Half-year Report 2019

JANUARY 1 – JUNE 30, 2019
(compared with the corresponding period a year ago)

• Net sales increased 8.6% to SEK 62,724m (57,741)
• Organic net sales increased 4.1%
• Organic net sales increased 4.7%, excluding the lower sales of mother reels due to production closures
• In emerging markets, which accounted for 37% of net sales, organic net sales increased 9.6%
• Operating profit before amortization of acquisition-related intangible assets (EBITA) increased 5% to SEK 6,412m (6,080)
• Adjusted EBITA increased 7% to SEK 6,922m (6,468)
• Adjusted EBITA margin was 11.0% (11.2)
• Higher raw material and energy costs had a negative impact of SEK 1,300m on earnings
• Profit for the period increased 15% to SEK 4,430m (3,857)
• Earnings per share increased 15% to SEK 5.73 (4.98)
• Adjusted earnings per share increased 16% to SEK 6.60 (5.68)
• Cash flow from current operations increased to SEK 5,336m (1,855)

SUMMARY OF THE SECOND QUARTER OF 2019
During the quarter the Group continued to report strong organic net sales growth and the adjusted EBITA margin rose. The implemented price increases had a positive impact on both organic net sales growth and profitability.

Our investments in sales and marketing, primarily in Asia and Latin America, contributed to higher growth. In addition, we launched innovations that strengthened our customer and consumer offering and improved the product mix. For example, in China we re-launched Feminine Care with Libresse V-Comfort and invested in local production. In Incontinence Products, we strengthened our product offering in the healthcare sector with TENA ProSkin.

Efficiency efforts are according to plan and we have achieved significant cost savings. Our raw material and energy costs were higher during the quarter, although the market prices for such items as pulp are demonstrating a declining trend, albeit from a high level.

In terms of our ongoing activities to contribute to a sustainable and circular society, we have established additional sustainability targets for packaging with a special focus on plastic packaging. We have also decided to invest in sustainable alternative fiber technology for tissue production.

The Group’s net sales increased 7.9% in the second quarter of 2019 compared with the corresponding period a year ago. Organic net sales, excluding the lower sales of mother reels, increased 4.3%. Including the lower sales of mother reels, organic net sales increased 3.9%, of which volume accounted for 2.0% and price/mix for 1.9%. Organic net sales were positively impacted by a better price/mix and higher volumes in all business areas. In emerging markets, which accounted for 36% of net sales, organic net sales increased 9.9%, while the increase in mature markets was 0.7%.

The Group’s adjusted EBITA in the second quarter of 2019 increased 11% compared with the corresponding period a year ago. Earnings were positively impacted by higher prices and volumes as well as a better product mix and cost savings. Cost savings amounted to SEK 322m, of which SEK 147m was related to the Group-wide cost-savings program. The Group-wide cost-savings program is proceeding according to plan and at the end of the second quarter of 2019, the annual rate of savings was approximately SEK 690m. Higher raw material and energy costs had a negative impact of SEK -250m on earnings, which corresponds to a negative impact on the adjusted EBITA margin of -0.8 percentage points. Furthermore, stock revaluations, due to lower raw material prices, had a negative impact on earnings. Investments to increase growth entail higher sales and marketing costs, although these costs were lower as a proportion of net sales. Higher distribution costs had a negative impact on earnings. The Group’s adjusted EBITA margin increased 0.3 percentage points to 11.6%. The adjusted return on capital employed was 12.9%. Operating cash flow increased 105%, primarily related to operating cash surplus and changes in working capital. Earnings per share increased 12% to SEK 3.24.

INVITATION TO PRESENTATION OF HALF-YEAR REPORT FOR 2019
Media and analysts are invited to participate in a telephone and web presentation at which President and CEO Magnus Groth will present the report and respond to questions.

Presentation:
Date: Thursday, July 18, 2019
Time: 9:00 CET
Link to Web presentation: https://essity.videosync.fi/2019-07-18-q2
Telephone: +44 (0) 207 192 80 00, +1 631 510 74 95 or +46 (0) 8 506 921 80. Please call in well in advance of the start of the presentation. Indicate “Essity” or conference ID 2674069.

For further information, please contact:
Fredrik Rystedt, CFO and Executive Vice President, +46 (0) 8 788 51 31
Johan Karlsson, Vice President Investor Relations, Group Function Communications, +46 (0) 8 788 51 30
Joséphine Edwall Björklund, Senior Vice President, Group Function Communications, +46 (0) 8 788 52 34
Per Lorentz, Vice President Corporate Communications, Group Function Communications, +46 (0) 8 788 52 51

NB:
This information is such that Essity Aktiebolag (publ) is obligated to make public pursuant to the EU Market Abuse Regulation and the Securities Market Act. 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 07:00 CET on July 18, 2019. This interim report has been reviewed by the company’s auditors.

Karl Stoltz, Media Relations Manager, +46 (0) 8 788 51 55