Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Essity AB (ETTYF, Financial) achieved its highest EBITDA operating result to date, with a 17% increase, reaching SEK 3.4 billion.
- The company announced a share buyback program amounting to SEK 3 billion, indicating strong operating cash flow.
- Health and Medical segment showed strong development with organic sales growth of 4.5%, driven by both volume and price/mix improvements.
- Consumer goods segment saw higher volumes in all categories, with incontinence products retail increasing by 9.7%.
- Professional Hygiene segment reported higher EBITDA margin and positive volume growth excluding restructuring impacts.
Negative Points
- Organic sales growth was slightly down by 0.9%, indicating some challenges in maintaining sales momentum.
- Consumer Tissue experienced a negative price mix of 4.5%, impacting overall organic sales growth in the consumer goods segment.
- The company faces a subdued consumer environment with down-trading and a focus on savings, which could impact future sales.
- Raw material costs, particularly pulp, are expected to increase, potentially putting pressure on margins in the coming quarters.
- Professional Hygiene segment's organic sales growth was down by 3.9%, with volumes negatively impacted by restructuring.
Q & A Highlights
Q: On the EBITDA bridge for Q2, can you help us understand the benefit from energy and raw materials?
A: The benefit from energy was SEK460 million, and lower raw material costs contributed over SEK900 million. The remaining part was cost savings of close to SEK400 million.
Q: Regarding the over 15% adjusted EBITDA margin target, do you see scope for overshooting that level?
A: Achieving over 15% adjusted EBITDA margin is ambitious. We haven't set a specific date for this target, but in the medium to long term, we aim to be above 15%. The current 14.7% margin is strong, but achieving above 15% consistently will be challenging.
Q: Can you explain the pricing dynamics in the second half, especially considering raw material inflation?
A: We are generally happy with our pricing and believe we can manage the price-cost gap going forward. In Consumer Tissue, we are negotiating price increases to compensate for rising input costs.
Q: What should we expect from the Capital Markets Day in December?
A: We plan to cover the entire company, including meeting our executive management team and discussing our new financial targets and innovations. More details will be provided closer to the event.
Q: Can you help us understand the impact of raw materials on the EBITDA deviation and the timing of price increases in Consumer Tissue?
A: Compared to last year, the impact from pulp was flat, but sequentially, pulp prices have increased significantly. We expect to see benefits from price increases in Consumer Tissue starting in Q3, with most of the impact in Q4.
Q: Given the increase in pulp prices, is there a risk of temporary margin pressure in H2?
A: Managing the price-cost gap is challenging, but we are confident in our ability to adapt pricing and mitigate the impact of rising input costs. However, there could be variations in margins over time.
Q: Any updates on the bond disputes?
A: There are no new updates beyond what has been previously communicated.
Q: Can you elaborate on the strong volume growth in health and medical and consumer goods?
A: The growth is driven by strong performance across all categories, particularly incontinence products and medical solutions. Investments in advertising and promotion, as well as improvements in our go-to-market strategies, have contributed to this growth.
Q: What is the current pricing environment outside of Consumer Tissue?
A: Outside of Consumer Tissue, we are generally satisfied with current pricing levels and do not see a need for major price increases. We focus on managing the price-cost gap and achieving better mix through innovation.
Q: Regarding Professional Hygiene, should we view the current margin level as the new normal post-restructuring?
A: The current high margins in Professional Hygiene are partly due to the restructuring, which improved our mix by shedding low-margin businesses. Our focus is on growing the high-margin strategic parts of the business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
