in temporary differences | 940 | –800 |
| Adjustments for prior periods | 0 | –16 |
| Total | 940 | –816 |
| SEKm | Value, January 1 |
Deferred tax expense |
Value, December 31 |
|---|---|---|---|
| Provisions for pensions | –190 | 11 | –179 |
| Tax loss carryforwards | –1,016 | 1,014 | –2 |
| Other | 160 | –84 | 76 |
| BS Total | –1,046 | 941 | –105 |
Accumulated depreciation in excess of plan totaling SEK 1m (1) is included in the Parent Company's untaxed reserves.
| Capitalized development costs | ||||
|---|---|---|---|---|
| SEKm | 2018 | 2017 | ||
| 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 | 0 | ||
| BS Value, December 31 | 0 | 0 |
Essity Aktiebolag's tangible fixed assets are recognized in accordance with the Group's accounting principles.
| Tangible fixed assets | |||||
|---|---|---|---|---|---|
| Equipment | |||||
| SEKm | 2018 | 2017 | |||
| Accumulated costs | 8 | 7 | |||
| Accumulated depreciation | –3 | –2 | |||
| Residual value according to plan | 5 | 5 | |||
| Value, January 1 | 5 | 7 | |||
| Investments | 1 | 0 | |||
| Sales and disposals | 0 | – | |||
| Depreciation for the period | –1 | –2 | |||
| BS Value, December 31 | 5 | 5 |
Essity Aktiebolag recognizes all holdings in Group companies at cost after deduction for any accumulated impairment losses.
| Subsidiaries | |||
|---|---|---|---|
| SEKm | 2018 | 2017 | |
| Accumulated costs | 175,943 | 168,883 | |
| Accumulated impairment | –1,321 | –1,269 | |
| Carrying amount | 174,622 | 167,614 | |
| Value, January 1 | 167,614 | 167,601 | |
| Investments | 30,947 | 48,882 | |
| Divestments | –23,887 | –47,600 | |
| Impairment for the period | –52 | –1,269 | |
| BS TPC6:1 Value, December 31 | 174,622 | 167,614 |
During the fiscal year, the company acquired the Group company Lejenbrottet Aktiebolag for SEK 0.2m. Lejenbrottet Aktiebolag also received a capital contribution of SEK 52m. In parallel, impairment was carried out with the corresponding amount. A capital contribution of SEK 30,894m was also made to Essity Group Holding BV. The subsidiary Essity Capital NV was discontinued during the year through voluntary liquidation and its capital was transferred to Essity Aktiebolag.
| 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 |
| SCA Hedging AB | 556666-8553 | Stockholm, Sweden | 1,000 | 100 | 0 |
| Lejenbrottet Aktiebolag | 556643-7298 | Gothenburg, Sweden | 1,000 | 100 | 0 |
| Foreign subsidiaries: | |||||
| Essity Group Holding BV | 33181970 | Amsterdam, Netherlands | 246,347 | 100 | 174,329 |
| Essity Italy S.p.A | 3318780966 | Capannori, Italy | 125,000 | 25 | 279 |
| Total carrying amount of subsidiaries | 174,622 |
The following German companies are fully consolidated and subject to disclosure exemptions pursuant to Sec. 264 para. 3 of the German Commercial Code ("HGB").
| Receivables from and liabilities to subsidiaries | |||||
|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | |||
| Fixed assets | |||||
| Derivatives | 507 | 435 | |||
| BS Total | 507 | 435 | |||
| Current assets | |||||
| Interest-bearing receivables | 502 | 469 | |||
| Financial derivatives | 158 | 761 | |||
| Trade receivables | 211 | 210 | |||
| Other receivables | 2,145 | 47,330 | |||
| BS Total | 3,016 | 48,770 | |||
| Non-current liabilities | |||||
| Financial derivatives | – | 12 | |||
| BS Total | – | 12 | |||
| Current liabilities | |||||
| Interest-bearing liabilities | 40,816 | 43,964 | |||
| Financial derivatives | 229 | 396 | |||
| Accounts payables | 32 | 73 | |||
| Other liabilities | 172 | 48,028 | |||
| BS Total | 41,249 | 92,461 |
| Other current receivables | |||||
|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | |||
| TPC8:1 Prepaid expenses and accrued income | 17 | 19 | |||
| Other receivables | 4 | 141 | |||
| BS Total | 21 | 160 | |||
| TPC8:1 Prepaid expenses and accrued income | |||||
| Prepaid lease of premises | 7 | 7 | |||
| Prepaid financial expenses | 1 | 1 | |||
| Prepaid insurance premiums | – | 1 | |||
| Other items | 9 | 10 | |||
| Total | 17 | 19 | |||
The Parent Company's financial instruments are recognized in accordance with the Group's accounting principles. Refer to Notes E1–E4 on pages 89–92. Hedge accounting was not applied by the Parent Company.
| Financial items | ||
|---|---|---|
| SEKm | 2018 | 2017 |
| Result from participations in Group companies | ||
| Dividends from subsidiaries 1) | 16,255 | 4,245 |
| Group contributions received from subsidiaries | 2,144 | 439 |
| Group contributions paid to subsidiaries | – | –678 |
| Impairment of shares in subsidiaries | –52 | –1,269 |
| Interest income and similar profit items | ||
| Interest income, external | 8 | 0 |
| Interest income, subsidiaries | 321 | 491 |
| Interest expenses and similar loss items | ||
| Interest expenses, external | –532 | –442 |
| Interest expenses, subsidiaries | –460 | –470 |
| Other financial expenses 2) | –36 | –69 |
| IS Total | 17,648 | 2,247 |
1) Dividends in 2018 include the gain from the liquidation of Essity Capital NV totaling SEK 7,207m. 2) The item other financial expenses includes financial fees and exchange rate differences. Exchange rate differences amounted to SEK 6m (19), net.
| Carrying amount | Fair value | |||
|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2018 | 2017 |
| Bond issues | 33,767 | 35,288 | 34,427 | 35,670 |
| Other non-current loans with a term > 1 yr < 5 yrs |
3,406 | 4,444 | 3,425 | 4,419 |
| Other non-current loans with a term > 5 yrs |
2,053 | 1,965 | 1,960 | 1,823 |
| BS Total | 39,226 | 41,697 | 39,812 | 41,912 |
| Carrying amount | Fair value | |||
|---|---|---|---|---|
| SEKm | 2018 | 2017 | 2018 | 2017 |
| Bond issues | 3,000 | 2,946 | 3,000 | 2,946 |
| Loans with maturities of less than one year |
3,430 | 1,500 | 3,430 | 1,500 |
| BS Total | 6,430 | 4,446 | 6,430 | 4,446 |
| Carrying | ||||
|---|---|---|---|---|
| Issued | Maturity | amount, SEKm |
Fair value, SEKm |
Interest rate % |
| Notes SEK 500m | 2019 | 500 | 500 | 2.50 |
| Notes SEK 900m | 2019 | 900 | 900 | 0.75 |
| Notes SEK 1,000m | 2019 | 1,000 | 1,000 | –0.15 |
| Notes SEK 600m | 2019 | 600 | 600 | –0.32 |
| Notes EUR 300m | 2020 | 3,083 | 3,103 | 0.50 |
| Notes EUR 500m | 2021 | 5,123 | 5,161 | 0.50 |
| Notes EUR 600m | 2022 | 6,136 | 6,182 | 0.63 |
| Notes EUR 500m | 2023 | 5,110 | 5,517 | 2.50 |
| Notes EUR 600m | 2024 | 6,139 | 6,216 | 1.13 |
| Notes EUR 300m | 2025 | 3,076 | 3,038 | 1.13 |
| Notes EUR 500m | 2027 | 5,100 | 5,165 | 1.63 |
| Total | 36,767 | 37,427 |
The categories of financial instruments in 2018 classified according to IFRS 9 that exist in the Parent Company comprise financial assets and liabilities measured at fair value through profit or loss and amortized cost. In 2017, the Parent Company classified its financial instruments in the categories loans and trade receivables and financial liabilities measured at amortized cost, except for derivatives, which were measured at fair value through profit or loss. The transition to IFRS 9 did not entail any changes in valuations. 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. For a definition, refer to Note E1 on page 89. 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.
| Financial instruments by category | |||
|---|---|---|---|
| SEKm | Note | 2018 | 2017 |
| Financial assets measured at fair value through profit or loss |
|||
| Derivatives with subsidiaries – Non-current financial assets |
PC7 | 507 | 435 |
| Endowment insurances – Other non-current receivables |
213 | 51 | |
| Derivatives with subsidiaries – Current financial assets |
PC7 | 158 | 761 |
| Total | 878 | 1,247 | |
| Financial liabilities measured at fair value through profit or loss |
|||
| Derivatives for subsidiaries – Non-current financial liabilities |
PC7 | – | 12 |
| Derivatives for subsidiaries – Current financial liabilities |
PC7 | 229 | 396 |
| Total | 229 | 408 | |
| Loan and trade receivables measured at amortized cost |
|||
| Current interest-bearing receivables with subsidiaries |
PC7 | 502 | 469 |
| Trade receivables with subsidiaries | PC7 | 211 | 210 |
| Trade receivables – other current receivables | 0 | 1 | |
| Total | 713 | 680 | |
| Financial liabilities measured at amortized cost |
|||
| Non-current interest-bearing liabilities | 39,226 | 41,697 | |
| Current interest-bearing liabilities to subsidiaries |
PC7 | 40,816 | 43,964 |
| Current interest-bearing liabilities | 6,430 | 4,446 | |
| Accounts payables to subsidiaries | PC7 | 32 | 73 |
| Accounts payables | 20 | 29 | |
| Other current liabilities to subsidiaries | PC7 | 3 | 2 |
| Other current liabilities | 297 | 284 | |
| Total | 86,824 | 90,495 |
The nominal value of the derivatives before the right of set-off is SEK 136,392m (105,056). The nominal value of the derivatives after the right of set-off is SEK 56,561m (54,958).
| Other current liabilities | |||||
|---|---|---|---|---|---|
| SEKm | 2018 | 2017 | |||
| TPC10:1 Accrued expenses and prepaid income | 432 | 440 | |||
| Other operating liabilities | 47 | 32 | |||
| BS Total | 479 | 472 |
| SEKm | 2018 | 2017 |
|---|---|---|
| Accrued interest expenses | 297 | 284 |
| Accrued social security costs | 53 | 55 |
| Accrued vacation pay liability | 16 | 15 |
| Other liabilities to personnel | 43 | 64 |
| Other items | 23 | 22 |
| Total | 432 | 440 |
The change in equity is shown in the financial report relating to Equity presented on page 109. 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 |
| 2018 | Number of shares, December 31, 2018 | 702,342,489 | 2,350.4 | 0.5 |
The quotient value of the company's shares amounts to SEK 3.35 (3.35).
Contingent liabilities
| SEKm | 2018 | 2017 |
|---|---|---|
| Guarantees for subsidiaries | 16,878 | 53,489 |
| Other contingent liabilities | 78 | 94 |
| Total | 16,956 | 53,583 |
| 2018 | 2017 |
|---|---|
| 213 | 184 |
| 213 | 184 |
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 April 4, 2019.
No significant events occurred after the balance sheet date that impacted the financial statements.
The environmental and social data reported pertains to the 2018 calendar year. The figures included comply with relevant reporting and consolidation 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 subsidiary is at least 50% or more, the entire company is included in the reporting. Essity uses the global Greenhouse Gas Protocol standard for measuring, and calculating carbon data.
Subsidiaries 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 H14 and H15. Some other social data is not included, for example Note H13 Code of Conduct data as subsidiaries with significant non-controlling interests have their own Codes of Conduct. Vinda publishes an Environmental, Social and Governance (ESG) report, which is available at www.vinda.com. Familia reports in accordance with the GRI Reporting Standards. For more information, visit www.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 historic environmental and social data of newly acquired companies are included to the greatest possible extent in order to increase comparability. The data from divested companies is excluded in its entirety as of the divestment date. Historic data for discontinued units is retained.
A main site is a production facility that is wholly owned by Essity and that has 100 or more employees.
Data provided in the report is compiled through various systems, primarily the Group's financial consolidation system, Resource Management System (RMS) and Essity's system for collection of social data.
The RMS encompasses more than 76 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 the main mother reel supplying site.
Each unit reports the following data to the system:
The data is reported both internally and externally at the mill level and for the Group as a whole. The values calculated are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O). Conversion factors used:
Data is provided from different internal systems and tools depending on the nature of the data. HR data resides in Essity' s HR system and other qualitative data is collected in Essity's database for social data.
This is Essity's second integrated Annual and Sustainability Report. The previous year's report is from February 21, 2018. Historical information is also obtained from previous publications of SCA's Sustainability Reports. This information is adjusted to make Essity's figures comparable. This applies for example to most of the GRI indicators and data encompassed by Essity's sustainability targets, such as information on CO2 and health and safety. Figures from previous years are reported in parenthesis.
The results of the Group's CO2 target and water target are adjusted each year in relation to production levels. Other environmental data is reported in absolute figures.
Essity reports sustainability information in accordance with the Global Reporting Initiatives (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 in accordance with all GRI indicators and on a level identified as material. In addition, Essity reports a number of general indicators 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 entire report has been reviewed by EY. The report is aimed at specialist audiences with an interest in sustainability performance, including analysts, investors and NGOs. Additional information about Essity's work on environmental and social issues is available at www.essity.com.
Essity uses the reporting framework for the United Nations Guiding Principles on Business and Human Rights (UNGPs) and has reported on the overarching aspects contained in the framework.
Essity conducts systematic customer and consumer follow-up. This includes external reports, independent surveys and global systems for feedback. Complaints have remained at a stable and low 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 2.6 per thousand tons.
Customer feedback enables Essity to offer better products and services. Every business unit has methods 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. Essity places high value on opportunities for direct customer contact.
The retail trade accounts for a significant part 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.
Essity has a Group target to provide social and/or environmental improvements on innovations launched. The target is for at least one-third of all innovations to achieve these criteria each year. 59% (42, 41) of Essity's innovations yielded social and/or environmental improvements. This refers to the percentage of sales of innovations measured over 36 months. In 2018, 29 innovations were launched.
Innovations that improve social and environmental performance also make financial sense. For Essity, these innovations have added value and are based on an in-depth understanding of customers and consumers.
| Product | Carbon footprint reduction 2008–2017, % |
|---|---|
| TENA Flex | –16 |
| TENA Lady | –31 |
| TENA Men | –21 |
| TENA Pants | –33 |
| TENA Slip | –20 |
| TENA Comfort | –18 |
| TENA Bed | –9 |
| Libero open diaper | –25 |
| Libero pant diaper | –16 |
| Feminine Ultra towels | –14 |
| Tork Exelclean1) | –14 |
| Tork paper hand towels2) | –18 |
| 1) 2012–2016 |
2) 2011–2017
The life cycle assessments performed by Essity were verified by the Swedish Environmental Research Institute (IVL) in 2017. The table is updated every second year.
Essity's aim is to convey knowledge about hygiene to customers and consumers. In 2018, Essity educated around 2.5 million people in health and hygiene. Most, 66%, were children and teenagers who were educated in good hand hygiene and young girls about menstruation. Other target groups for this training were caregivers, doctors, staff at residential care facilities, parents and the immediate family to pensioners. Areas covered by the training sessions included hand hygiene, puberty and menstruation, incontinence, wound care and parental education.
Essity strives to be a dedicated partner in the local communities in which it operates.
In 2018, Essity invested approximately SEK 18m in over 300 projects. Most of the projects were related to hygiene and health.
Essity's community relations instruction states 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, or religious institutions/organizations or their representatives. Essity did not support any organizations or projects with political or religious aims in 2018.
In 2018, Essity updated its global fresh fiber sourcing policy and thereby reinforced its commitment to sustainable forestry operations, forest certification and traceability for fiber content. The new policy is available at www. essity.com.
Essity is a global purchaser of both fresh fiber and recovered fiber and has communicated its clear commitment that all fresh wood based fiber raw material will originate from responsibly managed forests. Essity's target for fresh wood based fiber sourcing is to continuously increase the share of certified fiber in its products and packaging, with a preference for FSC® certification, until all of the fiber is certified. All fiber that is not yet certified must fulfill the FSC Controlled Wood standard to be eligible for purchasing. Goal fulfillment for certified fiber in 2018 was 76%. The remainder fulfilled FSC's Controlled Wood standard.
Most of Essity's wholly owned manufacturing units are now certified in line with FSC and/or PEFC Chain of Custody standards.
Renewable raw materials (fresh fiber and recycled fiber) account for the largest share of the total volume of material in tissue products and are an important material in Personal Care products. Synthetic materials are used in Personal Care products to meet the user's function and quality requirements.
In 2018, Essity sourced 2.9 million tons of fresh fiber and 2.1 million tons of recovered fiber. Fresh fiber mainly comprises pulp, 97.4%, and the remainder comprises packaging, externally sourced mother reels and products manufactured by third parties. Of the 2.1 million tons of recovered fiber sourced, 91% is used in tissue manufacturing. The remainder consists of recovered fiber, which is found in sourced packaging material and sourced mother reels.
The proportion of recovered fiber in Essity's products varies between regions due to differences in quality, user preferences and fiber supply and demand. The North American operations use 97% recovered fiber, while the proportion of recovered fiber in Latin America is 77% and in Europe 38%.
The eleven largest of Essity's pulp suppliers to wholly owned companies represent 80% the volume sourced. Essity audits all of its pulp suppliers to verify compliance with Essity's sourcing policy for fiber. In addition to this, all suppliers must sign Essity's Global Supplier Standard. Pulp suppliers are also assessed through the use of detailed questionnaires to verify that they fulfill the requirements of chain of custody certification and ecolabeling. All pulp suppliers in 2018 showed that they comply with the standards and requirements made on them by Essity.
During 2018, Essity's personnel visited ten supplier facilities to assess compliance with the company's requirements. In addition to these pulp supplier audits, Essity has provided support to several other suppliers where wood fiber may be part of the raw material. The purpose of this was to help them achieve FSC chain of custody certification.
Essity's Group target is to reduce CO2 emissions, in relation to the production level, from fossil fuels and from purchased electricity and heating by 20% by 2020, with 2005 as reference year. CO2 emissions declined at year-end 2018 by 18.8% compared with the reference year of 2005.
Energy use calculations include purchased energy (heating, electricity and fuel) and use of biomass and electricity generated on site. Energy efficiency, new technology and the greater use of renewable energy are required to achieve Essity's stated targets.
In 2010, Essity adopted a target for ESAVE: to reduce energy consumption per ton of product produced by 14% by 2020. During 2018, energy consumption rose 1.4% (–0.4), the first increase in ten years. The accumulated energy savings in the 2010–2018 period amounted to 8.0%.
Essity had 24 mills and plants included under the EU ETS in 2018. Essity's operations have a deficit of emission allowances during the third phase of EU ETS (2013–2020). 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 2018 was about EUR 15.9 per ton and Essity purchased 240,000 emission rights.
Essity's climate-affecting emissions are divided into three different scopes depending on origin. Scope 1 and 2 are directly linked till 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.
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.
Scope 3 emissions derive from, for example, energy use that is not owned or controlled by Essity. The emission categories included are from the production of purchased raw materials, incoming and outgoing transportation, and the handling of production waste and waste from used products. In 2019, Essity will further develop the working methods for monitoring and reporting Scope 3 based on established methods.
Other air emissions from use of fuel in production facilities include nitrogen oxides and sulphur oxides (NOx and SOx). These are reported in Essity's environmental reporting system.
In addition to the aforementioned Group target, Essity's new targets to reduce greenhouse gases emissions have been approved by the Science Based Targets initiative. In terms of energy consumption within the company and purchased electricity (Scope 1 and 2), Essity has undertaken to reduce greenhouse gas emission by 25% by 2030 compared with 2016. The outcome for 2018 was 5.0% for Scope 1 and 2.
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. The outcome for Scope 3 will be reported as of 2019.
All biofuels are renewable, the others are fossil-based (non-renewable).
| Essity | Subsidiaries with significant non-controlling interests |
Essity Group | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consumer Tissue and Professional Hygiene |
Personal Care | Tissue and Personal Care | |||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||
| Production | ktons | 2,969 | 3,063 | 3,073 | 581 | 579 | 532 | 317 | 332 | 320 | 3,867 | 3,975 | 3,926 |
| Energy utilization | |||||||||||||
| Electricity | |||||||||||||
| Purchased electricity | GWh | 3,560 | 3,593 | 3,657 | 461 | 451 | 423 | 276 | 275 | 292 | 4,297 | 4,319 | 4,372 |
| Heating/steam | |||||||||||||
| Purchased heating/ | |||||||||||||
| steam | TJ | 901 | 687 | 679 | 3 | 13 | 16 | 0 | 0 | 0 | 904 | 700 | 695 |
| Fuels | |||||||||||||
| Biofuel | TJ | 4,626 | 4,414 | 4,923 | 16 | 25 | 29 | 0 | 0 | 0 | 4,642 | 4,439 | 4,953 |
| Fossil fuel | TJ | 25,306 | 25,515 | 25,772 | 389 | 428 | 418 | 1,255 | 1,222 | 1,150 | 26,949 | 27,165 | 27,340 |
| Total fuels | TJ | 29,932 | 29,929 | 30,695 | 405 | 453 | 448 | 1,255 | 1,222 | 1,150 | 31,591 | 31,604 | 32,292 |
| Total energy | GWh | 12,125 | 12,097 | 12,372 | 574 | 580 | 551 | 625 | 615 | 612 | 13,324 | 13,292 | 13,535 |
| Energy intensity (specific energy used) |
GWh/ ktons |
4.1 | 3.9 | 4.0 | 0.99 | 1.00 | 1.04 | 2.0 | 1.8 | 1.9 | 3.4 | 3.3 | 3.4 |
| Air emissions | |||||||||||||
| NOx as NO2 | tons | 1,758 | 1,827 | 1,911 | 17 | 21 | 21 | 23 | 24 | 26 | 1,799 | 1,872 | 1,958 |
| SOx | tons | 664 | 775 | 752 | 0 | 0 | 0 | 13 | 14 | 16 | 676 | 789 | 768 |
| Dust | tons | 116 | 122 | 135 | 0 | 0 | 0 | 5 | 5 | 5 | 122 | 127 | 141 |
| CO2 Scope 1 | ktons | 1,419 | 1,433 | 1,443 | 24 | 27 | 31 | 75 | 73 | 69 | 1,517 | 1,532 | 1,543 |
| CO2 Scope 2 | ktons | 1,159 | 1,256 | 1,277 | 179 | 181 | 176 | 92 | 86 | 91 | 1,430 | 1,523 | 1,544 |
| CO2 biogenic | ktons | 474 | 459 | 524 | 0 | 0 | 0 | 0 | 0 | 0 | 474 | 459 | 524 |
| Carbon intensity (Scope 1 and 2) |
ktons/ ktons |
0.87 | 0.88 | 0.89 | 0.35 | 0.36 | 0.39 | 0.53 | 0.48 | 0.50 | 0.76 | 0.77 | 0.79 |
Essity's Group 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.
In 2018, levels of suspended solids decreased by 18.5%, volumes of effluent water by 2.9% and the amount of organic content (BOD) by 25.0%.
Most of Essity's water is used to transport fibers during production processes and the remainder is mainly used as cooling water. 75% of the water used is drawn from surface sources. Essity's reporting of water usage states totals for surface water, groundwater and municipal water systems. Essity's effluent water is divided into cooling water and process water. Cooling water has simply been heated and is not contaminated in any way. The total volume of discharged water was 93 million cubic meters. The water is treated using mechanical and biological treatment systems. The figures for 2018 refer to process water emissions.
The emissions to water stated in the tables comprise COD, BOD, suspended solids, AOX, P and N. Methods of measuring differ in some respects. In 2018, the Group used 100 million cubic meters of water in pulp and
paper production.
Seven of Essity's wholly owned production facilities are located in so-called water-stressed areas. The sites accounted for 6% of Essity's total water consumption in 2018, distributed between 40% from surface sources, 28% from groundwater and the remainder from recycled water and municipal water systems.
| Essity | Subsidiaries with significant non-controlling interests |
Essity Group | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consumer Tissue and Professional Hygiene |
Personal Care | Tissue and Personal Care | |||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||
| Water | |||||||||||||
| Water extraction | Mm3 | 100 | 101 | 101 | 0.81 | 0.32 | 0.35 | 3 | 3 | 3 | 103 | 104 | 104 |
| Discharges of water | Mm3 | 93 | 93 | 93 | 0 | 0 | 0 | 2 | 2 | 2 | 95 | 95 | 95 |
| Water consumption | Mm3 | 6.7 | 7.8 | 8.3 | 0.8 | 0.3 | 0.3 | 0.8 | 0.9 | 0.7 | 8.2 | 9.0 | 9.3 |
| Water emissions | |||||||||||||
| COD | tons | 6,316 | 6,620 | 6,930 | 0 | 0 | 0 | 733 | 900 | 967 | 7,049 | 7,520 | 7,897 |
| BOD | tons | 673 | 654 | 896 | 0 | 0 | 0 | 185 | 229 | 262 | 859 | 884 | 1,157 |
| Suspended solids | tons | 815 | 827 | 1,074 | 0 | 0 | 0 | 186 | 242 | 250 | 1,001 | 1,069 | 1,324 |
| AOX | tons | 3 | 5 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 5 | 4 |
| P | tons | 44 | 38 | 43 | 0 | 0 | 0 | 0 | 0 | 0 | 44 | 38 | 43 |
| N | tons | 198 | 235 | 377 | 0 | 0 | 0 | 1 | 3 | 5 | 199 | 238 | 381 |
Essity's target for production waste is that all waste from all production units will be subject to material and energy recovery by 2030. In 2018, Essity's production waste amounted to a total of 1.65 million tons. In Essity's production process, particularly when recovered 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. In 2018, a significant part (1 million tons) was recovered as raw materials for other industries, such as the construction industry, or as an energy source. The remainder was sent to landfill.
The solid waste reported by Essity is waste that is sent to landfill and recycled waste. Recycled waste refers to materials that can be used as raw materials in other industries, such as the cement, brick-making and construction industries. This includes waste generated in the production process. Some of the waste can be composted or used for energy extraction. 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.
A very small proportion (0.2% or 3,200 tons) is hazardous waste, which is primarily waste oil, but also includes organic solvents, batteries and strip lights.
| Essity | Subsidiaries with significant non-controlling interests |
Essity Group | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consumer Tissue and Professional Hygiene |
Personal Care | Tissue and Personal Care | |||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||
| Solid waste | |||||||||||||
| Landfill and incineration | tons | 654,295 | 621,047 | 664,791 | 4,710 | 5,599 | 6,245 | 8,104 | 7,305 | 10,208 | 667,110 | 633,951 | 681,244 |
| Recovery | tons | 819,019 | 882,185 | 966,134 | 56,143 | 55,887 | 46,539 | 111,548 | 102,392 | 100,246 | 986,710 1,040,464 1,112,919 | ||
| Total waste | tons | 1,473,314 1,503,232 1,630,925 | 60,853 | 61,486 | 52,784 | 119,652 | 109,696 | 110,454 | 1,653,820 1,674,415 1,794,162 |
Raw materials are transported to Essity's production plants and finished products are delivered to Essity's customers. Essity uses external suppliers for most of its transportation needs. Essity's total transportation amounted to 14 (13, 13) billion ton-kilometers. Sea freight accounts for the greatest portion of Essity's transport and the remainder consists of road and rail. The Group's total carbon emissions from transport in 2018 amounted to 480,000 (457,000, 517,000) tons.
Emissions from transportation is included in Essity's report of Scope 3 objectives in Science-Based Targets. Emission data for 2016 and 2017 was updated to bring it into line with the guidelines for Science-Based Targets.
Essity's target for responsible sourcing is that all of our sourcing is to be from suppliers that share the company's values, as defined in Essity's Global Supplier Standard. This is to ensure responsible business methods and respect for human rights. By 2020, the aim is to source 100% of Essity's procurement spend from suppliers that undertake to commit to the criteria specified in the Global Supplier Standard. In 2018, 71% (64) of the procurement spend was sourced from suppliers who fulfill this criteria.
Essity has an established process to perform continuous risk assessments of the company's suppliers and sourcing categories. The aim is to secure deliveries and minimize risks linked to the company's sourcing. Certain materials, such as cotton and wood fiber, are considered to have higher risk lower down in the value chain. Essity takes specific measures here, such as audits of subcontractors, or chooses certified raw materials that guarantee more sustainable extraction and production. In 2018, Essity has continued to implement sustainable sourcing linked to the Medical Solutions product category (previously BSN medical, which was acquired in 2017) by introducing the same working methods as used by other suppliers.
During 2018, Essity evaluated the outcome from 59 ethical supplier audits, of which 30 were carried out by SGS on Essity's behalf in China, Romania, Russia, Brazil, Spain, India, Israel and Mexico. In addition, 29 ethical audits performed on behalf of other customers of the suppliers were approved by Essity.
Essity is informed within 24 hours in cases of critical observations. To date, this type of action has been necessitated due to rare cases of excessive overtime, overtime not being paid at a premium, or no evidence of fire drills being conducted in the last 12 months. No agreements with strategic suppliers were terminated on the grounds of sustainability-related non-compliance in 2018.
Approximately 81.1% of Essity's supplier base is located in Europe, 18.4% in North and South America and 0.5% in Asia/Middle East. Many of the strategic suppliers' production facilities located in Asia and Latin America belong to large multinational corporations based in Europe and the US. This is a conscious choice by Essity and reduces the social and ethical risks within the supply chain.
Global and regional strategic suppliers of raw materials and merchandise represent about 76% (61) of Essity's procurement spend. 21% (22) of suppliers' manufacturing units are located in high-risk countries according to the Maplecroft Human Rights Index. These suppliers are in scope for ethical audits with a focus on health and safety, human rights, employment conditions and corruption. Essity has various tools to assess the need for an ethical audit, such as a low rating in Sedex, a low health and safety score in Essity's supplier qualification audit or warning signals in conjunction with Essity's regular risk assessments. Sedex is an online database that enables suppliers to share information with their customers on their status in areas such as labor conditions, health and safety and business ethics. At the end of 2018, Essity had a total of 694 (481) supplier plants that share this type of data via Sedex.
Reliable management systems, which are certified by a third party, play an important role in Essity's corporate responsibility. Essity uses the certified environmental management system ISO 14001 and EMAS (the EU's Eco Management and Audit Scheme). A large number of production units are certified in accordance with ISO or/and 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 throughout 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.
| Consumer Tissue and Professional Hygiene Personal Care |
|||||||
|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||
| ISO 9001 | % | 73 | 73 | 77 | 97 | 97 | 96 |
| ISO 14001 | % | 80 | 85 | 86 | 86 | 85 | 85 |
1) A main site is a production facility that is wholly owned by Essity and that has 100 or more employees.
Essity´s target is for all employees to receive regular training in the Code. During 2018, 90% of all new employees had received training in Essity's Code of Conduct.
Essity has an anti-corruption e-learning course, translated into 21 languages, which is included in onboarding programs. Essity also trains employees using e-learning courses on EU competition law and US antitrust legislation.
Essity's human rights and corruption risk analysis is based on assessments carried out by Amnesty, Transparency International and Sedex. Approximately 30% of Essity's revenue is generated in countries with a high risk of human rights violations. About 31% comes from countries with a relatively high risk of corruption. In the 2018 Sedex assessment, all of Essity's main facilities received a low to medium risk classification.
In 2018, 81 (63, 71) cases of potential breaches of laws or of the Code of Conduct were reported to Essity's whistleblower function. Of the 81 reported complaints, 24 were still subject to investigation at year-end. Among the reported complaints, three related to the suspicion of corruption. All of the three investigations were closed during the year without any corruption being identified and no one was dismissed on suspicion of corruption. Other reported complaints included 58 HR-related incidents and concerned accusations of discrimination and harassment and the remaining 20 cases concerned potential violations of the company's other policies.
In 2018, Code of Conduct audits were conducted at two sites in Colombia and South Africa. Both are acquired units from BSN medical and a number of areas for improvement were identified to raise levels to normal Essity standard, in areas including working environment, health and safety. In addition, there was little or no knowledge of BSN medicals' or Essity's Code of Conduct among employees. An action program is in place and has been implemented or will be implemented in 2019.
In 2018, business ethics audits were conducted in the US, Mexico, the UK and Indonesia and of exports to Kazakhstan and countries in the Middle East. The audits in the US, Mexico and Indonesia related to the acquisition of BSN medical units in 2017. These have a number of areas for improvement to reach Essity's standard. For example, staff require further training in the Code of Conduct and other policy documents, performance reviews need to be introduced and encryption of e-mails is necessary. The audit in the UK resulted in few and minor improvement measures. The unit for export sales was generally considered to follow Essity's guidelines but implemented internal training in the Code of Conduct and other policy documents needs to be better documented. Action plans are in place and have been carried out or will be carried out 2019.
In May 2018, the Andean Community imposed fines of approximately USD 18m on Productos Familias S.A.'s operations in Ecuador and Colombia. The company has appealed the decision. In the same year, the Hungarian competition authority withdrew its investigation into the company. In early 2019, the Supreme Court in Spain rejected the company's appeal against the Spanish competition authority's decision to impose a fine from May 2016.
In 2018, Essity comprised on average 47,222 (46,385, 42,149) employees in some 50 countries, of whom 34% (34, 32) are women. The employee turnover rate is 15% (14, 13). The majority of Essity's employees are permanent/full-time employees and a minor share, about 5%, are temporary/part-time employees.
In 2018, 88% (92, 90) of white-collar employees participated in performance management reviews. The corresponding number for blue-collar employees is 78% (80, 85).
Essity strives to provide salaries aligned with market terms, based on the executive's position and local labor market. Unjustified salary differences should not exist. In three of the countries, France, Germany and Sweden, where Essity has most employees in wholly owned operations, salary analyses are conducted annually that include comparisons between men's and women's salaries. In France, salaries for women on managerial levels range between 96% and 106% of their male counterparts, depending on the position held. For women on non-managerial levels, the corresponding figures were between 101% and 105%. In Germany, salaries for women on managerial levels range between 85% and 88% of their male counterparts, depending on the position held. For women on non-managerial levels, the corresponding figures were between 97% and 129%. In Sweden, salaries for women on managerial levels range between 88% and 96% of their male counterparts, depending on the position held. For women on non-managerial levels, the corresponding figures were between 97% and 102%. Essity continuously endeavors to narrow unjustified pay gaps and differences in other employment conditions.
One prioritized area is to develop the potential of all employees and Essity's strategy is that most of this development should take place in daily work. Essity offers a global leadership platform, and approximately 700 managers took part in 2018. 290 people participated in the mandatory one-day onboarding program for all newly appointed managers. 240 participated in Core 1, a six-day program to develop managers who have been in their role for six to 12 months with a focus on leadership skills. Core 2 is conducted for more experienced managers, which is a leadership program to develop people's capabilities to lead in a complex environment, engage people and manage change. Creating Value is another course to further strengthen participants' capabilities in strategic leadership areas. In 2018, a total of 70 people took part in this program. During 2018, great emphasis was put on managing change and more than 100 managers took part in training about change management.
Other programs include the Hygiene Academy, which offers training in brand activities, digital marketing and innovation. 490 people in total took part in these programs. Essity has also established a training program in sustainability with the aim of improving understanding of sustainability's impact on products and services, customers and consumers.
The average number of training hours per employee was 15.
In 2018, the proportion of women among Essity's top management was 25% (36, 33). Among senior management, the proportion of women was 26% (27, 25) and 27% (23, 27) among senior/middle management.
Senior management comprised 17 (18, 21) different nationalities and the corresponding figure was 39 (36, 32) for senior/middle management. Encouraging greater diversity is part of Essity's leadership platform and succession planning.
Essity regularly carries out employee surveys. Employees are the company's main asset and an employee survey was held in 2018 that covered 31 statements at five levels. The statements were updated to reflect Essity's focus on hygiene and health and the company's new Beliefs & Behaviors. To achieve greater efficiency, the survey was carried out digitally for the first time. The results are expressed as indexes for Care, Committed, Courage, Collaboration and Engagement, as well as an overall Essity index. The response rate var 80% (88% in 2015). Essity's index var 75 (72 in 2015) on a scale of 1–100. Based on the outcome of the employee survey, all teams will develop and implement action plans to further strengthen Essity and make the company an even better place to work.
Union involvement varies among Essity's countries of operation, but on average 63% (61, 54) of Essity's employees are covered by collective agreements.
There are health and safety committees on which representatives of about 82% (86) of employees serve.
The notice period in connection with organizational changes in the Group varies, but averages about five weeks.
As a hygiene and health company, Essity wants its employees to enjoy firstclass standards when it comes to workplace hygiene. Essity reported its WASH (Water, Sanitation and Hygiene) Pledge for the first time in 2016. The pledge is an initiative linked to the World Business Council for Sustainable Development (WBCSD). By signing the pledge, Essity undertakes to comply with a prescribed workplace WASH standard for its wholly owned units within three years. This includes areas such as workplace sanitation and health issues, as well as training to improve employees' awareness.
Essity's Group target is to decrease the accident frequency rate by 50% in the 2014–2020 period. In 2018, the accident frequency rate declined by 1% year-on-year to 3.8 (3.8, 4.1) and 39% compared with the base year of 2014.
In 2018, Essity developed a tool to measure and assess physical, mental and social health. The tool compiles local reactive, proactive and preventive efforts and provides feedback with practical improvement proposals. The tool will be launched worldwide in 2019.
In recent years, Essity has worked intensively to systematize and improve its safety work. Essity uses the following Group-wide KPIs:
| Average headcount | 27,900 27,100 24,900 24,200 | ||
|---|---|---|---|
| Lost Time Accidents, LTA 214 |
210 | 207 | 281 |
| Contractor Lost Time Accidents, CLTA 50 |
34 | 33 | 33 |
| Days Lost due to Accidents, DLA 5,230 |
4,877 | 5,201 | 6,378 |
| Accident Severity Rate, ASR 24.4 |
23.2 | 25.1 | 22.7 |
| Accident Frequency Rate, FR (LTA/1,000,000 WH) 3.8 |
3.8 | 4.1 | 5.5 |
| Incident Rate, IR (LTA/200,000 WH) 0.8 |
0.8 | 0.8 | 1.1 |
| Fatalities (employees) 0 |
0 | 1 | 0 |
| Number of zero-accident sites 27 |
26 | 19 | 17 |
| Number of sites included in reporting 85 |
85 | 72 | 70 |
1) 100% cover for production facilities and excluding sales and administration offices.
Using information supplied by 15,884 employees, average sickness absence in 2018 was 4.92%. The corresponding figures for 2017, 2016 and 2015 were 4.86% (15,962 employees), 4.88% (16,258) and 4.95% (16,367), respectively.
1) LTA/1,000,000 WH.
1) Lost days in relation to the number of accidents.
| Disposition of earnings Essity Aktiebolag (publ) | |||||
|---|---|---|---|---|---|
| Non-restricted equity in the Parent Company: | |||||
| retained earnings | 71,696,586,104 | ||||
| net profit for the year | 16,162,101,468 | ||||
| Total | 87,858,687,572 | ||||
| The Board of Directors and the President propose: | |||||
| to be distributed to shareholders, a dividend of SEK 5.75 per share | 4,038,469,312 | ||||
| to be carried forward | 83,820,218,2601) | ||||
| Total | 87,858,687,572 | ||||
1) The company's equity would have been SEK 340,640,501 lower if assets and liabilities had not been measured at fair value in accordance with Chapter 4, Section 14 of the Swedish Annual Accounts Act.
The Board of Directors and President declare that the combined financial statements that comprise the consolidated financial statements for the 2018, 2017 and 2016 fiscal years 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 financial position and results of operations. The Parent Company's financial statements have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent Company's financial position and results of operations. The statutory Board of Directors' Report provides a fair review of the Parent Company's and Group's operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.
Stockholm, February 21, 2019
Ewa Björling Board member
Pär Boman Chairman of the Board
Tina Elvingsson Engfors Board member, appointed by the employees Maija-Liisa Friman Board member
Annemarie Gardshol Board member
Magnus Groth President, CEO and Board member
Bert Nordberg Board member Louise Svanberg Board member
Örjan Svensson Board member, appointed by the employees Lars Rebien Sørensen Board member
Barbara Milian Thoralfsson Board member
Niclas Thulin Board member, appointed by the employees
Our audit report was submitted on February 21, 2019 Ernst & Young AB
Hamish Mabon Authorized Public Accountant Auditor in charge
To the general meeting of the shareholders of Essity AB, corporate identity number 556325-5511
We have audited the annual accounts and consolidated accounts of Essity AB (publ) except for pages 39–55 and 114–121 for the year 2018. The annual accounts and consolidated accounts of the company are included on pages 6–8 and 20–122 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 2018 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 2018 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 39–55 and 114–121. 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.
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.
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.
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.
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.
| Description | How our audit addressed this key audit matter |
|---|---|
| The value of goodwill and other intangibles (trademarks) with an indef inite useful life as of 31 December 2018 amounted to 46,5 billion SEK. An impairment test is a complex process and contains a high degree of judgment regarding future cash flows and other assumptions. The Company performs annual impairment tests as well as when impair ment indicators have been identified. The recoverable amount for each cash-generating unit is determined as the value in use, which is calcu lated based on the discontinued present value of future cash flows. Key assumptions in these calculations are future growth rate, gross profit and applied discount rate and are presented in Note D1 ("Intangible assets") The process is by nature based on assumptions and judgment, not least because it is based on estimates of how the company´s business will be effected by future market developments and by other economic events, and the underlying calculations are in themselves complex. We have therefore 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, appli cations of recognized valuation practice, discount rate (called WACC – "Weighted Average Cost of Capital") and other source data that the company has used. This has been done by 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 this assessment we have also evaluated the company´s historical capability to forecast in impairment tests with the amounts that finally turned out, in order to assess the company´s historical precision in its estimates and assess ments. 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 assump tions that are most sensitive in calculating the value in use. |
| Revenue recognition and accounting for related sales incentives In our audit we have reviewed the company's revenue recognition with (bonuses and rebates) are areas with a greater degree of estimates and focus on bonuses and rebates. We have evaluated the company's reve assessments. We have noted that bonuses, rebates and other adjust nue process and tested the company's controls within the process. We ments of sales prices in some cases can be material. Incentives related have also reviewed the accrued costs related sales incentives (bonuses to sales are reported as reduction of the company´s revenue. Incentives and rebates) to customers as of 31 December 2018 which amounted to can for example be structured as percentage reductions on sales, dis 4.8 billion SEK to underlying customer agreements and performed a ret counts per item, fixed amounts with or without thresholds or in other rospective analysis of the accruals per 31 December 2017. Our audit has ways. The company calculates an estimate of final incentives based also included review of credit invoices and other adjustments to trade on the information available the end of the period. We have therefore receivables that have taken place after 31 December 2018. We have also assessed revenue recognition and related sales incentives to be a key reviewed revenue recognition for non-standard customer agreements. audit matter. In our audit we have tested larger payouts to the company´s customers that have taken place during 2018 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 in order to confirm that sufficient documentation and |
Description | How our audit addressed this key audit matter |
|---|---|---|
| suitable attestations exist for these entries. |
This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–5, 9–19 and 127–134. 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.
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.
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:
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.
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.
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 2018 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.
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.
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.
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:
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 Board of Directors is responsible for that the corporate governance statement on pages 46–55 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 Board of Directors is responsible for the statutory sustainability report on pages 33–45 and 114–121, 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 12, 2018 and has been the company's auditor since May 27, 2016.
Stockholm, February 21, 2019 Ernst & Young AB
Hamish Mabon Authorized Public Accountant
The report includes requirements placed on sustainability reporting as stated in the Annual Accounts Act. The report has been reviewed by Ernst & Young AB.
| Disclosure | Page | |
|---|---|---|
| GENERAL | ||
| Business model | 11 | |
| ENVIRONMENT | ||
| Policy on environmental issues | 40–45 | |
| Risks and risk management on environmental issues | 34, 42–45 | |
| Targets and outcomes related to environmental issues | 115–119 | |
| SOCIAL CONDITIONS | ||
| Policy on social issues | 40–42, 45 | |
| Risks and risk management on social issues | 35 | |
| Targets and outcomes related to social issues | 114–115, 120–121 | |
| RESPECT FOR HUMAN RIGHTS | ||
| Policy for human rights | 40–41, 45 | |
| Risks and risk management on human rights issues | 35, 40–41, 43 | |
| Targets and outcomes related to human rights issues | 120 | |
| ANTI-CORRUPTION | ||
| Policy for work in anti-corruption | 40–41, 45 | |
| Risks and risk management in anti-corruption | 35, 40–41 | |
| Targets and outcomes related to anti-corruption | 120 |
Essity's 2018 Annual and Sustainability Report has been prepared in accordance with the Global Reporting Initiative (GRI) Standard: Core. The following index shows where information on the GRI indicators can be found.
| Disclosure | Page | |
|---|---|---|
| GRI 101: Foundation 2016 | ||
| GRI 102: General disclosures 2016 | ||
| ORGANIZATIONAL PROFILE | ||
| 102-1 | Name of the organization | 134 |
| 102-2 | Activities, brands, products and services | 1, 22–27 |
| 102-3 | Location of headquarters | 134 |
| 102-4 | Countries in which operations are located | 75–76 |
| 102-5 | Nature of ownership and legal form | 6–7 |
| 102-6 | Markets served | 20–27 |
| 102-7 | Scale of the organization | 2–3 |
| 102-8 | Information on employees and other workers | 80, 120–121 |
| 102-9 | Supply chain | 43–44 |
| 102-10 | Significant changes to the organization and its supply chain | 28–29 |
| 102-11 | Addressing the precautionary approach or principle | 42–43, 46–47 |
| 102-12 | External initiatives | 133 |
| 102-13 | Membership in associations | 133 |
| STRATEGY | ||
| 102-14 | Statement from senior decision-maker | 4–5 |
| ETHICS AND INTEGRITY | ||
| 102-16 | Values, principles, standards, code of conduct and code of ethics | 13–15, 41–42 |
| GOVERNANCE | ||
| 102-18 | Governance structure | 46–47 |
| 102-19 | The process for delegating authority for sustainability topics | 40–42, 46 |
| 102-20 | Executive-level positions with responsibility for sustainability topics | 55 |
| 102-21 | Processes for consultation between stakeholders and the highest governance body |
39, 46 |
| 102-22 | Composition of the highest governance body and its committees | 48–49 |
| 102-23 | Position of the chair of the board of directors | 49 |
| 102-24 | Nomination and selection processes for the highest governance body and its committees |
48–49 |
| 102-25 | Report processes for the highest governance body to ensure conflict of interest is avoided and managed |
48 |
| Disclosure | Page | |||||
|---|---|---|---|---|---|---|
| 102-26 | Highest governance body's role in setting purpose, values, and strategy |
46–47, 49 | ||||
| STAKEHOLDER ENGAGEMENT | ||||||
| 102-40 | List of stakeholder groups engaged | 39 | ||||
| 102-41 | Collective bargaining agreements | 121 | ||||
| 102-42 | Identification and selection of stakeholders | 39 | ||||
| 102-43 | Approaches to stakeholder engagement | 39 | ||||
| 102-44 | Key topics and concerns raised by stakeholders | 39 | ||||
| REPORTING PRACTICE | ||||||
| 102-45 | Entities included in the financial statements | 114 | ||||
| 102-46 | Defining report content and topic boundaries | 39 | ||||
| 102-47 | List of material topics | 39 | ||||
| 102-48 | Restatements of information | 114 | ||||
| 102-49 | Changes in reporting | 114 | ||||
| 102-50 | Reporting period | 114 | ||||
| 102-51 | Date of most recent report | 114 | ||||
| 102-52 | Reporting cycle | 114 | ||||
| 102-53 | Contact point for questions regarding the report | 134 | ||||
| 102-54 | Claims of reporting in accordance with the GRI Standards | 114 | ||||
| 102-55 | GRI content index | 127–128 | ||||
| 102-56 | External assurance | 114 |
| GRI Standard | Description | Page | Comment/Omission | Topic in Essity's materiality analysis |
|
|---|---|---|---|---|---|
| ECONOMIC | |||||
| Indirect Economic Impacts | 103–1/2/31) | Disclosure on management approach (DMA) | 42 | Risk management | |
| GRI 203: Indirect Economic Impacts 2016 |
203-2 | Significant indirect economic impacts | 13–15 | ||
| Anti-corruption | 103–1/2/31) | DMA | 41–42 | Business ethics | |
| GRI 205: Anti-corruption 2016 | 205-1 | Operations assessed for risks related to corruption and the Transparency-significant risks identified |
120 | Transparency | |
| 205-3 | Actions taken in response to confirmed incidents of corruption | 120 | |||
| Anti-competitive Behavior | 103–1/2/31) | DMA | 41–42 | Business ethics | |
| GRI 206: Anti-competitive Behavior 2016 |
206-1 | Anti-trust and monopoly court cases | 120 | Transparency | |
| ENVIRONMENT | |||||
| Energy | 103–1/2/31) | DMA | 43–45 | Resource efficiency | |
| GRI 302: Energy 2016 | 302-1 | Energy consumption within the organization | 116–117 | ||
| 302-2 | Energy consumption outside of the organization | 119 | |||
| 302-4 | Reduction of energy consumption | 116 | |||
| Water | 103–1/2/31) | DMA | 43 | Water use and | |
| GRI 303: Water 2016 | 303-1 | Total water withdrawal by source | 117 | water purification | |
| Emissions | 103–1/2/31) | DMA | 43–44 | CO2 emissions | |
| GRI 305: Emissions 2016 | 305-1 | Direct greenhouse gas (GHG) emissions (Scope 1) | 116–117 | Water use and water purification |
|
| 305-2 | Energy indirect greenhouse gas (GHG) emissions (Scope 2) | 116–117 | Resource efficiency | ||
| 305-3 | Other indirect greenhouse gas (GHG) emissions (Scope 3) | 119 | |||
| 305-4 | Greenhouse gas (GHG) emissions intensity | 117 | |||
| 305-7 | NOx, SOx, and other significant air emissions | 117 | |||
| Effluents and Waste | 103–1/2/31) | DMA | 42–43 | Water use and | |
| GRI 306: Effluents and Waste 2016 |
306-1 | Total water discharge by quality and destination | 117–118 | water purification Resource efficiency |
|
| 306-2 | Total weight of waste by type and disposal method | 118 | |||
| SOCIAL PERFORMANCE INDICATORS |
|||||
| Employment | 103–1/2/31) | DMA | 40, 45 | Human capital | |
| GRI 401: Employment 2016 | 401-1 | New employee hires and employee turnover | 80, 120 | ||
| Labor/Management Relations GRI 402: Labor/Management |
103–1/2/31) 402-1 |
DMA Minimum notice periods regarding operational changes |
40, 45 121 |
Human capital | |
| Relations 2016 Occupational Health |
103–1/2/31) | DMA | 40, 45 | Occupational Health | |
| and safety | 403-1 | Percentage of total workforce represented in formal joint | 121 | and safety | |
| GRI 403: Occupational Health and Safety 2016 |
403-2 | management-worker health and safety committees Rates of injury, occupational diseases, lost days, absenteeism |
121 | ||
| and number of work-related fatalities | |||||
| Training and Education GRI 404: Training and Education 2016 |
103–1/2/31) 404-3 |
DMA Percentage of employees receiving regular performance |
40, 45 120 |
Human capital | |
| and career development reviews | |||||
| Diversity and Equal Opportunity GRI 405: Diversity and |
103–1/2/31) 405-1 |
DMA Composition of governance bodies and employee breakdown |
40, 45 46–47, 52–53, 80, 120 |
Human capital | |
| Equal Opportunity 2016 | 405-2 | Ratio of basic salary and remuneration of women to men | 120 | ||
| Non-discrimination | 103–1/2/31) | DMA | 40, 45 | 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) | DMA | 40, 45 | Business ethics | |
| Collective Bargaining GRI 407: Freedom of Association and Collective Bargaining 2016 |
407-1 | Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk |
120 | Transparency | |
| Child Labor | 103–1/2/31) | DMA | 40–41 | Business ethics | |
| GRI 408: Child Labor 2016 | 408-1 | Measures taken to eliminate child labor in risk areas | 120 | No Essity sites were identified as high-risk sites by Sedex. |
Transparency |
| Forced or Compulsory Labor | 103–1/2/31) | DMA | 40–41 | Business ethics | |
| GRI 409: Forced or Compulsory Labor 2016 |
409-1 | Measures taken to eliminate forced or compulsory labor in risk areas |
120 | Transparency | |
| Human rights | 103–1/2/31) | DMA | 40–41 | Human rights | |
| GRI 412: Human Rights Assessment 2016 |
412-2 | Employee training on human rights | 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) | DMA | 40, 43 | Human rights | |
| GRI 414: Supplier Social Assessment 2016 |
414-2 | Significant potential and actual negative impacts in the supply chain and actions taken |
119 | Business ethics Transparency |
|
| Marketing and Labeling | 103–1/2/31) | DMA | 17 | Customer and con | |
| GRI 417: Marketing and Labeling 2016 |
417-1 | Product information required by procedures | 42 | sumer satisfaction Product safety |
1) GRI 103: Management Approach 2016
This is the translation of the auditor's report in Swedish.
To Essity AB (publ), corp id 556325-5511
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 2018. Essity Aktiebolag (publ) has defined the scope of the Sustainability Report to the pages referred to in the GRI index on pages 127–128.
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 114, 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.
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 117. 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.
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, 21 February 2019 Ernst & Young AB
Hamish Mabon Authorized Public Accountant
Outi Alestalo Expert member of FAR
Transport and distribution expenses, 10% Other costs of goods sold3), 25% Raw materials and consumables, 41%
| Of which | |
|---|---|
| Pulp | 18% |
| Recovered paper | 4% |
| Non-woven | 3% |
| Super absorbents | 2% |
| Other4) | 14% |
| Total raw materials and consumables | 41% |
Energy, 1% Transport and distribution expenses, 9% Other costs of goods sold, 21% Raw materials and consumables, 39% Total operating expenses1): SEK 39,689m Sales, general and administration, 30%
| Of which | |
|---|---|
| Pulp | 8% |
| Non-woven | 7% |
| Super absorbents | 5% |
| Other | 19% |
| Total raw materials and consumables | 39% |
| Of which | |
|---|---|
| Pulp | 32% |
| Recovered paper | 5% |
| Other | 14% |
| Total raw materials and consumables | 51% |
| Total raw materials and consumables | 30% |
|---|---|
| Other | 10% |
| Recovered paper | 10% |
| Pulp | 10% |
1) Excluding items affecting comparability.
4) The item Other in Raw materials and consumables includes costs for chemicals, packaging material and plastic material.
Total of 3.0 million tons
Essity's own pulp production corresponded to 8% of pulp consumption and is primarily related to an integrated tissue plant in Mannheim, Germany.
(Capacity is stated in thousands of tons, unless otherwise indicated, and per year)
| Personal Care | |
|---|---|
| Production facility | Country |
| Annaba | Algeria |
| Buenos Aires | Argentina |
| Jarinu | Brazil |
| Neve | Brazil |
| Drummondville | Canada |
| Hubei | China |
| Zhejiang | China |
| Cali | Colombia |
| Caloto | Colombia |
| Rio Negro | Colombia |
| San Cristobal | Dominican Republic |
| Lasso | Ecuador |
| Radiante | France |
| Vibraye | France |
| Emmerich | Germany |
| Hausbruch | Germany |
| Goa | India |
| Shah Alam 1&2 | Malaysia |
| Ecatepec | Mexico |
| Maquiladora | Mexico |
| Reynosa | Mexico |
| Assen | Netherlands |
| Gennep | Netherlands |
| Hoogezand | Netherlands |
| Olawa | Poland |
| Veniov | Russia |
| Gemerská Hôrka | Slovakia |
| Pinetown | South Africa |
| Valls | Spain |
| Falkenberg | Sweden |
| Mölnlycke | Sweden |
| Kao Hsiung | Taiwan |
| Ksibet el Mediouni | Tunisia |
| Gebze (Istanbul) | Turkey |
| Kartepe | Turkey |
| Bowling Green | US |
| Production facility | Country | Capacity | Production facility | Country | Capacity |
|---|---|---|---|---|---|
| Ortmann | Austria | 132 | Uruapan | Mexico | 40 |
| Stembert | Belgium | 75 | Cuijk | Netherlands | 52 |
| Santiago | Chile | 28 | Suameer2) | Netherlands | 8 |
| Beijing | China | 30 | Sovetsk | Russia | 90 |
| Hubei | China | 240 | Svetogorsk | Russia | 55 |
| Liaoning | China | 55 | Allo | Spain | 140 |
| Shangdong | China | 110 | Valls | Spain | 137 |
| Sichuan | China | 75 | Lilla Edet | Sweden | 100 |
| Xinhui, Sanjiang | China | 440 | Manchester | UK | 50 |
| Yangjiang | China | 60 | Oakenholt | UK | 70 |
| Zhejiang | China | 210 | Prudhoe | UK | 92 |
| Cajica | Colombia | 70 | Stubbins | UK | 55 |
| Medellin | Colombia | 30 | Tawd Mill | UK | 30 |
| Inpaecsa | Ecuador | 13 | Barton | US | 180 |
| Lasso | Ecuador | 26 | Harrodsburg | US | 55 |
| Nokia | Finland | 67 | Menasha | US | 211 |
| Gien | France | 145 | Middletown | US | 100 |
| Hondouville | France | 55 | South Glens Falls | US | 64 |
| Kunheim | France | 50 | |||
| Le Theil | France | 65 | Converting facility: | ||
| Kostheim | Germany | 152 | Kingsgrove | Australia | |
| Mannheim | Germany | 283 | Lucca | Italy | |
| Neuss | Germany | 112 | Hlohovec | Slovakia | |
| Witzenhausen | Germany | 32 | Telde | Spain | |
| Altopascio | Italy | 25 | Ksibet el Mediouni | Tunisia | |
| Collodi | Italy | 42 | Skelmersdale | UK | |
| Lucca | Italy | 120 | Bellemont | US | |
| Monterrey | Mexico | 62 | Greenwich | US | |
| Sahagun | Mexico | 60 | Neenah | US | |
| Total | 4,393 |
| Production facility | Country | Capacity |
|---|---|---|
| Uruapan | Mexico | 40 |
| Cuijk | Netherlands | 52 |
| Suameer2) | Netherlands | 8 |
| Sovetsk | Russia | 90 |
| Svetogorsk | Russia | 55 |
| Allo | Spain | 140 |
| Valls | Spain | 137 |
| Lilla Edet | Sweden | 100 |
| Manchester | UK | 50 |
| Oakenholt | UK | 70 |
| Prudhoe | UK | 92 |
| Stubbins | UK | 55 |
| Tawd Mill | UK | 30 |
| Barton | US | 180 |
| Harrodsburg | US | 55 |
| Menasha | US | 211 |
| Middletown | US | 100 |
| South Glens Falls | US | 64 |
| Converting facility: | ||
| Kingsgrove | Australia | |
| Lucca | Italy | |
| Hlohovec | Slovakia | |
| Telde | Spain | |
| Ksibet el Mediouni | Tunisia | |
| Skelmersdale | UK | |
| Bellemont | US |
1) As of December 31, 2018. 2) Non-woven production.
| SEKm | 2018 | 2017 | 2016 | 2015 | 2014 |
|---|---|---|---|---|---|
| INCOME STATEMENT | |||||
| Net sales | 118,500 | 109,265 | 101,238 | 98,519 | 87,997 |
| Adjusted EBITA1) | 12,935 | 13,405 | 11,992 | 10,603 | 9,495 |
| Personal Care | 6,354 | 5,937 | 4,283 | 3,997 | 3,528 |
| Consumer Tissue | 3,331 | 4,084 | 4,450 | 3,846 | 3,858 |
| Professional Hygiene | 3,841 | 4,004 | 3,836 | 3,497 | 2,918 |
| Other operations 2) | –591 | –620 | –577 | –737 | –809 |
| EBITA | 11,560 | 12,550 | 9,347 | 10,311 | 8,486 |
| Amortization of acquisition-related intangible assets | –732 | –560 | –159 | –133 | –126 |
| Items affecting comparability | –69 | –85 | –180 | –494 | 0 |
| Operating profit | 10,759 | 11,905 | 9,008 | 9,684 | 8,360 |
| Financial income3) | 91 | 158 | 202 | 312 | 416 |
| Financial expenses | –1,248 | –1,340 | –1,037 | –1,140 | –1,156 |
| Profit before tax | 9,602 | 10,723 | 8,173 | 8,856 | 7,620 |
| Tax | –1,050 | –1,938 | –3,931 | –2,278 | –1,939 |
| Profit for the period | 8,552 | 8,785 | 4,242 | 6,578 | 5,681 |
| BALANCE SHEET | |||||
| Non-current assets (excl. financial receivables) | 110,370 | 105,398 | 77,238 | 67,483 | 69,519 |
| Receivables and inventories | 38,646 | 34,664 | 29,917 | 29,171 | 28,207 |
| Non-current assets held for sale | 69 | 42 | 156 | 120 | 60 |
| Financial receivables | 1,751 | 1,700 | 1,052 | 766 | 2,849 |
| Current financial assets | 422 | 1,105 | 1,677 | 12,983 | 14,024 |
| Cash and cash equivalents | 3,008 | 4,107 | 4,244 | 4,828 | 3,806 |
| Total assets | 154,266 | 147,016 | 114,284 | 115,351 | 118,465 |
| Equity | 47,141 | 42,289 | 33,204 | 42,986 | 39,675 |
| Non-controlling interests | 7,758 | 7,281 | 6,376 | 5,289 | 5,250 |
| Provisions | 12,530 | 11,631 | 9,145 | 6,675 | 8,189 |
| Interest-bearing debt | 54,327 | 54,838 | 36,873 | 34,717 | 40,787 |
| Operating and other non-interest bearing liabilities | 32,510 | 30,977 | 28,686 | 25,684 | 24,564 |
| Total liabilities and equity | 154,266 | 147,016 | 114,284 | 115,351 | 118,465 |
| Capital employed4) | 107,575 | 90,167 | 73,145 | 70,115 | 66,866 |
| Net debt, incl. pension liabilities | 54,404 | 52,467 | 35,173 | 19,058 | 25,066 |
| CASH FLOW STATEMENT | |||||
| Operating cash flow | 12,324 | 12,723 | 13,031 | 10,440 | 9,714 |
| Cash flow from current operations | 8,787 | 8,745 | 8,563 | 7,550 | 6,900 |
| Cash flow before dividend | 5,737 | –19,372 | 359 | 5,328 | 4,981 |
| Current capital expenditures | –4,357 | –3,911 | –4,222 | –3,293 | –2,861 |
| Strategic capital expenditures, non-current assets | –2,424 | –2,101 | –2,033 | –2,179 | –1,632 |
| Company acquisitions | –694 | –26,045 | –6,540 | –92 | –492 |
| Divestments | 68 | 29 | 369 | 49 | 205 |
| KEY FIGURES5) | |||||
| Equity/assets ratio, % | 31 | 29 | 29 | 37 | 33 |
| Interest coverage ratio | 9.3 | 10.1 | 10.8 | 11.7 | 11.3 |
| Debt payment capacity, incl. pension liabilities, % | 25 | 26 | 29 | 65 | 40 |
| Debt/equity ratio, incl. pension liabilities | 0.99 | 1.06 | 0.89 | 0.39 | 0.56 |
| Debt/equity ratio, excl. pension liabilities | 0.92 | 0.99 | 0.76 | 0.34 | 0.45 |
| Return on capital employed, % | 10.8 | 13.9 | 12.8 | 13.8 | 12.5 |
| Adjusted return on capital employed, % | 12.0 | 14.9 | 16.4 | 15.1 | 14.2 |
| Return on equity, % | 16.1 | 19.8 | 9.3 | 13.9 | 13.3 |
| EBITA margin, % | 9.8 | 11.5 | 9.2 | 10.5 | 9.6 |
| Adjusted EBITA margin, % | 10.9 | 12.3 | 11.8 | 10.8 | 10.8 |
| Operating margin, % | 9.1 | 10.9 | 8.9 | 9.8 | 9.5 |
| Adjusted operating margin, % | 10.3 | 11.8 | 11.7 | 10.6 | 10.6 |
| Net margin, % | 7.2 | 8.0 | 4.2 | 6.7 | 6.5 |
| Capital turnover rate | 1.10 | 1.21 | 1.38 | 1.41 | 1.32 |
| Operating cash flow per share, SEK | 12.51 | 12.45 | 12.19 | 10.75 | 9.82 |
| Earnings per share, SEK | 11.23 | 11.56 | 5.41 | 8.73 | 7.42 |
| Dividend per share, SEK | 5.756) | 5.75 |
1) 2015 includes the sale of securities, SEK 970m.
2) 2018, 2017, 2016, 2015 and 2014 include items affecting comparability of SEK –1,375m, SEK –855m, SEK –2,645m, SEK –292m and SEK –1,009m.
3) 2015 does not include the sale of securities, SEK 970m.
4) Calculation of average capital employed is based on five measurements. 5) See definitions of key figures in Note A2, pages 64–69.
6) Dividend proposed by the Board of Directors.
Hygiene and health play a decisive role in solving several of the societal challenges addressed by the UN Sustainable Development Goals. Through Essity's "Essentials Initiative" communication platform, we are pursuing a global dialogue to increase awareness of the importance of hygiene and health and the link to well-being. The "Essentials Initiative" is based on a global survey of attitudes to hygiene and health and on a report. The 2018/2019 report was produced in partnership with the UN body Water Supply and Sanitation Collaborative Council (WSSCC). It showcases new research, inspiring examples and possible solutions as well as the societal impacts that can be achieved if hygiene and health are prioritized in the decision-making processes among politicians and caregivers as well as private individuals.
Essity was – for the third consecutive year – the convening partner to the United Nations Foundation's (UNF) Global Dialogue, held at the UN headquarters in New York. The event facilitates discussions between businesses, NGOs and government authorities. Essity's President and CEO Magnus Groth gave the opening and closing speeches, addressing matters such as the importance of
collaboration between companies and organizations in order to contribute to the UN Sustainable Development Goals.
Essity is collaborating with the Fotografiska Museum in Stockholm, Sweden, to develop joint exhibitions on the theme of hygiene and health. In 2018, the "Hand to Hand" exhibition was arranged with images taken by the internationally acclaimed photojournalist Paul Hansen. The exhibition also contained images by the documentary photographer Åsa Sjöström, who followed students at a school in the UK to portray an ongoing Essity initiative where children learn at an early age the importance of personal hygiene.
This Annual and Sustainability Report was produced by Essity in collaboration with Hallvarsson & Halvarsson. Photos: Juliana Fälldin, Lena Granefelt, Emmy Jonsson and Essity. Printing: Göteborgstryckeriet 2019. Translation: The Bugli Company.
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:
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.