Interim / Quarterly Report • Oct 29, 2018
Interim / Quarterly Report
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(compared with the corresponding period a year ago)
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Net sales | 87,388 | 80,601 | 8 | 29,647 | 27,178 | 9 |
| Adjusted operating profit before amortization of acquisition related intangible assets (EBITA)1 |
9,484 | 9,786 | -3 | 3,016 | 3,432 | -12 |
| Operating profit before amortization of acquisition-related intangible assets (EBITA) |
8,085 | 8,953 | -10 | 2,005 | 3,396 | -41 |
| Amortization of acquisition-related intangible assets | -537 | -379 | -187 | -161 | ||
| Adjusted operating profit1 | 8,947 | 9,407 | -5 | 2,829 | 3,271 | -14 |
| Items affecting comparability | -1,404 | -919 | -1,016 | -34 | ||
| Operating profit | 7,543 | 8,488 | -11 | 1,813 | 3,237 | -44 |
| Financial items | -921 | -845 | -332 | -275 | ||
| Profit before tax | 6,622 | 7,643 | -13 | 1,481 | 2,962 | -50 |
| Adjusted profit before tax1 | 8,026 | 8,562 | -6 | 2,497 | 2,996 | -17 |
| Tax | -1,687 | -1,924 | -403 | -740 | ||
| Profit for the period | 4,935 | 5,719 | -14 | 1,078 | 2,222 | -51 |
| Earnings per share, SEK | 6.38 | 7.44 | 1.41 | 2.98 | ||
| Adjusted earnings per share, SEK2 | 8.35 | 8.77 | 2.67 | 3.17 | ||
| 1Excluding items affecting comparability; for amounts see page 12. |
2Excluding items affecting comparability and amortization of acquisition-related intangible assets.
The Group's net sales increased 9.1% for the third quarter of 2018 compared with the corresponding period a year ago and earnings per share amounted to SEK 1.41.
The third quarter of 2018 was challenging as the negative impact from raw material and energy costs has accelerated further. On the whole, these factors negatively impacted our margins in the short term, despite higher selling prices, a better mix and costs savings in all business areas.
To increase profitability, we are implementing measures in several areas:
Organic net sales, excluding the lower sales of mother reels, increased 2.5%, of which volume accounted for -0.1% and price/mix for 2.6%. Including the lower sales of mother reels, organic sales increased 1.6%, of which volume accounted for -1.0% and price/mix for 2.6%. Organic net sales was positively impacted by higher prices and a better mix in all business areas. In emerging markets, which accounted for 35% of net sales, organic net sales increased 4.3% while the decrease in mature markets was 0.1%.
The Group's adjusted EBITA in the third quarter of 2018 declined 12% compared with the corresponding period a year ago. Earnings were positively impacted by higher prices and a better mix in all business areas, higher volumes and cost savings amounting to SEK 180m. Our work to achieve cost savings continued but the high level of cost savings in the year-earlier period impacted the reported increase in the quarter. Higher raw material and energy costs had a negative impact of SEK -1,418m on earnings, which corresponds to a negative impact on the adjusted EBITA margin of -5.1 percentage points. The market price for pulp is about 30% higher compared with the corresponding period a year ago. The market price of oil-based raw materials has also increased significantly. Furthermore, higher distribution costs had a negative impact on earnings. The Group's adjusted EBITA margin decreased 2.4 percentage points to 10.2%. The adjusted return on capital employed was 11.0%, and adjusted return on equity was 13.7%. Operating cash flow increased 4%.
Essity has been included in the Dow Jones Sustainability Index, one of the world's most prestigious sustainability indices. Essity has qualified for inclusion in both the Dow Jones Sustainability World Index and the Dow Jones Sustainability Europe Index, and has also been named industry leader in the Household Products sector.
Excluding items affecting comparability; for amounts see page 12.
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Net sales | 87,388 | 80,601 | 8 | 29,647 | 27,178 | 9 |
| Cost of goods sold1 | -62,484 | -56,663 | -21,416 | -18,949 | ||
| 1 Adjusted gross profit |
24,904 | 23,938 | 4 | 8,231 | 8,229 | 0 |
| 1 Sales, general and administration |
-15,420 | -14,152 | -5,215 | -4,797 | ||
| Adjusted operating profit before amortization of acquisition-related intangible 1 assets (EBITA) |
9,484 | 9,786 | -3 | 3,016 | 3,432 | -12 |
| Amortization of acquisition-related intangible assets1 | -537 | -379 | -187 | -161 | ||
| Adjusted operating profit1 | 8,947 | 9,407 | -5 | 2,829 | 3,271 | -14 |
| Financial items | -921 | -845 | -332 | -275 | ||
| Adjusted profit before tax1 | 8,026 | 8,562 | -6 | 2,497 | 2,996 | -17 |
| Adjusted tax1 | -2,092 | -2,165 | -670 | -745 | ||
| Adjusted profit for the period1 1 Excluding items affecting comparability; for amounts see page 12. |
5,934 | 6,397 | -7 | 1,827 | 2,251 | -19 |
| Adjusted margins (%) | ||||||
| Gross margin1 | 28.5 | 29.7 | 27.8 | 30.3 | ||
| EBITA margin1 | 10.9 | 12.1 | 10.2 | 12.6 | ||
| Operating margin1 | 10.2 | 11.7 | 9.5 | 12.0 | ||
| Financial net margin | -1.1 | -1.0 | -1.1 | -1.0 | ||
| 1 Profit margin |
9.1 | 10.7 | 8.4 | 11.0 | ||
| Tax1 | -2.4 | -2.7 | -2.3 | -2.7 | ||
| Net margin1 | 6.7 | 8.0 | 6.1 | 8.3 |
1Excluding items affecting comparability; for amounts see page 12.
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Personal Care | 4,702 | 4,398 | 7 | 1,565 | 1,556 | 1 |
| Consumer Tissue | 2,491 | 3,184 | -22 | 635 | 1,023 | -38 |
| Professional Hygiene | 2,756 | 2,660 | 4 | 970 | 1,023 | -5 |
| Other | -465 | -456 | -154 | -170 | ||
| Total1 | 9,484 | 9,786 | -3 | 3,016 | 3,432 | -12 |
1Excluding items affecting comparability; for amounts see page 12.
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Personal Care | 4,193 | 4,062 | 3 | 1,387 | 1,404 | -1 |
| Consumer Tissue | 2,490 | 3,179 | -22 | 635 | 1,022 | -38 |
| Professional Hygiene | 2,729 | 2,621 | 4 | 960 | 1,014 | -5 |
| Other | -465 | -455 | -153 | -169 | ||
| Total1 | 8,947 | 9,407 | -5 | 2,829 | 3,271 | -14 |
1Excluding items affecting comparability; for amounts see page 12.
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Personal Care | 4,329 | 4,013 | 8 | 1,755 | 1,699 | 3 |
| Consumer Tissue | 1,858 | 2,756 | -33 | 475 | 246 | 93 |
| Professional Hygiene | 2,678 | 2,788 | -4 | 1,352 | 1,539 | -12 |
| Other | -464 | -722 | -127 | -147 | ||
| Total | 8,401 | 8,835 | -5 | 3,455 | 3,337 | 4 |
Adjusted EBITA and margin
Excluding items affecting comparability
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 8.4 | 9.1 |
| Price/mix | 2.0 | 2.6 |
| Volume | 0.4 | -1.0 |
| Currency | 3.0 | 6.8 |
| Acquisitions | 3.0 | 0.7 |
| Divestments | 0.0 | 0.0 |
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | -3 | -12 |
| Price/mix | 14 | 21 |
| Volume | 4 | 1 |
| Raw materials | -32 | -37 |
| Energy | -1 | -4 |
| Currency | 4 | 9 |
| Other | 8 | -2 |
Adjusted profit before tax
GROUP
The European and North American markets for incontinence products in the healthcare sector displayed higher demand, although with continued price pressure as a result of fierce competition. The retail markets showed good growth but with a continued high level of competition. Emerging markets noted higher demand. The global market for medical solutions demonstrated stable growth. In Europe, demand for baby care and feminine care was stable. In emerging markets, demand increased for baby care and feminine care. The global market for baby care and several markets for feminine care were characterized by increased competition and campaign activity.
The European market for consumer tissue demonstrated low growth. The Chinese consumer tissue market noted higher demand.
The European and North American markets for professional hygiene displayed low growth.
Net sales increased 8.4% compared with the corresponding period a year ago to SEK 87,388m (80,601). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.4%, of which volume accounted for 0.4% and price/mix for 2.0%. Organic net sales increased 0.8% in mature markets and increased 4.9% in emerging markets. Emerging markets accounted for 35% of net sales. Exchange rate effects increased net sales by 3.0%. Acquisitions increased net sales by 3.0%, of which the acquisition of BSN medical accounted for 2.4% and acquisitions relating to the increase in the shareholding in associates in Latin America accounted for 0.6%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) declined 3% (12% excluding currency translation effects and acquisitions) to SEK 9,484m (9,786). 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 767m. Higher raw material and energy costs had a negative earnings effect of SEK -3,268m. Furthermore, higher distribution costs had a negative impact on earnings. The acquisition of BSN medical increased profit by 3%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased profit by 1%.
Items affecting comparability amounted to SEK -1,404m (-919) and include costs of approximately SEK -1,370m related to restructuring measures at production facilities in Professional Hygiene and Consumer Tissue. Impairments in the associate Asaleo Care had an impact of SEK -260m 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 260m on items affecting comparability. Other costs negatively impacted items affecting comparability by SEK -199m.
Financial items increased to SEK -921m (-845). The increase is primarily due to higher average net debt. Lower interest had a positive impact on financial items during the period.
Adjusted profit before tax decreased 6% (15% excluding currency translation effects and acquisitions) to SEK 8,026m (8,562).
The tax expense, excluding effects of items affecting comparability, was SEK 2,092m (2,165).
Adjusted profit for the period decreased 7% (16% excluding currency translation effects and acquisitions) to SEK 5,934m (6,397).
Profit for the period decreased 14% (23% excluding currency translation effects and acquisitions) to SEK 4,935m (5,719). Earnings per share were SEK 6.38 (7.44). The adjusted earnings per share were SEK 8.35 (8.77).
The adjusted return on capital employed was 12.4% (15.3). The adjusted return on equity was 17.6% (18.7).
Net sales increased 9.1% compared with the corresponding period a year ago to SEK 29,647m (27,178). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.6%, of which volume accounted for -1.0% and price/mix for 2.6%. Higher prices and a better mix in all business areas had a positive impact on organic net sales. Volumes increased in Personal Care and Professional Hygiene. In Consumer Tissue, volumes declined partly due to restructuring measures within the scope of the Tissue Roadmap, entailing lower sales of mother reels, and partly due to lower volumes in Asia due to price increases. Organic net sales decreased 0.1% in mature markets and increased 4.3% in emerging markets. Emerging markets accounted for 35% of net sales. Exchange rate effects increased net sales by 6.8%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 0.7%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 12% (22% excluding currency translation effects and acquisitions) to SEK 3,016m (3,432). Earnings were positively impacted by higher prices and a better mix in all business areas, higher volumes and cost savings amounting to SEK 180m. Our work to achieve cost savings continued but the high level of cost savings in the year-earlier period impacted the reported increase in the quarter. Higher raw material and energy costs had a negative impact of SEK -1,418m on earnings, which corresponds to a negative impact on the adjusted EBITA margin of -5.1 percentage points. The market price for pulp is about 30% higher compared with the corresponding period a year ago. The market price of oil-based raw materials has also increased significantly. Furthermore, higher distribution costs had a negative impact on earnings.
Adjusted profit before tax declined 17% (28% excluding currency translation effects and acquisitions) to SEK 2,497m (2,996).
Profit for the period declined 51% (62% excluding currency translation effects and acquisitions) to SEK 1,078m (2,222). Earnings per share were SEK 1.41 (2.98). The adjusted earnings per share were SEK 2.67 (3.17).
The adjusted return on capital employed was 11.0% (13.8). The adjusted return on equity was 13.7% (20.0).
The operating cash surplus amounted to SEK 13,624m (13,512). The cash flow effect of changes in working capital was SEK -1,671m (-1,150). Current capital expenditures amounted to SEK -2,863m (-2,670). Operating cash flow was SEK 8,401m (8,835).
Financial items increased to SEK -921m (-845). The increase is primarily due to higher average net debt. Lower interest had a positive impact on financial items during the period. Income tax payments totaled SEK 1,851m (2,110). Cash flow from current operations amounted to SEK 5,714m (6,055) during the period.
Strategic capital expenditures amounted to SEK -1,746m (-1,383). The net sum of acquisitions and divestments was SEK -681m (-25,907). Dividends to shareholders impacted cash flow by SEK -4,354m (-220). Net cash flow totaled SEK -1,064m (-20,590).
Net debt increased by SEK 1,383m compared with the same point in time last year and amounted to SEK 54,495m. The increase is attributable to exchange rate movements that increased net debt by approximately SEK 2.9bn. During the January-September 2018 period, net debt has increased by SEK 2,028m. Excluding pension liabilities, net debt amounted to SEK 52,420m. Net cash flow increased net debt by SEK 1,064m. 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, reduced net debt by SEK 1,159m. Exchange rate movements increased net debt by SEK 2,123m.
The debt/equity ratio was 1.02 (1.17). Excluding pension liabilities, the debt/equity ratio was 0.98 (1.10). The debt payment capacity was 25% (24). Net debt in relation to adjusted EBITDA amounted to 2.95 (2.94).
The Group's equity increased by SEK 4,068m during the period, to SEK 53,638m. Net profit for the period increased equity by SEK 4,935m. Equity decreased by SEK 4,354m on account of the dividend to shareholders. Equity increased net after tax by SEK 877m 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 304m after tax. Exchange rate movements, including the effect of hedges of net foreign investments, after tax, increased equity by SEK 2,300m. Other items increased equity by SEK 6m.
A tax expense of SEK 2,092m was reported, excluding items affecting comparability. The reported tax expense corresponds to a tax rate of about 26.1% for the period. The tax expense including items affecting comparability was SEK 1,687m, corresponding to a tax rate of 25.5% for the period.
On July 31, 2018, Essity announced that the company is restructuring its Consumer Tissue production in France in order to further strengthen competitiveness and increase efficiency. Essity is closing a converting facility for retail branded products in Saint-Etienne-du-Rouvray and investing in the remaining integrated production facilities in France. The closure is expected during the fourth quarter of 2018. These measures are aligned with the company's strategy to optimize the production footprint to increase cost and capital efficiency and further increase value creation in the Consumer Tissue business area. The restructuring costs of SEK 495m were recognized as an item affecting comparability in the third quarter of 2018.
On August 21, 2018, Essity announced that Asaleo Care Ltd, a hygiene company listed on the Australian Securities Exchange, published its 2018 half-year report. Essity owns about 36% of Asaleo Care, with the holding recognized as an associate. Impairments were recognized in Asaleo Care's half-year report 2018. As a result, Essity recognized an item affecting comparability of approximately SEK -260m in the third quarter of 2018.
On September 13, 2018, Essity announced that the company had been included in the Dow Jones Sustainability Index, one of the world's most prestigious sustainability indices. Essity has qualified for inclusion in both the Dow Jones Sustainability World Index and the Dow Jones Sustainability Europe Index, and has also been named industry leader in the Household Products sector. Essity received high scores for its brand work, its innovations, its environmental and social reporting, its work with suppliers and its strategy for emerging markets.
On September 18, 2018, Essity announced that the company would be closing its converting facility in Bellemont, Arizona, United States, in order to further increase the efficiency of the Professional Hygiene business. The closure will be completed in the second half of 2019 without any disruption to customers. Production will be reallocated to other Essity production facilities in the United States. The measures are aligned with the company's strategy to optimize the production footprint to improve cost and capital efficiency and further increase value creation in the Professional Hygiene business area. The restructuring costs amounted to approximately SEK 125m and were recognized as an item affecting comparability in the third quarter of 2018.
On September 28, 2018, Essity announced that the company would be introducing a Groupwide cost-savings program to increase profitability and strengthen the Group's long-term cost efficiency. As a result of further measures within the scope of this program, the expected annual cost savings are being increased by approximately SEK 100m to about SEK 900m, with full effect at the end of 2019. The cost savings are compared with the cost level of September 30, 2018. The program includes headcount reductions affecting approximately 1,000 positions. The
restructuring costs are expected to amount to approximately SEK 700m. The costs are expected to impact cash flow and be recognized as an item affecting comparability in 2019.
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 sales, general and administration costs. The program will include headcount reductions and reduced costs for projects, consultants and travel. The program that is now being launched is in addition to the efficiency initiatives already in progress in the Group, such as "Tissue Roadmap" and "Cure or Kill".
On October 29, 2018. Essity announced that the company to strengthen its competitiveness and increase its efficiency, implements the following changes to the company's organizational structure and Executive Management Team:
The changes entail that the number of members of the Executive Management Team is being reduced from 14 to 12 and that the number of staff functions is being reduced from six to four. The organizational changes will take effect on December 31, 2018.
Share of Group, adjusted EBITA 1809
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 13.0 | 9.2 |
| Price/mix | 0.4 | 1.0 |
| Volume | 2.5 | 1.2 |
| Currency | 2.5 | 5.9 |
| Acquisitions | 7.6 | 1.1 |
| Divestments | 0.0 | 0.0 |
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 7 | 1 |
| Price/mix | -1 | 5 |
| Volume | 10 | 7 |
| Raw materials | -18 | -22 |
| Energy | 0 | -1 |
| Currency | 6 | 11 |
| Other | 10 | 1 |
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Net sales | 33,639 | 29,755 | 13 | 11,408 | 10,449 | 9 |
| Adjusted EBITA* | 4,702 | 4,398 | 7 | 1,565 | 1,556 | 1 |
| Adjusted EBITA margin, %* | 14.0 | 14.8 | 13.7 | 14.9 | ||
| Adjusted operating profit* | 4,193 | 4,062 | 3 | 1,387 | 1,404 | -1 |
| Adjusted operating margin, %* | 12.5 | 13.7 | 12.2 | 13.4 | ||
| Adjusted return on capital employed, %* | 15.3 | 23.6 | 14.8 | 16.0 | ||
| Operating cash flow | 4,329 | 4,013 | 1,755 | 1,699 |
*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.
Net sales increased 13.0% to SEK 33,639m (29,755). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.9%, of which volume accounted for 2.5% and price/mix for 0.4%. Organic net sales in mature markets increased 2.3%. In emerging markets, which accounted for 37% of net sales, organic net sales increased 3.9%. Acquisitions increased net sales by 7.6%, of which the acquisition of BSN medical accounted for 6.6% 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 2.5%.
For Incontinence Products, with the globally leading TENA brand, organic net sales increased 4.3%. Growth was related to emerging markets, North America and Western Europe. For Baby Care, organic net sales decreased 2.4%. The decrease was related to emerging markets. Organic net sales increased in Western Europe. For Feminine Care, organic net sales increased 8.1%. The increase was related to both emerging markets and Western Europe.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA), increased 7% (declined 8% excluding currency translation effects and acquisitions) to SEK 4,702m (4,398). The increase was mainly related to higher volumes, cost savings and the acquisition of BSN medical. Higher raw material and energy costs, lower prices and higher distribution costs negatively impacted earnings. Acquisitions increased profit by 9%, of which the acquisition of BSN medical accounted for 8% and acquisitions relating to the increase in the shareholding in associates in Latin America accounted for 1%.
The operating cash surplus amounted to SEK 5,758m (5,290).
Net sales increased 9.2% to SEK 11,408m (10,449). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.2%, of which volume accounted for 1.2% and price/mix for 1.0%. Organic net sales in mature markets increased 0.8%. In emerging markets, which accounted for 37% of net sales, organic net sales increased 4.1%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 1.1%. Exchange rate effects increased net sales by 5.9%.
-6 For Incontinence Products, with the globally leading TENA brand, organic net sales increased 4.1%. Growth was related to emerging markets, North America and Western Europe. Growth in Europe and North America was attributable to both the retail trade and the healthcare sector. For Medical Solutions, organic net sales decreased 0.9%. The decrease was mainly related to inventory adjustments among customers in North America. For Baby Care, organic net sales decreased 2.7% mainly related to emerging markets. Organic net sales increased in Western Europe. For Feminine Care, organic net sales increased 7.6% mainly related to higher prices and higher volumes in Latin America.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA), increased 1% (decreased 12% excluding currency translation effects and acquisitions) to SEK 1,565m (1,556). Higher volumes, higher prices and a better mix as well as cost savings positively impacted earnings. Higher raw material and energy costs negatively impacted profits by SEK -346m, which corresponds to a negative impact on the adjusted EBITA margin of -3.2 percentage points. Market prices for pulp and oil-based raw materials increased substantially. Higher distribution costs also negatively impacted earnings. Acquisitions relating to the increase in the shareholding in associates in Latin America increased profit by 1%.
Adjusted EBITA and margin
%
Change in net sales (%)
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 6.6 | 8.4 |
| Price/mix | 3.1 | 4.2 |
| Volume | -1.2 | -4.1 |
| Currency | 4.3 | 7.7 |
| Acquisitions | 0.4 | 0.6 |
| Divestments | 0.0 | 0.0 |
| 1809 vs 1709 |
18:3 vs 17:3 |
|---|---|
| -22 | -38 |
| 30 | 44 |
| -1 | -7 |
| -63 | -74 |
| -2 | -9 |
| 2 | 8 |
| 12 | 0 |
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Net sales | 33,031 | 30,988 | 7 | 10,912 | 10,066 | 8 |
| Adjusted EBITA* | 2,491 | 3,184 | -22 | 635 | 1,023 | -38 |
| Adjusted EBITA margin, %* | 7.5 | 10.3 | 5.8 | 10.2 | ||
| Adjusted operating profit* | 2,490 | 3,179 | -22 | 635 | 1,022 | -38 |
| Adjusted operating margin, %* | 7.5 | 10.3 | 5.8 | 10.2 | ||
| Adjusted return on capital employed, %* | 7.6 | 10.6 | 5.5 | 9.8 | ||
| Operating cash flow | 1,858 | 2,756 | 475 | 246 |
*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.
Net sales increased 6.6% to SEK 33,031m (30,988). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.9%, of which volume accounted for -1.2% and price/mix for 3.1%. The increase was mainly attributable to Asia and Europe. Organic net sales increased 0.2% in mature markets. In emerging markets, which accounted for 43% of net sales, organic net sales increased by 3.7%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 0.4%. Exchange rate effects increased net sales by 4.3%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 22% (24% excluding currency translation effects and acquisitions) to SEK 2,491m (3,184). Higher prices and a better mix as well as cost savings positively impacted earnings. Higher raw material and energy costs, lower volumes and higher distribution costs negatively impacted earnings. The substantially higher raw material costs were mainly the result of higher pulp prices.
The operating cash surplus totaled SEK 4,171m (4,720).
Net sales increased 8.4% to SEK 10,912m (10,066). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 0.1%, of which volume accounted for -4.1% and price/mix for 4.2%. The price/mix was positively impacted by higher prices in Asia, Europe and Latin America. The lower volumes were partly the result of restructuring measures within the scope of Tissue Roadmap, entailing lower sales of mother reels and partly lower volumes in Asia due to price increases. Organic net sales decreased 1.4% in mature markets. In emerging markets, which accounted for 44% of net sales, organic net sales increased by 2.0%. Acquisitions relating to the increase in the shareholding in associates in Latin America increased net sales by 0.6%. Exchange rate effects increased net sales by 7.7%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 38% (46% excluding currency translation effects and acquisitions) to SEK 635m (1,023). Earnings were positively impacted by higher prices and a better mix as well as cost savings. Selling prices were higher in Asia, Europe and Latin America. Higher raw material and energy costs negatively affected earnings by SEK -840m, corresponding to a negative impact on the adjusted EBITA margin of -8.3 percentage points. The substantially higher raw material costs were mainly the result of higher pulp prices. The market price for pulp is about 30% higher compared with the corresponding period a year ago. Higher distribution costs and lower volumes also negatively affected earnings. Acquisitions relating to the increase in the shareholding in associates in Latin America increased profit by 1%.
Change in net sales (%)
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 4.1 | 10.1 |
| Price/mix | 2.5 | 2.6 |
| Volume | -0.4 | 0.3 |
| Currency | 1.9 | 7.1 |
| Acquisitions | 0.1 | 0.1 |
| Divestments | 0.0 | 0.0 |
| 1809 vs 1709 |
18:3 vs 17:3 |
|
|---|---|---|
| Total | 4 | -5 |
| Price/mix | 17 | 18 |
| Volume | 0 | 0 |
| Raw materials | -14 | -19 |
| Energy | -1 | -4 |
| Currency | 3 | 7 |
| Other | -1 | -7 |
| SEKm | 1809 | 1709 | % | 2018:3 | 2017:3 | % |
|---|---|---|---|---|---|---|
| Net sales | 20,695 | 19,884 | 4 | 7,309 | 6,635 | 10 |
| Adjusted EBITA* | 2,756 | 2,660 | 4 | 970 | 1,023 | -5 |
| Adjusted EBITA margin, %* | 13.3 | 13.4 | 13.3 | 15.4 | ||
| Adjusted operating profit* | 2,729 | 2,621 | 4 | 960 | 1,014 | -5 |
| Adjusted operating margin, %* | 13.2 | 13.2 | 13.1 | 15.3 | ||
| Adjusted return on capital employed, %* | 19.9 | 18.1 | 17.9 | 20.7 | ||
| Operating cash flow | 2,678 | 2,788 | 1,352 | 1,539 |
*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.
January–September 2018 compared with the corresponding period a year ago
Net sales increased 4.1% to SEK 20,695m (19,884). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.1%, of which volume accounted for -0.4% and price/mix for 2.5%. The increase was primarily related to Europe, Asia and Latin America. Organic net sales decreased 0.5% 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 12.3%. 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 1.9%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) increased 4% (0% excluding currency translation effects and acquisitions) to SEK 2,756m (2,660). The increase was primarily attributable to higher prices, a better mix, higher volumes and cost savings. Higher raw material and energy costs as well as higher distribution costs had a negative impact on earnings.
The operating cash surplus was SEK 4,077m (3,904).
Net sales increased 10.1% to SEK 7,309m (6,635). Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.9%, of which volume accounted for 0.3% and price/mix for 2.6%. The increase was primarily related to Asia, Europe and Latin America. The price/mix was positively impacted by higher prices in Asia, Europe, Latin America and North America. Organic net sales increased 0.3% in mature markets. Organic net sales increased in Western Europe while it decreased in North America. In emerging markets, which accounted for 20% of net sales, organic net sales increased 13.0%. 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 7.1%.
Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 5% (12% excluding currency translation effects and acquisitions) to SEK 970m (1,023). Higher prices, a better mix, higher volumes and cost savings had a positive impact on earnings. Higher raw material and energy costs had a negative impact on earnings of SEK -233m, which corresponds to a negative impact on the adjusted EBITA margin of -3.4 percentage points. In addition, higher distribution costs negatively impacted earnings.
| September 30, 2018 | Class A | Class B | Total |
|---|---|---|---|
| Registered number of shares | 64,082,813 | 638,259,676 | 702,342,489 |
At the end of the period, the proportion of Class A shares was 9.1%. The total number of votes in the company amounts to 1,279,087,806.
The Year-end Report for 2018 will be published on January 31, 2019. Essity's Annual Report for 2018 is intended to be published in the week beginning March 11, 2019.
In 2019, interim reports will be published on April 25, July 18 and October 25.
Essity has changed the date for its Investor Day in Stockholm to May 23, 2019.
Essity's Annual General Meeting will be held in Stockholm on April 4, 2019.
Media and analysts are invited to a press conference, where this interim report will be presented by Magnus Groth, President and CEO.
Time: 9:00 a.m. CET, Monday, October 29, 2018 Location: Essity's headquarters, Waterfront Building, Klarabergsviadukten 63, Stockholm, Sweden
The presentation will be webcast at www.essity.com. To participate by telephone, call: +44 (0) 207 192 80 00, +1 631 510 74 95 or +46 8 506 921 80. Specify "Essity" or conference ID no. 6358697. Link to webcast:https://essity.videosync.fi/2018-10-29-q3
Stockholm, October 29, 2018 Essity Aktiebolag (publ)
Magnus Groth President and CEO
Fredrik Rystedt, CFO and Executive Vice President, +46 8 788 51 31 Johan Karlsson, Vice President Investor Relations, Group Function Communications, +46 8 788 51 30 Joséphine Edwall-Björklund, Senior Vice President, Group Function Communications, +46 8 788 52 34 Per Lorentz, Vice President Corporate Communications, +46 8 788 52 51
This information is such information that Essity Aktiebolag (publ) is obligated to make public pursuant to the EU Market Abuse Regulation. This report has been prepared in both Swedish and English versions. In case of variations in the content between the two versions, the Swedish version shall govern. The information was submitted for publication, through the agency of the contact person set out below, at 7:00 a.m. CET on October 29, 2018. This interim report was not reviewed by the company's auditors.
Karl Stoltz, Media Relations Manager, +46 8 788 51 55
| Net sales 29,647 27,178 29,721 87,388 80,601 Cost of goods sold1,2 -21,416 -18,949 -21,104 -62,484 -56,663 Items affecting comparability1,2 -773 28 -181 -1,508 -544 Gross profit 7,458 8,257 8,436 23,396 23,394 Sales, general and administration1 -5,221 -4,835 -5,279 -15,464 -14,274 Items affecting comparability2 -238 -64 152 109 -289 Share of profits of associates and joint ventures 6 38 11 44 122 Operating profit before amortization of acquisition related intangible assets 2,005 3,396 3,320 8,085 8,953 Amortization of acquisition-related intangible assets1 -187 -161 -181 -537 -379 Items affecting comparability2 -5 2 0 -5 -86 Operating profit 1,813 3,237 3,139 7,543 8,488 Financial items -332 -275 -299 -921 -845 Profit before tax 1,481 2,962 2,840 6,622 7,643 Tax -403 -740 -709 -1,687 -1,924 Profit for the period 1,078 2,222 2,131 4,935 5,719 Earnings attributable to: Owners of the parent 988 2,090 2,035 4,483 5,227 Non-controlling interests 90 132 96 452 492 Average no. of shares before dilution, millions 702.3 702.3 702.3 702.3 702.3 Average no. of shares after dilution, millions 702.3 702.3 702.3 702.3 702.3 Earnings per share, SEK - owners of the parent - before dilution effects 1.41 2.98 2.90 6.38 7.44 - after dilution effects 1.41 2.98 2.90 6.38 7.44 1Of which, depreciation -1,577 -1,417 -1,530 -4,564 -4,197 2Of which, impairment -239 18 -19 -556 -369 Gross margin 25.2 30.4 28.4 26.8 29.0 EBITA margin 6.8 12.5 11.2 9.3 11.1 Operating margin 6.1 11.9 10.6 8.6 10.5 Financial net margin -1.1 -1.0 -1.0 -1.1 -1.0 Profit margin 5.0 10.9 9.6 7.5 9.5 Tax -1.4 -2.7 -2.4 -1.9 -2.4 Net margin 3.6 8.2 7.2 5.6 7.1 Excluding items affecting comparability: Gross margin 27.8 30.3 29.0 28.5 29.7 EBITA margin 10.2 12.6 11.3 10.9 12.1 Operating margin 9.5 12.0 10.7 10.2 11.7 Financial net margin -1.1 -1.0 -1.0 -1.1 -1.0 Profit margin 8.4 11.0 9.7 9.1 10.7 Tax -2.3 -2.7 -2.5 -2.4 -2.7 |
SEKm | 2018:3 | 2017:3 | 2018:2 | 1809 | 1709 |
|---|---|---|---|---|---|---|
| Net margin | 6.1 | 8.3 | 7.2 | 6.7 | 8.0 |
| SEKm | 2018:3 | 2017:3 | 2018:2 | 1809 | 1709 |
|---|---|---|---|---|---|
| Profit for the period | 1,078 | 2,222 | 2,131 | 4,935 | 5,719 |
| Other comprehensive income for the period | |||||
| Items that may not be reclassified to the income statement | |||||
| Actuarial gains/losses on defined benefit pension plans | 597 | -74 | 561 | 1,160 | 1,460 |
| Income tax attributable to components of other comprehensive income | -104 | 21 | -172 | -283 | -393 |
| 493 | -53 | 389 | 877 | 1,067 | |
| Items that have been or may be reclassified subsequently to the income statement | |||||
| Financial assets measured at fair value through comprehensive income | 0 | 0 | 0 | -1 | 1 |
| Cash flow hedges | 234 | 112 | 224 | 394 | -107 |
| Translation differences in foreign operations | -1,500 | -1,169 | 635 | 2,639 | -1,563 |
| Gains/losses from hedges of net investments in foreign operations | 287 | -346 | 416 | -422 | -1,379 |
| Other comprehensive income from associated companies | 1 | -14 | -5 | 10 | -20 |
| Income tax attributable to components of other comprehensive income | -124 | 54 | -146 | -6 | 332 |
| -1,102 | -1,363 | 1,124 | 2,614 | -2,736 | |
| Other comprehensive income for the period, net of tax | -609 | -1,416 | 1,513 | 3,491 | -1,669 |
| Total comprehensive income for the period | 469 | 806 | 3,644 | 8,426 | 4,050 |
| Total comprehensive income attributable to: | |||||
| Owners of the parent | 718 | 860 | 3,402 | 7,725 | 4,106 |
| Non-controlling interests | -249 | -54 | 242 | 701 | -56 |
| SEKm | 1809 | 1709 |
|---|---|---|
| Attributable to owners of the parent | ||
| Opening balance, January 1 | 42,289 | 33,204 |
| Effect attributable to change accounting standard IFRS 9 | -9 | 0 |
| Tax effect attributable to change accounting standard IFRS 9 | 2 | 0 |
| Total comprehensive income for the period | 7,725 | 4,106 |
| Dividend | -4,038 | 0 |
| Transaction with owner (Svenska Cellulosa Aktiebolaget SCA) | 0 | 842 |
| Private placement to non-controlling interest | 2 | 504 |
| Private placement to non-controlling interest, dilution | 0 | -290 |
| Closing balance | 45,971 | 38,366 |
| Non-controlling interests | ||
| Opening balance, January 1 | 7,281 | 6,376 |
| Total comprehensive income for the period | 701 | -56 |
| Dividend | -316 | -219 |
| Private placement to non-controlling interest | 1 | 465 |
| Private placement to non-controlling interest, dilution | 0 | 290 |
| Acquisition of non-controlling interests | 0 | 80 |
| Closing balance | 7,667 | 6,936 |
| Total equity, closing balance | 53,638 | 45,302 |
| 1Specification of transaction with owner (Svenska Cellulosa Aktiebolaget SCA)1 | ||
| Received contribution/given contribution | 0 | 793 |
| Tax effects | 0 | 49 |
| Total | 0 | 842 |
| SEKm | 1809 | 1709 |
|---|---|---|
| Operating cash surplus | 13,624 | 13,512 |
| Change in working capital | -1,671 | -1,150 |
| Current capital expenditures, net | -2,863 | -2,670 |
| Restructuring costs, etc. | -689 | -857 |
| Operating cash flow | 8,401 | 8,835 |
| Financial items | -921 | -845 |
| Income taxes paid | -1,851 | -2,110 |
| Other | 85 | 175 |
| Cash flow from current operations | 5,714 | 6,055 |
| Acquisitions | -682 | -25,932 |
| Strategic capital expenditures in non-current assets | -1,746 | -1,383 |
| Divestments | 1 | 25 |
| Cash flow before dividend | 3,287 | -21,235 |
| Private placement to non-controlling interest | 3 | 27 |
| Dividend to non-controlling interests | -316 | -220 |
| Dividend | -4,038 | 0 |
| Transactions with shareholders | 0 | 838 |
| Net cash flow | -1,064 | -20,590 |
| Net debt at the start of the period | -52,467 | -35,173 |
| Net cash flow | -1,064 | -20,590 |
| Remeasurement to equity | 1,159 | 1,462 |
| Translation differences | -2,123 | 1,189 |
| Net debt at the end of the period | -54,495 | -53,112 |
| Debt/equity ratio | 1.02 | 1.17 |
| Debt payment capacity, % | 25 | 24 |
| Net debt / EBITDA | 3.09 | 3.12 |
| Net debt / Adjusted EBITDA | 2.95 | 2.94 |
| Operating activities Profit before tax 6,622 7,643 Adjustment for non-cash items1 5,439 4,414 12,061 12,057 Paid tax -1,851 -2,110 Cash flow from operating activities before changes in working capital 10,210 9,947 Cash flow from changes in working capital Change in inventories -1,419 -1,509 Change in operating receivables -1,003 1,407 Change in operating liabilities 751 -1,048 Cash flow from operating activities 8,539 8,797 Investing activities Company acquisitions -452 -12,951 Divestments 1 25 Investments in intangible assets and property, plant and equipment -4,664 -4,172 Sale of property, plant and equipment 64 123 Loans granted to external parties -195 -221 Cash flow from investing activities -5,246 -17,196 Financing activities Private placement to non-controlling interests 3 26 Dividend -4,038 0 Change, receivable from Group companies 0 952 Loans raised 3,994 30,975 Amortization of debt -4,053 -23,815 Dividend to non-controlling interests -316 -220 Transactions with shareholders 0 838 Cash flow from financing activities -4,410 8,756 Cash flow for the period -1,117 357 Cash and cash equivalents at the beginning of the period 4,107 4,244 Exchange -differences in cash and cash equivalents 64 -172 Cash and cash equivalents at the end of the period 3,054 4,429 Cash flow from operating activities per share, SEK 12.16 12.53 Reconciliation with consolidated operating cash flow statement Cash flow for the period -1,117 357 Amortization of debt 4,053 23,815 Loans raised -3,994 -30,975 Loans granted to external parties 195 221 Investment through financial lease -9 -4 Change, receivable from Group companies 0 -952 Net debt in acquired and divested operations -231 -12,981 Accrued interest 39 -71 Net cash flow according to consolidated operating cash flow statement -1,064 -20,590 |
SEKm | 1809 | 1709 |
|---|---|---|---|
| 1 Depreciation/amortization and impairment of non-current assets | 5,115 | 4,566 | |
| Gain/loss on asset sales and swaps 32 0 |
|||
| Change, provision related to antitrust cases 95 -266 |
|||
| Gain/loss on divestments -4 -1 |
|||
| Unpaid relating to efficiency program 666 7 |
|||
| Payments related to efficiency program already recognized -224 -389 |
|||
| Change, one-time foreign tax on non-current assets -258 450 |
|||
| Revaluation effect of previously owned holding upon acquisition -224 0 |
|||
| Other 241 47 |
|||
| Total 5,439 4,414 |
| SEKm | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Assets | ||
| Goodwill | 33,623 | 31,697 |
| Other intangible assets | 21,565 | 21,424 |
| Buildings, land, machinery and equipment | 51,181 | 48,482 |
| Participation in joint ventures and associates | 772 | 1,062 |
| Shares and participation | 25 | 32 |
| Surplus in funded pension plans | 2,393 | 1,148 |
| Non-current financial assets | 487 | 552 |
| Deferred tax assets | 2,285 | 2,232 |
| Other non-current assets | 785 | 469 |
| Total non-current assets | 113,116 | 107,098 |
| Inventories | 15,693 | 13,739 |
| Trade receivables | 19,342 | 17,607 |
| Current tax assets | 916 | 769 |
| Other current receivables | 2,689 | 2,549 |
| Current financial assets | 252 | 1,105 |
| Non-current assets held for sale | 35 | 42 |
| Cash and cash equivalents | 3,054 | 4,107 |
| Total current assets | 41,981 | 39,918 |
| Total assets | 155,097 | 147,016 |
| Equity | ||
| Share capital | 2,350 | 2,350 |
| Reserves | 5,509 | 3,154 |
| Retained earnings | 38,112 | 36,785 |
| Attributable to owner of the Parent | 45,971 | 42,289 |
| Non-controlling interests | 7,667 | 7,281 |
| Total equity | 53,638 | 49,570 |
| Liabilities | ||
| Non-current financial liabilities | 43,223 | 47,637 |
| Provisions for pensions | 4,468 | 4,541 |
| Deferred tax liabilities | 7,553 | 7,090 |
| Other non-current provisions | 1,913 | 1,481 |
| Other non-current liabilities | 90 | 79 |
| Total non-current liabilities | 57,247 | 60,828 |
| Current financial liabilities | 12,990 | 7,201 |
| Trade payables | 15,155 | 14,748 |
| Current tax liabilities | 639 | 553 |
| Current provisions | 1,496 | 1,547 |
| Other current liabilities | 13,932 | 12,569 |
| Total current liabilities | 44,212 | 36,618 |
| Total liabilities | 101,459 | 97,446 |
| Total equity and liabilities | 155,097 | 147,016 |
| SEKm | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Debt/equity ratio | 1.02 | 1.06 |
| Equity/assets ratio | 30% | 29% |
| Equity | 53,638 | 49,570 |
| Equity per share | 76 | 71 |
| Return on equity | 15.6% | 19.8% |
| Return on equity excluding items affecting comparability | 17.6% | 21.3% |
| Capital employed | 108,133 | 102,037 |
| - of which working capital | 8,392 | 5,901 |
| Return on capital employed* | 11.1% | 13.9% |
| Return on capital employed* excluding items affecting comparability | 12.4% | 14.9% |
| Net debt | 54,495 | 52,467 |
| Provisions for restructuring costs are included in the balance sheet as follows | ||
| -Other non-current provisions | 119 | 8 |
| -Other current provisions | 936 | 549 |
| Provisions for tax risks are included in the balance sheet as follows | ||
| -Other non-current provisions | 970 | 836 |
| -Other current provisions | 10 | 54 |
*) rolling 12 months
| SEKm | 1809 | 1709 | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 | 2017:2 |
|---|---|---|---|---|---|---|---|---|
| Personal Care | 33,639 | 29,755 | 11,408 | 11,446 | 10,785 | 10,831 | 10,449 | 10,851 |
| Consumer Tissue | 33,031 | 30,988 | 10,912 | 11,116 | 11,003 | 11,026 | 10,066 | 10,449 |
| Professional Hygiene | 20,695 | 19,884 | 7,309 | 7,168 | 6,218 | 6,816 | 6,635 | 6,866 |
| Other | 23 | -26 | 18 | -9 | 14 | -9 | 28 | -11 |
| Total net sales | 87,388 | 80,601 | 29,647 | 29,721 | 28,020 | 28,664 | 27,178 | 28,155 |
| SEKm | 1809 | 1709 | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 | 2017:2 |
|---|---|---|---|---|---|---|---|---|
| Personal Care | 4,702 | 4,398 | 1,565 | 1,605 | 1,532 | 1,539 | 1,556 | 1,614 |
| Consumer Tissue | 2,491 | 3,184 | 635 | 890 | 966 | 900 | 1,023 | 1,010 |
| Professional Hygiene | 2,756 | 2,660 | 970 | 1,014 | 772 | 1,344 | 1,023 | 917 |
| Other | -465 | -456 | -154 | -160 | -151 | -164 | -170 | -104 |
| Total adjusted EBITA | 9,484 | 9,786 | 3,016 | 3,349 | 3,119 | 3,619 | 3,432 | 3,437 |
| SEKm | 1809 | 1709 | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 | 2017:2 |
|---|---|---|---|---|---|---|---|---|
| Personal Care | 4,193 | 4,062 | 1,387 | 1,434 | 1,372 | 1,369 | 1,404 | 1,434 |
| Consumer Tissue | 2,490 | 3,179 | 635 | 890 | 965 | 899 | 1,022 | 1,008 |
| Professional Hygiene | 2,729 | 2,621 | 960 | 1,005 | 764 | 1,335 | 1,014 | 902 |
| Other | -465 | -455 | -153 | -161 | -151 | -165 | -169 | -104 |
| Total adjusted operating profit1 | 8,947 | 9,407 | 2,829 | 3,168 | 2,950 | 3,438 | 3,271 | 3,240 |
| Financial items | -921 | -845 | -332 | -299 | -290 | -337 | -275 | -304 |
| Profit before tax1 | 8,026 | 8,562 | 2,497 | 2,869 | 2,660 | 3,101 | 2,996 | 2,936 |
| - | ||||||||
| Tax | 2,092 | -2,165 | -670 | -745 | -677 | -26 | -745 | -761 |
| Net profit for the period2 | 5,934 | 6,397 | 1,827 | 2,124 | 1,983 | 3,075 | 2,251 | 2,175 |
| 1Excluding items affecting comparability before tax amounting to: | -1,404 | -919 | -1,016 | -29 | -359 | -21 | -34 | -476 |
| 2Excluding items affecting comparability after tax amounting to: | -999 | -678 | -749 | 7 | -257 | -9 | -29 | -334 |
| % | 1809 | 1709 | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 | 2017:2 |
|---|---|---|---|---|---|---|---|---|
| Personal Care | 14.0 | 14.8 | 13.7 | 14.0 | 14.2 | 14.2 | 14.9 | 14.9 |
| Consumer Tissue | 7.5 | 10.3 | 5.8 | 8.0 | 8.8 | 8.2 | 10.2 | 9.7 |
| Professional Hygiene | 13.3 | 13.4 | 13.3 | 14.1 | 12.4 | 19.7 | 15.4 | 13.4 |
| SEKm | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 |
|---|---|---|---|---|---|
| Net sales | 29,647 | 29,721 | 28,020 | 28,664 | 27,178 |
| Cost of goods sold | -21,416 | -21,104 | -19,964 | -20,236 | -18,949 |
| Items affecting comparability | -773 | -181 | -554 | 35 | 28 |
| Gross profit | 7,458 | 8,436 | 7,502 | 8,463 | 8,257 |
| Sales, general and administration | -5,221 | -5,279 | -4,964 | -4,856 | -4,835 |
| Items affecting comparability | -238 | 152 | 195 | -57 | -64 |
| Share of profits of associates and joint ventures | 6 | 11 | 27 | 47 | 38 |
| EBITA | 2,005 | 3,320 | 2,760 | 3,597 | 3,396 |
| Amortization of acquisition-related intangible assets | -187 | -181 | -169 | -181 | -161 |
| Items affecting comparability | -5 | 0 | 0 | 1 | 2 |
| Operating profit | 1,813 | 3,139 | 2,591 | 3,417 | 3,237 |
| Financial items | -332 | -299 | -290 | -337 | -275 |
| Profit before tax | 1,481 | 2,840 | 2,301 | 3,080 | 2,962 |
| Taxes | -403 | -709 | -575 | -14 | -740 |
| Net profit for the period | 1,078 | 2,131 | 1,726 | 3,066 | 2,222 |
| SEKm | 1809 | 1709 |
|---|---|---|
| Administrative expenses | -581 | -732 |
| Other operating income | 21 | 197 |
| Operating loss | -560 | -535 |
| Financial items | 5,309 | 2,409 |
| Profit before tax | 4,749 | 1,874 |
| Tax on profit for the period | 194 | 234 |
| Profit for the period | 4,943 | 2,108 |
| SEKm | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Intangible fixed assets | 0 | 0 |
| Tangible fixed assets | 4 | 5 |
| Financial fixed assets | 169,278 | 169,146 |
| Total fixed assets | 169,282 | 169,151 |
| Total current assets | 915 | 48,934 |
| Total assets | 170,197 | 218,085 |
| Restricted equity | 2,350 | 2,350 |
| Unrestricted equity | 76,640 | 75,735 |
| Total equity | 78,990 | 78,085 |
| Untaxed reserves | 1 | 1 |
| Provisions | 884 | 881 |
| Non-current liabilities | 39,447 | 41,709 |
| Current liabilities | 50,875 | 97,409 |
| Total equity, provisions and liabilities | 170,197 | 218,085 |
This interim report has been prepared in accordance with IAS 34 and recommendation RFR 1 of the Swedish Financial Reporting Board (RFR), and with regards to the Parent Company, RFR 2.
Effective January 1, 2018, Essity applies the following new or amended International Financial Reporting Standards (IFRS):
This is the new standard for financial instruments that replaces IAS 39. The standard came into effect on January 1, 2018.
In accordance with the new standard, Essity's accounting principles were updated and now comprise three categories of financial assets classified based on the company's business model to manage the asset and its contractual cash flows, for example interest.
1) Financial assets measured at amortized cost
The accounting principles related to financial liabilities are essentially unchanged compared with previous years. Essity has updated its accounting principles related to expected credit losses and has, in accordance with the standard, implemented the "expected loss model."
In the first quarter of 2018, Essity recognized a non-recurring effect of SEK 7m after tax in equity due to changes to the calculation model for expected credit losses on trade receivables. A long-term financial asset of SEK 87m was classified in the valuation category fair value through other comprehensive income. Otherwise, no changes took place of valuation classes. Essity has elected not to restate previous periods as the new standard has had no material impact. Essity also elected to adapt documentation relating to hedge accounting to the new regulation and has updated documentation in line with the new regulation.
The standard regulates revenue recognition and disclosure requirements 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. The standard came into effect on January 1, 2018. Essity has updated its accounting principles in line with the new standard and recognition of revenue occurs when control of the sold goods has been transferred to the customer in accordance with the delivery terms applied in the agreement. Additional changes to the accounting principles were made to clarify the determination of the transaction price and how discounts are managed and any right of return. The determination of the transaction price is mainly through a fixed price for sold quantity. Volume discounts, discount coupons and market subsidies exist and the probable outcome of discounts is assessed and reduces revenue at the time of sale. The assessment of utilized discount coupons and volume discounts is revised at each accounting year-end. The accounting principles have clarified that the right of return, implicit or explicit, is recognized as a liability for the expected repayment and an asset for the right to recover products from customers when settling the repayment liability in connection with the return of the products.
No transition method for IFRS 15 has been applied as no transition effects have arisen as a result of the new standard. The recognition of discounts and performance obligations has not changed since Essity manufactures and sells finished products and was already processing discounts in accordance with the new standard. Historical experience is used to estimate the share of returns at the date of sale and revenue is only recognized for products that have been sold and that are not expected to be returned. The rights of customers to return products are only granted on a limited basis and historical volumes returned have been limited.
In other respects, the accounting principles and calculation methods applied correspond to those described in the 2017 Annual Report for Essity.
The new standard will be applied as of January 1, 2019. Essity is preparing to transition to the new standard and has implemented system support in order to comply with the new requirements. During the year, a project team has gathered leasing contracts and work is now underway to evaluate and register the contracts in the new system. Activities to train the organization in the new standard and the new system were carried out during the third quarter. The assessment remains that the new standard will affect Essity insofar as all leases for premises, vehicles and other large leasing objects will be recognized in the balance sheet. In turn, this will impact several performance measures, such as EBITA, EBITA margin, net financial items, capital employed, return on capital employed, net debt and debt payment capacity.
Essity's risk exposure and risk management are described on pages 66-71 of the 2017 Annual Report for Essity. No significant changes have taken place that have affected the reported risks.
Risks in conjunction with company acquisitions are analyzed in the due diligence processes that Essity carries out prior to all acquisitions. In cases where acquisitions have been carried out that may affect the assessment of Essity's risk exposure, these are described under the heading "Other events" in the interim and year-end reports.
Essity's Board determines the Group's strategic direction based on recommendations from the Executive Management Team. Responsibility for the long-term, overall management of strategic risks corresponds to the company's delegation structure, from the Board to the CEO and from the CEO to the business unit presidents. This means that most operational risks are managed by Essity's business units at the local level, but that they are coordinated when considered necessary. The tools used in this coordination consist primarily of the business units' regular reporting and the annual strategy process, where risks and risk management are a part of the process.
Essity's financial risk management is centralized, as is the Group's internal bank for the Group companies' financial transactions and management of the Group's energy risks. Financial risks are managed in accordance with the Group's finance policy, which is adopted by Essity's Board and which – together with Essity's energy risk policy – makes up a framework for risk management. Risks are aggregated and monitored on a regular basis to ensure compliance with these guidelines. Essity has also centralized other risk management.
Essity has a staff function for internal audit, which monitors compliance in the organization with the Group's policies.
Distribution by level for measurement at fair value
| SEKm | Carrying amount in the balance sheet |
Measured at fair value through profit or loss |
Derivatives used for hedge accounting |
Available for-sale financial assets |
Financial liabilities measured at amortized cost |
Of which fair value by level1 |
|
|---|---|---|---|---|---|---|---|
| September 30, 2018 | 1 | 2 | |||||
| Derivatives | 1,320 | 209 | 1,111 | - | - | - | 1,320 |
| Non-current financial assets | 90 | - | - | 90 | - | 90 | - |
| Total assets | 1,410 | 209 | 1,111 | 90 | - | 90 | 1,320 |
| Derivatives Financial liabilities |
650 | 606 | 44 | - | - | - | 650 |
| Current financial liabilities Non-current financial |
12,306 | 909 | - | - | 11,397 | - | 909 |
| liabilities | 43,168 | 16,056 | - | - | 27,112 | - | 16,056 |
| Total liabilities December 31, 2017 |
56,124 | 17,571 | 44 | - | 38,509 | - | 17,615 |
| Derivatives | 1,555 | 816 | 739 | - | - | - | 1,555 |
| Non-current financial assets | 87 | - | - | 87 | - | 87 | - |
| Total assets | 1,642 | 816 | 739 | 87 | - | 87 | 1,555 |
| Derivatives | 591 | 434 | 157 | - | - | - | 591 |
| Financial liabilities | |||||||
| Current financial liabilities Non-current financial |
6,520 | - | - | - | 6,520 | - | - |
| liabilities | 47,605 | 16,292 | - | - | 31,313 | - | 16,292 |
| Total liabilities | 54,716 | 16,726 | 157 | - | 37,833 | - | 16,883 |
1No financial instruments have been classified to level 3
The total fair value of the above financial liabilities is SEK 56,152m (54,145). The fair value of trade receivables, other current and non-current receivables, cash and cash equivalents, trade payables and other current and non-current liabilities is estimated to be equal to their carrying amount.
No transfers between level 1 and 2 were made during the period.
On December 19, 2016, it was announced that an agreement to acquire BSN medical, a leading medical solutions company, had been concluded. BSN medical develops, manufactures, markets and sells products within wound care, compression therapy and orthopedics. The purchase price for the shares was EUR 1,394m, and takeover of net debt amounted to EUR 1,324m. The acquisition is fully debt-funded. The transaction, which was subject to customary regulatory approvals, was closed on April 3, 2017.
The earlier preliminary purchase price allocation for BSN medical was finalized in the first quarter of 2018. The definitive purchase price allocation is presented below specifying intangible assets in the form of customer relationships, brands, technologies and goodwill. Goodwill is justified by the synergies that arise as a result of BSN medical's leading market positions in attractive medical solutions product categories, 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.
During the first quarter of 2018, BSN medical affected consolidated net sales by SEK 1,970m, adjusted EBITDA by SEK 407m and adjusted EBITA by SEK 344m.
| Purchase price allocation, BSN medical | Preliminary | New assumptions | Final |
|---|---|---|---|
| SEKm | |||
| Intangible assets | 13,472 | 0 | 13,472 |
| Non-current assets | 1,679 | 18 | 1,697 |
| Current assets | 3,161 | 1 | 3,162 |
| Cash and cash equivalents | 471 | -16 | 455 |
| Net debt | -13,038 | -10 | -13,048 |
| Provisions and other non-current liabilities | -4,278 | -9 | -4,287 |
| Operating liabilities | -1,272 | 5 | -1,267 |
| Net identifiable assets and liabilities | 195 | -11 | 184 |
| Goodwill | 13,145 | 11 | 13,156 |
| Non-controlling interests | -80 | 0 | -80 |
| Consideration paid | 13,260 | 0 | 13,260 |
| Consideration paid | -13,260 | 0 | -13,260 |
| Cash and cash equivalents in acquired operations | 471 | -16 | 455 |
| Effect on the Group's cash and cash equivalents (Consolidated cash flow statement) |
-12,789 | -16 | -12,805 |
| Acquired net debt excluding cash and cash equivalents | -13,038 | -10 | -13,048 |
| Acquisition of operations including net debt taken over (Consolidated operating cash flow statement) |
-25,827 | -26 | -25,853 |
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 this company 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 profit or loss.
On April 3, 2018, Familia, in which Essity has a 50% stake, acquired the company Industrial Papelera Ecuatoriana S.A. (INPAECSA) with operations in Ecuador. The payment transferred amounted to SEK 68m.
Guidelines for Alternative Performance Measures (APMs) for companies with securities listed on a regulated market in the EU have been issued by the European Securities and Markets Authority (ESMA). These guidelines are to be applied for APMs not supported under IFRS.
This interim report refers to a number of performance measures not defined in IFRS. These performance measures are used to help investors, management and other stakeholders analyze the company's operations. These non-IFRS measures may differ from similarly titled measures among other companies. Essity's 2017 Annual Report (pages 104-108) describes the various non-IFRS performance measures that are used as a complement to the financial information presented in accordance with IFRS. A number of non-IFRS performance measures have been added since the publication of the Annual Report and these are presented below. Tables are also presented that show how the performance measures have been calculated.
Description: EBITDA is calculated as operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets.
Reason for use: This measure is a complement to operating profit, as it shows the cash surplus from operations.
Description: Adjusted EBITDA is calculated as operating profit before depreciation, amortization and impairment of property, plant and equipment and intangible assets excluding items affecting comparability.
Reason for use: This measure is a complement to operating profit, as it shows the cash surplus from operations adjusted for the impact of items affecting comparability.
Description: Net debt / EBITDA is calculated as the closing balance of net debt in relation to 12 months rolling EBITDA. Reason for use: A financial measure that shows the company's capacity to repay its debt.
Description: Net debt / adjusted EBITDA is calculated as the closing balance of net debt in relation to 12 months rolling adjusted EBITDA.
Reason for use: A financial measure that shows the company's capacity to repay its debt.
| SEKm | 1809 | 1712 |
|---|---|---|
| Total assets | 155,097 | 147,016 |
| -Financial receivables | -6,186 | -6,912 |
| -Non-current non-interest bearing liabilities | -9,556 | -8,650 |
| -Current non-interest bearing liabilities | -31,222 | -29,417 |
| Capital employed | 108,133 | 102,037 |
| SEKm | 2018:3 | 2018:2 | 2018:1 | 2017:4 | 2017:3 |
|---|---|---|---|---|---|
| Personal Care | 41,885 | 42,888 | 42,033 | 39,447 | 38,219 |
| Consumer Tissue | 45,474 | 46,714 | 45,091 | 43,569 | 41,945 |
| Professional Hygiene | 21,291 | 22,008 | 20,445 | 20,034 | 19,274 |
| Other | -517 | -463 | -315 | -1,013 | -1,024 |
| Capital employed | 108,133 | 111,147 | 107,254 | 102,037 | 98,414 |
| SEKm | 1809 | 1712 |
|---|---|---|
| Inventories | 15,693 | 13,739 |
| Accounts receivables | 19,342 | 17,607 |
| Other current receivables | 2,689 | 2,549 |
| Accounts payables | -15,155 | -14,748 |
| Other current liabilities | -13,932 | -12,569 |
| Adjustments | -245 | -677 |
| Working capital | 8,392 | 5,901 |
| SEKm | 1809 | 1712 |
|---|---|---|
| Surplus in funded pension plans | 2,393 | 1,148 |
| Non-current financial assets | 487 | 552 |
| Current financial assets | 252 | 1,105 |
| Cash and cash equivalents | 3,054 | 4,107 |
| Financial receivables | 6,186 | 6,912 |
| Non-current financial liabilities | 43,223 | 47,637 |
| Provisions for pensions | 4,468 | 4,541 |
| Current financial liabilities | 12,990 | 7,201 |
| Financial liabilities | 60,681 | 59,379 |
| Net debt | 54,495 | 52,467 |
| SEKm | 1809 | 1709 | 2018:3 | 2017:3 |
|---|---|---|---|---|
| Operating profit | 7,543 | 8,488 | 1,813 | 3,237 |
| -Amortization of acquisition-related intangible assets | 537 | 379 | 187 | 161 |
| -Depreciations | 4,027 | 3,816 | 1,390 | 1,256 |
| -Items affecting comparability, depreciations | 0 | 2 | 0 | 0 |
| -Impairment | 10 | 0 | 0 | 0 |
| -Items affecting comparability, impairment | 541 | 283 | 234 | -16 |
| -Items affecting comparability, impairment of acquisition-related | ||||
| intangible assets | 5 | 86 | 5 | -2 |
| EBITDA | 12,663 | 13,054 | 3,629 | 4,636 |
| -Items affecting comparability excluding depreciation and impairment | 858 | 548 | 777 | 52 |
| Adjusted EBITDA | 13,521 | 13,602 | 4,406 | 4,688 |
| SEKm | 1809 | 1709 | 2018:3 | 2017:3 |
|---|---|---|---|---|
| Operating profit | 7,543 | 8488 | 1813 | 3237 |
| -Amortization of acquisition-related intangible assets | 537 | 379 | 187 | 161 |
| -Items affecting comparability amortization of acquisition-related | ||||
| intangible assets | 5 | 86 | 5 | -2 |
| -Operating profit before amortization of acquisition-related intangible | ||||
| assets/EBITA | 8,085 | 8,953 | 2,005 | 3,396 |
| EBITA margin (%) | 9.3 | 11.1 | 6.8 | 12.5 |
| -Items affecting comparability cost of goods sold | 1,508 | 544 | 773 | -28 |
| -Items affecting comparability, sales and administration costs | -109 | 289 | 238 | 64 |
| Adjusted EBITA | 9,484 | 9,786 | 3,016 | 3,432 |
| Adjusted EBITA margin (%) | 10.9 | 12.1 | 10.2 | 12.6 |
| SEKm | 1809 | 1709 | 2018:3 | 2017:3 |
|---|---|---|---|---|
| Personal Care | ||||
| Operating cash surplus | 5,758 | 5,290 | 1,937 | 1,869 |
| Change in working capital | -404 | -318 | 116 | 228 |
| Current capital expenditures, net | -753 | -726 | -268 | -361 |
| Restructuring costs, etc. | -272 | -233 | -30 | -37 |
| Operating cash flow | 4,329 | 4,013 | 1,755 | 1,699 |
| Consumer Tissue | ||||
| Operating cash surplus | 4,171 | 4,720 | 1,216 | 1,527 |
| Change in working capital | -826 | -540 | -188 | -904 |
| Current capital expenditures, net | -1,311 | -1,292 | -438 | -390 |
| Restructuring costs, etc. | -176 | -132 | -115 | 13 |
| Operating cash flow | 1,858 | 2,756 | 475 | 246 |
| Professional Hygiene | ||||
| Operating cash surplus | 4,077 | 3,904 | 1,434 | 1,428 |
| Change in working capital | -559 | -116 | 277 | 492 |
| Current capital expenditures, net | -624 | -552 | -208 | -227 |
| Restructuring costs, etc. | -216 | -448 | -151 | -154 |
| Operating cash flow | 2,678 | 2,788 | 1,352 | 1,539 |
| SEKm | 1809 | 2018:3 |
|---|---|---|
| Personal Care | ||
| Organic net sales | 875 | 237 |
| Currency effect1 | 756 | 607 |
| Acquisition/Disposals | 2,252 | 114 |
| Reported change | 3,883 | 958 |
| Consumer Tissue | ||
| Organic net sales | 578 | 6 |
| Currency effect1 | 1,337 | 776 |
| Acquisition/Disposals | 127 | 63 |
| Reported change | 2,042 | 845 |
| Professional Hygiene | ||
| Organic net sales | 415 | 193 |
| Currency effect1 | 380 | 474 |
| Acquisition/Disposals | 15 | 6 |
| Reported change | 810 | 673 |
| Essity | ||
| Organic net sales | 1,919 | 429 |
| Currency effect1 | 2,473 | 1,855 |
| Acquisition/Disposals | 2,394 | 184 |
| Reported change | 6,786 | 2,468 |
1Consists only of currency translation effects
*For a definition of "Organic net sales," refer to page 106 of Essity's 2017 Annual Report.
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