Essity

Earnings Release • Jan 25, 2018

JANUARY 1 – DECEMBER 31, 2017

(compared with the corresponding period a year ago)

• Net sales increased 8.0% to SEK 109,265m (101,238)
• Operating profit before amortization of acquisition-related intangible assets (EBITA) rose 34% to SEK 12,550m (9,347)
• Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 12% to SEK 13,405m (11,992)
• Adjusted EBITA margin increased 0.5 percentage points to 12.3% (11.8)
• Adjusted profit before tax rose 6% to SEK 11,663m (10,998)
• The US tax reform resulted in a positive non-recurring tax effect of SEK 550m for the fourth quarter and full-year 2017. The tax effect did not have any impact on cash flow.
• Profit for the period increased 107% to SEK 8,785m (4,242)
• Earnings per share increased 114% to SEK 11.56 (5.41¹ )
• Adjusted earnings per share increased 46% to SEK 13.09 (8.99¹ )
• Cash flow from current operations increased 2% to SEK 8,745m (8,563)
• The Board of Directors proposes a dividend of SEK 5.75 per share
• The acquisition of BSN medical was consolidated as of April 3, 2017. Since the acquisition date, BSN medical has impacted consolidated net sales by SEK 6,301m and adjusted EBITA by SEK 1,150m

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

EARNINGS TREND

SEKm	1712	1612	%	2017:4	2016:4	%
Net sales	109,265	101,238	8	28,664	26,772	7
Adjusted operating profit before amortization of acquisition related intangible assets (EBITA) 2	13,405	11,992	12	3,619	3,195	13
Operating profit before amortization of acquisition-related intangible assets (EBITA)	12,550	9,347	34	3,597	2,516	43
Amortization of acquisition-related intangible assets	-560	-159		-181	-51
Adjusted operating profit2	12,845	11,833	9	3,438	3,144	9
Items affecting comparability	-940	-2,825		-21	-688
Operating profit	11,905	9,008	32	3,417	2,456	39
Financial items	-1,182	-835		-337	-265
Profit before tax	10,723	8,173	31	3,080	2,191	41
Adjusted profit before tax2	11,663	10,998	6	3,101	2,879	8
Tax	-1,938	-3,931		-14	-1,021
Profit for the period	8,785	4,242	107	3,066	1,170	162
Earnings per share, SEK	11.56	5.41		4.11	1.40
Adjusted earnings per share, SEK3	13.09	8.99		4.32	2.33

²Excluding items affecting comparability; for amounts see page 11.

³Excluding items affecting comparability and amortization of acquisition-related intangible assets.

SUMMARY OF THE FULL YEAR AND FOURTH QUARTER OF 2017

The Group's net sales for 2017 increased 8.0% compared with the preceding year. Organic sales increased 1.2%. The Group's adjusted EBITA for full-year 2017 rose 12%. Excluding currency translation effects and the acquisition of BSN medical, adjusted EBITA increased 1%. The Group's adjusted EBITA margin rose 0.5 percentage points to 12.3%. The adjusted return on capital employed was 14.9%.

The Board of Directors proposes a dividend of SEK 5.75 per share.

The Group's net sales for the fourth quarter of 2017 increased 7.1% compared with the corresponding period a year ago. Organic sales increased 1.8%, of which volume accounted for 0.8% and price/mix for 1.0%. In emerging markets, which represented 35% of net sales, organic sales rose 5.9%, while in mature markets organic sales declined 0.3%. Organic sales were negatively impacted by lower market growth due to such factors as price pressure and as a consequence of Essity's decision to discontinue certain underperforming market positions and contracts as part of the company's focus on profitable growth for increased value creation. During the quarter, five innovations were launched that strengthened Essity's customer and consumer offering.

The Group's adjusted EBITA in the fourth quarter of 2017 increased 13% compared with the corresponding period a year ago. Excluding currency translation effects and the acquisition of BSN medical, adjusted EBITA rose 3%. The increase was mainly the result of a better price/mix, higher volumes, cost savings and other measures to improve profitability. Higher raw material costs had a negative impact of SEK 713m. The Group's adjusted EBITA margin increased 0.7 percentage points to 12.6%. The adjusted return on capital employed was 14.4%.

For the fourth quarter of 2017, the acquired company BSN medical's organic sales rose by 2.4%. The adjusted EBITA margin for the acquired company was 18.4% and was negatively impacted by approximately 0.5 percentage points as a result of integration costs.

Excluding items affecting comparability; for amounts see page 11.

ADJUSTED EARNINGS TREND

SEKm	1712	1612	%	2017:4	2016:4	%
Net sales	109,265	101,238	8	28,664	26,772	7
Cost of goods sold1	-76,899	-72,438		-20,236	-19,131
Adjusted gross profit1	32,366	28,800	12	8,428	7,641	10
Sales, general and administration1	-18,961	-16,808		-4,809	-4,446
Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA)1	13,405	11,992	12	3,619	3,195	13
Amortization of acquisition-related intangible assets1	-560	-159		-181	-51
Adjusted operating profit1	12,845	11,833	9	3,438	3,144	9
Financial items	-1,182	-835		-337	-265
Adjusted profit before tax1	11,663	10,998	6	3,101	2,879	8
Adjusted tax1	-2,191	-4,355		-26	-1,096
Adjusted profit for the period1 1 Excluding items affecting comparability; for amounts see page 11.	9,472	6,643	43	3,075	1,783	72
Adjusted margins (%)
Gross margin1	29.6	28.4		29.4	28.5
EBITA margin1	12.3	11.8		12.6	11.9
Operating margin1	11.8	11.7		12.0	11.7
Financial net margin	-1.1	-0.8		-1.2	-1.0
Profit margin1	10.7	10.9		10.8	10.7
Tax1	-2.0	-4.3		-0.1	-4.1
Net margin1	8.7	6.6		10.7	6.6

¹Excluding items affecting comparability; for amounts see page 11.

ADJUSTED EBITA BY BUSINESS AREA

		2017:4	2016:4	%
4,283	39	1,539	1,161	33
4,450	-8	900	1,190	-24
3,836	4	1,344	1,059	27
-577		-164	-215
11,992	12	3,619	3,195	13
	5,937 4,084 4,004 -620 13,405

¹Excluding items affecting comparability; for amounts see page 11.

ADJUSTED OPERATING PROFIT BY BUSINESS AREA

1712	1612	%	2017:4	2016:4	%
5,431	4,255	28	1,369	1,143	20
4,078	4,382	-7	899	1,173	-23
3,956	3,773	5	1,335	1,042	28
-620	-577		-165	-214
12,845	11,833	9	3,438	3,144	9

¹Excluding items affecting comparability; for amounts see page 11.

OPERATING CASH FLOW BY BUSINESS AREA

SEKm	1712	1612	%	2017:4	2016:4	%
Personal Care	5,453	4,723	15	1,440	1,143	26
Consumer Tissue	3,850	5,199	-26	1,094	1,308	-16
Professional Hygiene	4,411	4,135	7	1,623	1,278	27
Other	-991	-1,026		-269	-358
Total	12,723	13,031	-2	3,888	3,371	15

20,000 21,000 22,000 23,000 24,000 25,000 26,000 27,000 28,000 29,000 Net sales SEKm

0% 2% 4% 6% 8% 10% 12% 14% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Adjusted EBITA and margin SEKm %

Excluding items affecting comparability

Change in net sales (%)

	1712 vs 1612	17:4 vs 16:4
Total	8.0	7.1
Price/mix	0.4	1.0
Volume	0.8	0.8
Currency	0.4	-2.7
Acquisitions	6.4	8.0
Divestments	0	0

Change in adjusted EBITA (%)

	1712 vs 1612	17:4 vs 16:4
Total	12	13
Price/mix	2	6
Volume	3	3
Raw materials	-14	-22
Energy	0	2
Currency	1	-2
Other	20	26

Adjusted profit before tax

GROUP

MARKET/EXTERNAL ENVIRONMENT

January-December 2017 compared with the corresponding period a year ago The global market for hygiene and health products was challenging in 2017.

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, while 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 rose 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 and increased competition. The Chinese consumer tissue market noted higher demand.

The European and North American markets for professional hygiene displayed low growth.

NET SALES AND EARNINGS

January-December 2017 compared with the corresponding period a year ago

Net sales increased 8.0% compared with the corresponding period a year ago to SEK 109,265m (101,238). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.2%, of which volume accounted for 0.8% and price/mix for 0.4%. Organic sales decreased 1.0% in mature markets and increased 5.3% in emerging markets. Emerging markets accounted for 35% of net sales. Exchange rate effects increased net sales by 0.4%. The acquisitions of BSN medical and Wausau Paper Corp. increased net sales by 6.4%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 12% (1% excluding currency translation effects and acquisitions) to SEK 13,405m (11,992). Higher volumes, better price/mix, cost savings of SEK 1,231m, the acquisitions of BSN medical and Wausau Paper Corp. and the closures of the Baby Care business in Mexico and the hygiene business in India increased earnings. Investments in marketing activities increased. Higher raw material costs had a negative earnings effect of SEK 1,671m. The acquisition of BSN medical increased profit by 10%.

Items affecting comparability amounted to SEK -940m (-2,825) and include costs of approximately SEK -550m related to the split of the SCA Group into two listed companies, which is mainly related to foreign tax of a non-recurring nature on non-current assets outside Sweden. Furthermore, the amount includes restructuring costs of about SEK -75m for the closure of a tissue machine in the UK, and approximately SEK -255m for the closure of a tissue production plant in the US. Items affecting comparability also include integration costs and transaction costs related to the acquisition of BSN medical and inventory valuation in connection with the acquisition balance totaling approximately SEK -435m. A release of a provision relating to a competition case in Poland had a positive impact of about SEK 265m. Other revenue impacted items affecting comparability positively by about SEK 110m.

Financial items increased to SEK -1,182m (-835). 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 rose 6% (declined 5% excluding currency translation effects and acquisitions) to SEK 11,663m (10,998).

The tax expense, excluding effects of items affecting comparability, was SEK 2,191m (4,355). The decrease is primarily related to the tax provision of approximately SEK 1.3bn made in the first six months of 2016. The tax reform in the US entailed a positive non-recurring tax effect of SEK 550m for the fourth quarter and full-year 2017.

Adjusted profit for the period rose 43% (32% excluding currency translation effects and acquisitions) to SEK 9,472m (6,643).

Profit for the period rose 107% (96% excluding currency translation effects and acquisitions) to SEK 8,785m (4,242). Earnings per share were SEK 11.56 (5.41). The adjusted earnings per share were SEK 13.09 (8.99).

The adjusted return on capital employed was 14.9% (16.4).

Fourth quarter of 2017 compared with the corresponding period a year ago

Net sales increased 7.1% compared with the corresponding period a year ago to SEK 28,664m (26,772). Organic sales, which exclude exchange rate effects, acquisitions and divestments, rose 1.8%, of which volume accounted for 0.8% and price/mix for 1.0%. Organic sales decreased 0.3% in mature markets and increased 5.9% in emerging markets. Emerging markets accounted for 35% of net sales. Exchange rate effects reduced net sales by 2.7%. The acquisition of BSN medical increased net sales by 8.0%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 13% (3% excluding currency translation effects and acquisition) to SEK 3,619m (3,195). Better price/mix, higher volumes, lower energy costs, cost savings of SEK 359m, the acquisition of BSN medical and the closures of the Baby Care business in Mexico and the hygiene business in India increased earnings. Higher raw material costs had a negative impact on earnings of SEK 713m. The acquisition of BSN medical increased earnings by 12%.

Adjusted profit before tax rose 8% (declined 2% excluding currency translation effects and acquisition) to SEK 3,101m (2,879).

Profit for the period rose 162% (152% excluding currency translation effects and acquisition) to SEK 3,066m (1,170). Earnings per share were SEK 4.11 (1.40). The adjusted earnings per share were SEK 4.32 (2.33).

The adjusted return on capital employed was 14.4% (17.1).

CASH FLOW AND FINANCING

January-December 2017 compared with the corresponding period a year ago

The operating cash surplus amounted to SEK 18,465m (16,759). The cash flow effect of changes in working capital was SEK -740m (1,596). Working capital as a share of net sales increased. Current capital expenditures amounted to SEK -3,911m (-4,222). Operating cash flow was SEK 12,723m (13,031).

Financial items increased to SEK -1,182m (-835). 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 2,971m (3,782). Cash flow from current operations amounted to SEK 8,745m (8,563) during the period.

Strategic capital expenditures amounted to SEK -2,101m (-2,033). The net sum of acquisitions and divestments was SEK -26,016m (-6,171). Net cash flow totaled SEK -18,791m (-13,967).

Net debt increased by SEK 17,294m during the period, to SEK 52,467m. During the year BSN medical was acquired which increased net debt by SEK 25,827m. Excluding pension liabilities, net debt amounted to SEK 49,074m. Net cash flow increased net debt by SEK 18,791m. 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 1,061m. Exchange rate movements reduced net debt by SEK 436m.

The debt/equity ratio was 1.06 (0.89). Excluding pension liabilities, the debt/equity ratio was 0.99 (0.76). The debt payment capacity was 26% (29).

EQUITY

January–December 2017

Consolidated equity increased by SEK 9,990m during the period, to SEK 49,570m. Net profit for the period increased equity by SEK 8,785m. Equity increased SEK 843m net after tax 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, excluding acquired hedge reserves, reduced equity by SEK 2m after tax. Exchange rate movements, including the effect of hedges of net foreign investments, after tax, decreased equity by SEK 1,218m. Equity increased as a result of a private placement of SEK 969m to noncontrolling interests in Vinda. Transactions with former shareholders (SCA AB) in connection

with the split increased equity by SEK 842m. Equity increased by SEK 78m related to the acquisition of non-controlling interests in conjunction with the acquisition of BSN medical. Other items reduced equity by SEK 307m.

TAX

January–December 2017

A tax expense of SEK 2,191m was reported, excluding items affecting comparability. The reported tax expense corresponds to a tax rate of about 18.8% for the period. The tax expense including items affecting comparability was SEK 1,938m, corresponding to a tax rate of 18.1% for the period. The tax reform in the US entailed a positive non-recurring tax effect of SEK 550m for the fourth quarter and full-year 2017.

Dividend

The Board of Directors proposes a dividend of SEK 5.75 per share or SEK 4,038m. April 16, 2018 is proposed as the record date for the right to receive dividends.

Share of Group, adjusted EBITA 1712

0 2 4 6 8 10 12 14 16 0 200 400 600 800 1,000 1,200 1,400 1,600 Adjusted EBITA and margin SEKm %

Change in net sales (%)

	1712 vs 1612	17:4 vs 16:4
Total	20.6	24.3
Price/mix	-0.4	0.0
Volume	2.2	3.0
Currency	0.1	-3.3
Acquisitions	18.7	24.6
Divestments	0	0

Change in adjusted EBITA (%)

	1712 vs 1612	17:4 vs 16:4
Total	39	33
Price/mix	-4	-4
Volume	8	8
Raw materials	-3	-2
Energy	0	0
Currency	0	-2
Other	38	33

PERSONAL CARE

SEKm	1712	1612	%	2017:4	2016:4	%
Net sales	40,586	33,651	21	10,831	8,711	24
Adjusted EBITA*	5,937	4,283	39	1,539	1,161	33
Adjusted EBITA margin, %*	14.6	12.7		14.2	13.3
Adjusted operating profit*	5,431	4,255	28	1,369	1,143	20
Adjusted operating margin, %*	13.4	12.6		12.6	13.1
Adjusted return on capital employed, %*	20.5	31.8		15.9	34.7
Operating cash flow	5,453	4,723		1,440	1,143

*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.

January-December 2017 compared with the corresponding period a year ago

Net sales increased 20.6% to SEK 40,586m (33,651). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.8%, of which volume accounted for 2.2% and price/mix for -0.4%. The closures of the Baby Care business in Mexico and the hygiene business in India negatively impacted organic sales by approximately 1%. Organic sales in mature markets increased by 1.7%. In emerging markets, which accounted for 37% of net sales, organic sales rose 2.0%. The acquisition of BSN medical increased net sales by 18.7%. Exchange rate effects increased net sales by 0.1%.

For Incontinence Products, under the globally leading TENA brand, organic sales increased 2.7%. Growth is related to emerging markets, North America and Western Europe. The European retail sector reported good growth, while lower sales to the healthcare sector had a negative effect on growth. For Baby Care, organic sales decreased 2.5%. The decline was mainly the result of the closures of the Baby Care businesses in Mexico and India, as well as lower sales in Russia. In Europe, organic sales increased for Baby Care. For Feminine Care, organic sales increased by 3.7%, related to Latin America and Asia.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 39% (11% excluding currency translation effects and acquisition) to SEK 5,937m (4,283). The increase was mainly related to the acquisition of BSN medical, higher volumes, cost savings, increased profitability for Incontinence Products in North America and the closures of the Baby Care business in Mexico and the hygiene business in India. Higher raw material costs, lower prices and increased investments in marketing activities negatively impacted earnings. The acquisition of BSN medical increased profit by 27%. The operating cash surplus amounted to SEK 7,238m (5,314).

Fourth quarter of 2017 compared with the corresponding period a year ago

Net sales increased 24.3% to SEK 10,831m (8,711). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 3.0%, of which volume accounted for 3.0% and price/mix for 0.0%. The closures of the Baby Care business in Mexico and the hygiene business in India negatively impacted organic sales by approximately 1%. Organic sales in mature markets increased by 4.1%. In emerging markets, which accounted for 35% of net sales, organic sales increased by 1.7%. The acquisition of BSN medical increased net sales by 24.6%. Exchange rate effects reduced net sales by 3.3%.

-6 For Incontinence Products, under the globally leading TENA brand, organic sales increased 4.3%. Growth is mainly related to emerging markets, North America and Western Europe. Growth in Europe was attributable to higher sales to both the retail and healthcare sectors. For Baby Care, sales declined by 0.8%. The closures of the Baby Care businesses in Mexico and India had a negative impact on sales. Sales increased in Europe. For Feminine Care, organic sales increased by 3.1%, mainly related to Latin America.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 33% (0% excluding currency translation effects and acquisition) to SEK 1,539m (1,161). The increase was mainly related to the acquisition of BSN medical, higher volumes, cost savings, increased profitability for Incontinence Products in North America and the closures of the Baby Care business in Mexico and the hygiene business in India. Higher raw material costs and lower prices had a negative impact on earnings. The lower prices are mainly related to Incontinence Products as a result of price pressure in the healthcare sector and increased investments in marketing activities in the retail sector. The acquisition of BSN medical increased profit by 34%.

Change in net sales (%)

	1712 vs 1612	17:4 vs. 16:4
Total	1.0	-0.8
Price/mix	-0.2	0.2
Volume	0.7	0.6
Currency	0.5	-1.6
Acquisitions	0	0
Divestments	0	0

Change in adjusted EBITA (%)

	1712 vs 1612	17:4 vs 16:4
Total	-8	-24
Price/mix	-1	4
Volume	2	1
Raw materials	-22	-49
Energy	0	4
Currency	0	-2
Other	13	18

CONSUMER TISSUE

SEKm	1712	1612	%	2017:4	2016:4	%
Net sales	42,014	41,560	1	11,026	11,115	-1
Adjusted EBITA*	4,084	4,450	-8	900	1,190	-24
Adjusted EBITA margin, %*	9.7	10.7		8.2	10.7
Adjusted operating profit*	4,078	4,382	-7	899	1,173	-23
Adjusted operating margin, %*	9.7	10.5		8.2	10.6
Adjusted return on capital employed, %*	9.8	10.9		8.4	11.6
Operating cash flow	3,850	5,199		1,094	1,308

*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.

January-December 2017 compared with the corresponding period a year ago

Net sales increased 1.0% to SEK 42,014m (41,560). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 0.5%, of which volume accounted for 0.7% and price/mix for -0.2%. Organic sales decreased 3.4% in mature markets. The decline was mainly related to lower prices and volumes of products sold under retailers' brand. In emerging markets, which accounted for 44% of net sales, organic sales increased by 6.2%. The increase was related to Asia, Latin America and Russia. Exchange rate effects increased net sales by 0.5%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) declined 8% (9% excluding currency translation effects) to SEK 4,084m (4,450). This decrease was mainly related to higher raw material costs that had a negative impact of SEK 1,000 on earnings. Lower prices also had a negative impact on earnings. Higher volumes and cost savings positively impacted earnings. The operating cash surplus totaled SEK 6,163m (6,455).

Fourth quarter of 2017 compared with the corresponding period a year ago

Net sales declined 0.8% to SEK 11,026m (11,115). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 0.8%, of which volume accounted for 0.6% and price/mix for 0.2%. Organic sales decreased 4.6% in mature markets. The decline was mainly related to lower prices and lower volumes. In emerging markets, which accounted for 45% of net sales, organic sales increased by 8.3%. The increase was mainly related to Asia, Russia and Eastern Europe. Exchange rate effects reduced net sales by 1.6%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) declined 24% (23% excluding currency translation effects) to SEK 900m (1,190). This decline was primarily related to higher raw material costs, which negatively impacted earnings by SEK 586m. Higher raw material costs were mainly the result of significantly higher pulp prices. Better price/mix, higher volumes, cost savings and lower energy costs had a positive impact on profit. Selling prices were higher in Asia and lower in Europe.

Change in net sales (%)

	1712 vs 1612	17:4 vs 16:4
Total	2.6	-1.6
Price/mix	2,2	3.5
Volume	-0.7	-1.3
Currency	0.5	-3.8
Acquisitions	0.6	0
Divestments	0	0

Change in adjusted EBITA (%)

	1712 vs 1612	17:4 vs 16:4
Total	4	27
Price/mix	13	19
Volume	-1	-1
Raw materials	-14	-9
Energy	0	2
Currency	1	-3
Other	5	19

PROFESSIONAL HYGIENE

SEKm	1712	1612	%	2017:4	2016:4	%
Net sales	26,700	26,001	3	6,816	6,929	-2
Adjusted EBITA*	4,004	3,836	4	1,344	1,059	27
Adjusted EBITA margin, %*	15.0	14.8		19.7	15.3
Adjusted operating profit*	3,956	3,773	5	1,335	1,042	28
Adjusted operating margin, %*	14.8	14.5		19.6	15.0
Adjusted return on capital employed, %*	19.7	19.6		27.4	19.8
Operating cash flow	4,411	4,135		1,623	1,278

*) Excluding restructuring costs, which are reported as items affecting comparability outside of the business area.

January-December 2017 compared with the corresponding period a year ago

Net sales increased 2.6% to SEK 26,700m (26,001). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 1.5%, of which volume accounted for -0.7% and price/mix for 2.2%. Price/mix was positively impacted by higher prices in North America and a better mix in Europe and North America. The acquisition of Wausau Paper Corp. increased net sales by 0.6%. Organic sales decreased 0.5% in mature markets due to lower volumes. These lower volumes are mainly the result of the decision to discontinue contracts with unsatisfactory profitability. In emerging markets, which accounted for 18% of net sales, organic sales increased by 12.4%. The increase was mainly related to Asia, Latin America and Eastern Europe. Exchange rate effects increased net sales by 0.5%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 4% (3% excluding currency translation effects and acquisition) to SEK 4,004m (3,836). Better price/mix, cost savings and the acquisition of Wausau Paper Corp. had a positive impact on earnings. Higher raw material costs mainly due to a significant increase in recovered paper prices and lower volumes had a negative impact on earnings. The operating cash surplus was SEK 5,649m (5,515).

Fourth quarter of 2017 compared with the corresponding period a year ago

Net sales declined 1.6% to SEK 6,816m (6,929). Organic sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.2%, of which volume accounted for -1.3% and price/mix for 3.5%. The price/mix was positively impacted by higher prices in North America and a better mix in Europe and North America. The lower volumes are mainly the result of the decision to discontinue contracts with unsatisfactory profitability. Organic sales rose 1.0% in mature markets. In emerging markets, which accounted for 18% of net sales, organic sales increased by 9.2%. The increase was mainly related to Asia, Latin America and Eastern Europe. Exchange rate effects reduced net sales by 3.8%.

Adjusted operating profit before amortization of acquisition-related intangible assets (EBITA) rose 27% (30% excluding currency translation effects) to SEK 1,344m (1,059). Better price/mix, cost savings and lower energy costs had a positive impact on earnings. A one-off effect mainly due to changed healthcare benefits for retired employees in the US had a positive impact of approximately SEK 110m on earnings. Adjustments of accruals mainly related to volumedependent customer rebates positively impacted earnings by about SEK 90m. Higher raw material costs mainly due to an increase in recovered paper and pulp prices and lower volumes had a negative impact on earnings.

DISTRIBUTION OF SHARES

December 31, 2017	Class A	Class B	Total
Registered number of shares	64,140,438	638,202,051	702,342,489

At the end of 2017, the proportion of Class A shares was 9.1%. During the fourth quarter, 321,080 Class A shares were converted into Class B shares at the request of shareholders. The total number of votes in the company thereafter amounts to 1,279,606,431.

FUTURE REPORTS

Essity's 2017 Annual and Sustainability Report is scheduled for publication during the week beginning March 19, 2018.

In 2018, interim reports will be published on April 27, July 19 and October 26.

ANNUAL GENERAL MEETING

The Annual General Meeting for Essity will be held on April 12, 2018 at 15:00 CET at the Stockholm Waterfront Congress Centre in Stockholm, Sweden.

INVITATION TO PRESS CONFERENCE ON YEAR-END REPORT 2017

Media and analysts are invited to a press conference, where this year-end report will be presented by Magnus Groth, President and CEO.

Time: 13:00 CET, Thursday, January 25, 2018 Location: Essity's headquarters, Waterfront Building, Klarabergsviadukten 63, Stockholm, Sweden

The presentation will be webcast at www.essity.com. To participate, call: +44 (0) 145 254 10 03, +1 646 741 21 20 or +46 8 566 194 45. Specify "Essity" or conference ID no. 8239169.

Stockholm, January 25, 2018 Essity Aktiebolag (publ)

Magnus Groth President and CEO

For further information, please contact:

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 Media Relations, Group Function Communications, +46 8 788 52 20

NB:

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 12:00 noon CET on January 25, 2018. This interim report has not been reviewed by the company's auditors.

Karl Stoltz, Media Relations Manager, +46 8 788 51 55

CONDENSED STATEMENT OF PROFIT OR LOSS

SEKm	2017:4	2016:4	2017:3	1712	1612
Net sales	28,664	26,772	27,178	109,265	101,238
Cost of goods sold1,2	-20,236	-19,131	-18,949	-76,899	-72,438
Items affecting comparability1,2	35	-49	28	-509	-532
Gross profit	8,463	7,592	8,257	31,857	28,268
Sales, general and administration1,2	-4,856	-4,495	-4,835	-19,130	-16,965
Items affecting comparability1,2	-57	-630	-64	-346	-2,113
Share of profits of associates and joint ventures	47	49	38	169	157
Operating profit before amortization of acquisition related intangible assets	3,597	2,516	3,396	12,550	9,347
Amortization of acquisition-related intangible assets1	-181	-51	-161	-560	-159
1,2 Items affecting comparability	1	-9	2	-85	-180
Operating profit	3,417	2,456	3,237	11,905	9,008
Financial items	-337	-265	-275	-1,182	-835
Profit before tax	3,080	2,191	2,962	10,723	8,173
Tax	-14	-1,021	-740	-1,938	-3,931
Profit for the period	3,066	1,170	2,222	8,785	4,242
Earnings attributable to:
Owners of the parent	2,889	985	2,090	8,116	3,800
Non-controlling interests	177	185	132	669	442
Average no. of shares before dilution, millions	702.3	702.33	702.3	702.3	702.33
Average no. of shares after dilution, millions	702.3	702.33	702.3	702.3	702.33
Earnings per share, SEK - owners of the parent
- before dilution effects	4.11	1.40	2.98	11.56	5.41
- after dilution effects	4.11	1.40	2.98	11.56	5.41
1Of which, depreciation	-1,527	-1,386	-1,417	-5,724	-5,144
2Of which, impairment	-17	-109	18	-386	-557
3Number of shares corresponds to the number of issued shares in SCA
Gross margin	29.5	28.4	30.4	29.2	27.9
EBITA margin	12.5	9.4	12.5	11.5	9.2
Operating margin	11.9	9.2	11.9	10.9	8.9
Financial net margin	-1.2	-1.0	-1.0	-1.1	-0.8
Profit margin	10.7	8.2	10.9	9.8	8.1
Tax	0.0	-3.8	-2.7	-1.8	-3.9
Net margin	10.7	4.4	8.2	8.0	4.2
Excluding items affecting comparability:
Gross margin	29.4	28.5	30.3	29.6	28.4
EBITA margin	12.6	11.9	12.6	12.3	11.8
Operating margin	12.0	11.7	12.0	11.8	11.7
Financial net margin	-1.2	-1.0	-1.0	-1.1	-0.8
Profit margin	10.8	10.7	11.0	10.7	10.9
Tax	-0.1	-4.1	-2.7	-2.0	-4.3
Net margin	10.7	6.6	8.3	8.7	6.6

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

SEKm	2017:4	2016:4	2017:3	1712	1612
Profit for the period	3,066	1,170	2,222	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	-399	3,501	-74	1,061	-1,569
Income tax attributable to components of other comprehensive income	175	-795	21	-218	421
	-224	2,706	-53	843	-1,148
Items that have been or may be reclassified subsequently to the income statement
Available-for-sale financial assets	-1	-3	0	0	-1
Cash flow hedges	96	232	112	-11	530
Translation differences in foreign operations	1,883	238	-1,169	320	2,742
Gains/losses from hedges of net investments in foreign operations	-589	648	-346	-1,968	-437
Other comprehensive income from associated companies	-2	18	-14	-22	12
Income tax attributable to components of other comprehensive income	107	-208	54	439	-41
	1,494	925	-1,363	-1,242	2,805
Other comprehensive income for the period, net of tax	1,270	3,631	-1,416	-399	1,657
Total comprehensive income for the period	4,336	4,801	806	8,386	5,899
Total comprehensive income attributable to:
Owners of the parent	3,923	4,550	860	8,029	5,222
Non-controlling interests	413	251	-54	357	677

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SEKm	1712	1612
Attributable to owners of the parent
Opening balance, January 1	33,204	42,986
Total comprehensive income for the period	8,029	5,222
Transaction with owner (Svenska Cellulosa Aktiebolaget SCA)	842	-14,679
Private placement to non-controlling interest	504	240
Private placement to non-controlling interest, dilution	-290	-110
Issue costs private placement	0	-4
Acquisition of non-controlling interests	0	-799
Acquisition of non-controlling interests, dilution	0	348
Closing balance	42,289	33,204
Non-controlling interests
Opening balance, January 1	6,376	5,289
Total comprehensive income for the period	357	677
Dividend	-285	-190
Private placement to non-controlling interest	465	199
Private placement to non-controlling interest, dilution	290	110
Issue costs private placement	0	-4
Acquisition of non-controlling interests	78	643
Acquisition of non-controlling interests, dilution	0	-348
Closing balance	7,281	6,376
Total equity, closing balance	49,570	39,580
1Specification of transaction with owner (Svenska Cellulosa Aktiebolaget SCA)
Received contribution/given contribution	793	-15,278
Tax effects	49	599
Total	842	-14,679

CONSOLIDATED OPERATING CASH FLOW STATEMENT

SEKm	1712	1612
Operating cash surplus	18,465	16,759
Change in working capital	-740	1,596
Current capital expenditures, net	-3,911	-4,222
Restructuring costs, etc.	-1,091	-1,102
Operating cash flow	12,723	13,031
Financial items	-1,182	-835
Income taxes paid	-2,971	-3,782
Other	175	149
Cash flow from current operations	8,745	8,563
Acquisitions	-26,045	-6,540
Strategic capital expenditures in non-current assets	-2,101	-2,033
Divestments	29	369
Cash flow before dividend	-19,372	359
Private placement to non-controlling interest	28	435
Dividend to non-controlling interests	-285	-190
Transactions with shareholders	838	-14,571
Net cash flow	-18,791	-13,967
Net debt at the start of the period	-35,173	-19,058
Net cash flow	-18,791	-13,967
Remeasurement to equity	1,061	-1,570
Translation differences	436	-578
Net debt at the end of the period	-52,467	-35,173
Debt/equity ratio	1.06	0.89
Debt payment capacity, %	26	29

CONSOLIDATED CASH FLOW STATEMENT

SEKm	1712	1612
Operating activities
Profit before tax	10,723	8,173
Adjustment for non-cash items1	5,717	6,791
	16,440	14,964
Paid tax	-2,971	-3,782
Cash flow from operating activities
before changes in working capital	13,469	11,182
Cash flow from changes in working capital
Change in inventories	-1,703	1,059
Change in operating receivables	1,522	-298
Change in operating liabilities	-559	835
Cash flow from operating activities	12,729	12,778
Investing activities
Company acquisitions	-13,070	-4,416
Divestments	29	369
Investments in intangible assets and property, plant and equipment	-6,160	-6,339
Sale of property, plant and equipment	152	83
Loans granted to external parties	-287	0
Repayment of loans from external parties	0	184
Cash flow from investing activities	-19,336	-10,119
Financing activities
Private placement to non-controlling interests	28	435
Acquisition of non-controlling interests	-2	0
Change, receivable from Group companies	952	10,403
Loans raised	31,037	16,148
Amortization of debt	-25,982	-15,614
Dividend to non-controlling interests	-285	-190
Transactions with shareholders	838	-14,571
Cash flow from financing activities	6,586	-3,389
Cash flow for the period	-21	-730
Cash and cash equivalents at the beginning of the period	4,244	4,828
Exchange differences in cash and cash equivalents	-116	146
Cash and cash equivalents at the end of the period	4,107	4,244
Cash flow from operating activities per share, SEK	18.12	18.19
Reconciliation with consolidated operating cash flow statement
Cash flow for the period	-21	-730
Amortization of debt	25,982	15,614
Loans raised	-31,037	-16,148
Loans granted to external parties	287	0
Investment through financial lease	-5	0
Repayment of loans from external parties	0	-184
Change, receivable from Group companies	-952	-10,403
Net debt in acquired and divested operations	-13,034	-2,124
Adjustment of financial liabilities relating to acquisitions of previous years	62	0
Accrued interest	-73	8
Net cash flow according to consolidated operating cash flow statement	-18,791	-13,967
1Depreciation/amortization and impairment of non-current assets	6,109	5,701
Gain/loss on asset sales and swaps	8	51
Reversal of provision related to antitrust cases	-248	0
Gain/loss on divestments	-17	-149
Unpaid relating to efficiency program	3	578
Payments related to efficiency program already recognized	-435	-196
Provision related to one-time foreign tax on non-current assets	459	0
Provision for ongoing competition case	0	813
Other	-162	-7
Total	5,717	6,791

CONSOLIDATED BALANCE SHEET

SEKm	December 31, 2017	December 31, 2016
Assets
Goodwill	31,697	19,253
Other intangible assets	21,424	7,665
Buildings, land, machinery and equipment	48,482	47,494
Participation in joint ventures and associates	1,062	1,096
Shares and participation	32	32
Surplus in funded pension plans	1,148	335
Non-current financial receivables, Group companies	0	3
Non-current financial assets	552	714
Deferred tax assets	2,232	1,457
Other non-current assets	469	241
Total non-current assets	107,098	78,290
Inventories	13,739	10,944
Trade receivables	17,607	15,843
Current tax assets	769	740
Current receivables, Group companies	0	57
Current financial receivables, Group companies	0	1,433
Other current receivables	2,549	2,333
Current financial assets	1,105	244
Non-current assets held for sale	42	156
Cash and cash equivalents	4,107	4,244
Total current assets	39,918	35,994
Total assets	147,016	114,284
Equity
Share capital	2,350	0
Reserves	3,154	4,061
Retained earnings	36,785	29,143
Attributable to owner of the Parent	42,289	33,204
Non-controlling interests	7,281	6,376
Total equity	49,570	39,580
Liabilities
Non-current financial liabilities	47,637	31,299
Non-current liabilities, Group companies	0	48
Provisions for pensions	4,541	5,273
Deferred tax liabilities	7,090	3,872
Other non-current provisions	1,481	1,407
Other non-current liabilities	79	72
Total non-current liabilities	60,828	41,971
Current financial liabilities	7,201	5,089
Current liabilities, Group companies	0	259
Current financial liabilities, Group companies	0	485
Trade payables	14,748	12,972
Current tax liabilities	553	915
Current provisions	1,547	1,409
Other current liabilities	12,569	11,604
Total current liabilities	36,618	32,733
Total liabilities	97,446	74,704
Total equity and liabilities	147,016	114,284

CONSOLIDATED BALANCE SHEET (cont.)

SEKm	December 31, 2017	December 31, 2016
Debt/equity ratio	1.06	0.89
Equity/assets ratio	29%	29%
Equity	49,570	39,580
Equity per share	71	56
Return on equity	19.8%	9.3%
Return on equity excluding items affecting comparability	21.3%	14.5%
Capital employed	102,037	74,753
- of which working capital	5,901	4,143
Return on capital employed*	13.9%	12.8%
Return on capital employed* excluding items affecting comparability	14.9%	16.4%
Net debt	52,467	35,173
Provisions for restructuring costs are included in the balance sheet as follows
-Other provisions**	1,481	1,407
-Operating liabilities	548	866
**) of which, provision for tax risks	886	516

*) rolling 12 months

NET SALES (business area reporting)

SEKm	1712	1612	2017:4	2017:3	2017:2	2017:1	2016:4	2016:3
Personal Care	40,586	33,651	10,831	10,449	10,851	8,455	8,711	8,362
Consumer Tissue	42,014	41,560	11,026	10,066	10,449	10,473	11,115	10,164
Professional Hygiene	26,700	26,001	6,816	6,635	6,866	6,383	6,929	6,725
Other	-35	26	-9	28	-11	-43	17	-16
Total net sales	109,265	101,238	28,664	27,178	28,155	25,268	26,772	25,235

ADJUSTED EBITA (business area reporting)

SEKm	1712	1612	2017:4	2017:3	2017:2	2017:1	2016:4	2016:3
Personal Care	5,937	4,283	1,539	1,556	1,614	1,228	1,161	1,072
Consumer Tissue	4,084	4,450	900	1,023	1,010	1,151	1,190	1,110
Professional Hygiene	4,004	3,836	1,344	1,023	917	720	1,059	1,060
Other	-620	-577	-164	-170	-104	-182	-215	-128
Total adjusted EBITA	13,405	11,992	3,619	3,432	3,437	2,917	3,195	3,114

ADJUSTED OPERATING PROFIT (business area reporting)

SEKm	1712	1612	2017:4	2017:3	2017:2	2017:1	2016:4	2016:3
Personal Care	5,431	4,255	1,369	1,404	1,434	1,224	1,143	1,068
Consumer Tissue	4,078	4,382	899	1,022	1,008	1,149	1,173	1,093
Professional Hygiene	3,956	3,773	1,335	1,014	902	705	1,042	1,044
Other	-620	-577	-165	-169	-104	-182	-214	-129
Total adjusted operating profit1	12,845	11,833	3,438	3,271	3,240	2,896	3,144	3,076
Financial items	-1,182	-835	-337	-275	-304	-266	-265	-156
Profit before tax1	11,663	10,998	3,101	2,996	2,936	2,630	2,879	2,920
Tax	-2,191	-4,355	-26	-745	-761	-659	-1,096	-451
Net profit for the period2	9,472	6,643	3,075	2,251	2,175	1,971	1,783	2,469
1Excluding items affecting comparability before tax amounting to:	-940	-2,825	-21	-34	-476	-409	-688	-714
2Excluding items affecting comparability after tax amounting to:	-687	-2,401	-9	-29	-334	-315	-613	-597

ADJUSTED EBITA MARGIN (business area reporting)

%	1712	1612	2017:4	2017:3	2017:2	2017:1	2016:4	2016:3
Personal Care	14.6	12.7	14.2	14.9	14.9	14.5	13.3	12.8
Consumer Tissue	9.7	10.7	8.2	10.2	9.7	11.0	10.7	10.9
Professional Hygiene	15.0	14.8	19.7	15.4	13.4	11.3	15.3	15.8

STATEMENT OF PROFIT OR LOSS

SEKm	2017:4	2017:3	2017:2	2017:1	2016:4
Net sales	28,664	27,178	28,155	25,268	26,772
Cost of goods sold	-20,236	-18,949	-19,664	-18,050	-19,131
Items affecting comparability	35	28	-360	-212	-49
Gross profit	8,463	8,257	8,131	7,006	7,592
Sales, general and administration	-4,856	-4,835	-5,109	-4,330	-4,495
Items affecting comparability	-57	-64	-116	-109	-630
Share of profits of associates and joint ventures	47	38	55	29	49
Operating profit before amortization of acquisition-related intangible assets (EBITA)	3,597	3,396	2,961	2,596	2,516
Amortization of acquisition-related intangible assets	-181	-161	-197	-21	-51
Items affecting comparability	1	2	0	-88	-9
Operating profit	3,417	3,237	2,764	2,487	2,456
Financial items	-337	-275	-304	-266	-265
Profit before tax	3,080	2,962	2,460	2,221	2,191
Taxes	-14	-740	-619	-565	-1,021
Net profit for the period	3,066	2,222	1,841	1,656	1,170

INCOME STATEMENT PARENT COMPANY

SEKm	1712	1612
Other operating income	-933	0
Other operating expenses	367	0
Operating profit	-566	0
Financial items	2,247	0
Profit before tax	1,681	0
Untaxed reserve and tax	815	0
Net profit for the period	2,496	0

BALANCE SHEET PARENT COMPANY

SEKm	December 31, 2017	December 31, 2016
Intangible assets	0	0
Tangible assets	5	7
Financial assets	169,146	167,852
Total non-current assets	169,151	167,859
Total current assets	48,934	149
Total assets	218,085	168,008
Restricted equity	2,350	0
Unrestricted equity	75,735	74,986
Total equity	78,085	74,986
Untaxed reserves	1	0
Provisions	881	839
Non-current liabilities	41,709	23,006
Current liabilities	97,409	69,177
Total equity, provisions and liabilities	218,085	168,008

NOTES

1 ACCOUNTING PRINCIPLES

This year-end 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, 2017, Essity applies the following new or amended International Financial Reporting Standards (IFRS):

• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses
• Amendments to IAS 7: Disclosure Initiative

These amendments are not judged to have any material impact on the Group's or Parent Company's result of operations or financial position.

In other respects, the accounting principles and calculation methods applied correspond to those described in the 2016 Annual Report for SCA Hygiene AB.

At SCA's Annual General Meeting on April 5, 2017, it was decided to distribute the hygiene business. Accordingly, a review has been conducted in accordance with IFRS 8 Operating Segments. SCA Hygiene AB (now Essity AB (publ)) decided to divide operations into three segments, with Tissue being split into Consumer Tissue and Professional Hygiene. In addition, Personal Care will continue to form a separate segment and will also include, as of the second quarter 2017, the acquisition BSN medical, Medical Solutions, which is in line with how the new organization will be developed and managed in the future. Comparative periods have been restated in the corresponding manner.

SCA Hygiene AB (now Essity AB (publ)) has also decided to continue to present a function-based income statement, but increase the number of lines in the income statement by reporting amortization for acquisition-related intangible assets on a separate line, thereby making it easier to compare results with other companies irrespective of whether business activities are based on acquisitions or organic growth. In addition, the company has decided to introduce EBITA as a subtotal in the consolidated income statement, refer to Note 5 for further information.

Effects of new accounting policies

IFRS 15 Revenue from Contracts with Customers

The standard regulates revenue recognition and disclosure requirements relating to commercial agreements (contracts) 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. A project has been carried out that has examined the following areas: sales of services, variable and fixed discounts, inspection of agreements and when control has been transferred to the customer. In summary, the conclusion was drawn that the new standard will not have any material impact on the Essity Group's revenue recognition. Due to the non-material effects of the new standard, previous periods will not be restated.

IFRS 9 Financial Instruments

This is the new standard for financial instruments that will replace IAS 19. The standard came into effect on January 1, 2018. A project has been carried out focusing on the following areas: classification, measurement and documentation of financial liabilities and assets, adaptation of documentation relating to hedge accounting to the new regulations and calculation of effects in connection with the transition to a new model for recognizing anticipated credit losses (expected loss model). The conclusion was drawn that the new standard will not have any material impact on the Essity Group's reporting. Due to the insignificant effects of the new standard, previous periods will not be restated. During the fourth quarter of 2017, the project completed the preparations for the changes that came into effect in 2018. In the first quarter of 2018, Essity intends to report a non-recurring effect of SEK 9m in equity due to a changed calculation model for expected credit losses on trade receivables.

IFRS 16 Leasing

The new standard will be applied as of January 1, 2019. Essity has commenced preparations for transition to the new standard on January 1, 2019, and intends to implement system support in order to comply with the new requirements. The initial assessment is that the new standard will impact Essity insofar as all rental contracts for premises, vehicles and other large leasing objects will be recognized in the balance sheet.

2 RISKS AND UNCERTAINTIES

Essity's risk exposure and risk management are described on pages 25-31 of the 2016 SCA Hygiene AB Annual Report. 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.

Processes for risk management

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.

3 FINANCIAL INSTRUMENTS PER CATEGORY

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 1 level
December 31, 2017						1	2
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 Financial liabilities	591	434	157	-	-	-	591
Current financial liabilities	6,520	-	-	-	6,520	-	-
Non-current financial liabilities	47,605	16,292	-	-	31,313	-	16,292
Total liabilities	54,716	16,726	157	-	37,833	-	16,883
December 31, 2016
Derivatives	1,259	440	819	-	-	-	1,259
Non-current financial assets	82	-	-	82	-	82	-
Total assets	1,341	440	819	82	-	82	1,259
Derivatives Financial liabilities	705	576	129	-	-	-	705
Current financial liabilities	4,388	425	-	-	3,963	-	425
Non-current financial liabilities	31,277	16,021	-	-	15,256	-	16,021
Total liabilities	36,370	17,022	129	-	19,219	-	17,151

¹No financial instruments have been classified to level 3

The total fair value of the above financial liabilities is SEK 54,145m (36,719). 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.

The fair value of financial instruments is calculated based on current market quotations on the balance sheet date. The value of derivatives is based on published prices in an active market. The fair value of debt instruments is set using valuation models, such as discounting of future cash flows to quoted market interest rates for the respective durations.

4 ACQUISITIONS AND DIVESTMENTS

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 approximately EUR 1,321m. The acquisition is fully debt-funded. The transaction, which was subject to customary regulatory approvals, was closed on April 3, 2017.

A preliminary purchase price allocation is presented below specifying intangible assets in the form of customer relationships, brands, technologies and goodwill. The preliminary allocation may be adjusted after Essity has completed its valuation of BSN medical's brand strategy. Goodwill is justified by the synergies that arise as a result of BSN medical's leading market positions in attractive medical technology 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.

Since the acquisition date, BSN medical affected consolidated net sales by SEK 6,301m, adjusted EBITDA by SEK 1,331m and adjusted EBITA by SEK 1,150m.

Had the acquisition been consolidated from January 1, 2017, the estimated 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.

Purchase price allocation, BSN medical	Preliminary
SEKm
Intangible assets	13,472
Non-current assets	1,679
Current assets	3,161
Cash and cash equivalents	471
Net debt	-13,038
Provisions and other non-current liabilities	-4,278
Operating liabilities	-1,272
Net identifiable assets and liabilities	195
Goodwill	13,145
Non-controlling interests	-80
Consideration paid	13,260
Consideration paid	-13,260
Cash and cash equivalents in acquired operations	471
Effect on the Group's cash and cash equivalents (Consolidated cash flow statement)	-12,789
Acquired net debt excluding cash and cash equivalents	-13,038
Acquisition of operations including net debt taken over (Consolidated operating cash flow statement)	-25,827

5 Use of non-IFRS performance measures

During 2016, guidelines for Alternative Performance Measures (APMs) for companies with securities listed on a regulated market in the EU were issued by the European Securities and Markets Authority (ESMA). These guidelines are to be applied for APMs not supported under IFRS.

This year-end 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 IFRS measures may differ from similarly titled measures among other companies. SCA Hygiene's 2016 Annual Report describes the various IFRS performance measures that are used as a complement to the financial information that is presented in accordance with IFRS. A number of IFRS performance measures, such as EBITA, have been added since the Annual Report was published and these are described below. Tables are also presented that show how the performance measures have been calculated.

A number of financial performance measures and how these are used to analyze the company's objective are described below.

CALCULATION OF FINANCIAL PERFORMANCE MEASURES NOT INCLUDED IN IFRS FRAMEWORK

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 operating profit before amortization of acquisition-related intangible assets (EBITA) for the quarter multiplied by four as a percentage of capital employed for the two most recent quarters.	This is the 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 operating profit before amortization of acquisition related intangible assets (EBITA) for the quarter, excluding items affecting comparability, multiplied by four as a percentage of capital employed for the two most recent quarters.	This is the central ratio for measuring return on capital tied up in operations.
Operating profit before amortization of acquisition related intangible assets, EBITA	Calculated as operating profit after depreciation of tangible 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 of tangible 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.
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.

Non-IFRS performance measure	Description	Reason for use of the measure
Adjusted EBITA margin	Operating profit before amortization of acquisition-related intangible assets, excluding items affecting comparability, as a percentage of net sales for the period.	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 operating margin	Operating profit, excluding items affecting comparability, as a percentage of net sales for the period.	Adjusted operating margin is a key measure together with sales growth and capital turnover ratio for monitoring value creation.
Adjusted operating profit	Adjusted operating profit is calculated as operating profit before financial items and tax and 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.
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.
Earnings per share	Earnings for the period attributable to owners of the parent divided by number of shares.	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
Debt payment capacity	Debt payment capacity is expressed as cash earnings in relation to closing net debt.	A financial measure that shows the company's capacity to pay its debts.

Capital employed

SEKm	1712	1612
Total assets	147,016	114,284
-Financial receivables	-6,912	-6,973
-Non-current non-interest bearing liabilities	-8,650	-5,399
-Current non-interest bearing liabilities	-29,417	-27,159
Capital employed	102,037	74,753

SEKm	2017:4	2017:3	2017:2	2017:1	2016:4
Personal Care	39,447	38,219	39,363	14,051	13,665
Consumer Tissue	43,569	41,945	41,439	40,898	40,082
Professional Hygiene	20,034	19,274	20,272	20,915	21,253
Other	-1,013	-1,024	-671	-634	-247
Capital employed	102,037	98,414	100,403	75,230	74,753

Working capital

SEKm	1712	1612
Inventories	13,739	10,944
Accounts receivables	17,607	15,843
Other current receivables	2,549	2,390
Accounts payables	-14,748	-12,972
Other current liabilities	-12,569	-11,863
Adjustments	-677	-199
Working capital	5,901	4,143

Net debt

SEKm	1712	1612
Surplus in funded pension plans	1148	335
Non-current financial assets	552	717
Current financial assets	1,105	1,677
Cash and cash equivalents	4,107	4,244
Financial receivables	6,912	6,973
Non-current financial liabilities	47,637	31,299
Provisions for pensions	4,541	5,273
Current financial liabilities	7,201	5,574
Financial liabilities	59,379	42,146
Net debt	52,467	35,173

EBITA

SEKm	1712	1612	2017:4	2016:4
Operating profit	11,905	9008	3417	2456
-Amortization of acquisition-related intangible assets	560	159	181	51
-Items affecting comparability, amortization of acquisition-related intangible assets	85	180	-1	9
-Operating profit before amortization of acquisition-related intangible
assets/EBITA	12,550	9,347	3,597	2,516
EBITA margin (%)	11.5	9.2	12.5	9.4
-Items affecting comparability, cost of goods sold	509	532	-35	49
-Items affecting comparability, sales and administration costs	346	2,113	57	630
Adjusted EBITA	13,405	11,992	3,619	3,195
Adjusted EBITA margin (%)	12.3	11.8	12.6	11.9

Operating cash flow

SEKm	1712	1612	2017:4	2016:4
Personal Care
Operating cash surplus	7,238	5,314	1,948	1,432
Change in working capital	-237	289	81	120
Current capital expenditures, net	-1,282	-805	-556	-331
Restructuring costs, etc.	-266	-75	-33	-78
Operating cash flow	5,453	4,723	1,440	1,143
Consumer Tissue
Operating cash surplus	6,163	6,455	1,443	1,711
Change in working capital	-425	891	115	622
Current capital expenditures, net	-1,749	-1,892	-457	-918
Restructuring costs, etc.	-139	-255	-7	-107
Operating cash flow	3,850	5,199	1,094	1,308
Professional Hygiene
Operating cash surplus	5,649	5,515	1,745	1,505
Change in working capital	73	-30	189	261
Current capital expenditures, net	-719	-1,267	-167	-494
Restructuring costs, etc.	-592	-83	-144	6
Operating cash flow	4,411	4,135	1,623	1,278

Organic sales

SEKm	1712	2017:4
Personal Care
Organic sales	586	263
Currency effect*	48	-283
Acquisition/Disposals	6,301	2,139
Reported change	6,935	2,119
Consumer Tissue
Organic sales	231	93
Currency effect*	223	-183
Acquisition/Disposals	0	0
Reported change	454	-90
Professional Hygiene
Organic sales	411	151
Currency effect*	137	-264
Acquisition/Disposals	150	0
Reported change	698	-113
Essity
Organic sales	1,169	482
Currency effect*	406	-730
Acquisition/Disposals	6,452	2,139
Reported change	8,027	1,891

*Consists only of currency translation effects