Essity: Interim Report Q3 2018

STOCKHOLM, Oct. 29, 2018 /PRNewswire/ -- JANUARY 1 – SEPTEMBER 30, 2018

(compared with the corresponding period a year ago) 

• Net sales increased 8.4% to SEK 87,388m (80,601)
• Organic net sales, which exclude exchange rate effects, acquisitions and divestments, increased 2.4%
• Organic net sales increased 2.8%, excluding the lower sales of mother reels due to production closures
• Operating profit before amortization of acquisition-related intangible assets (EBITA) declined 10% to SEK 8,085m (8,953)
• Adjusted operating profit before amortization of acquisition-related intangible assets (adjusted EBITA) decreased 3% to SEK 9,484m (9,786)
• Higher raw material and energy costs had a negative impact of SEK 3,268m on earnings
• Adjusted EBITA margin decreased 1.2 percentage points to 10.9% (12.1)
• Adjusted profit before tax decreased 6% to SEK 8,026m (8,562)
• Profit for the period decreased 14% to SEK 4,935m (5,719)
• Earnings per share decreased 14% to SEK 6.38 (7.44)
• Adjusted earnings per share decreased 5% to SEK 8.35 (8.77)
• Cash flow from current operations decreased 6% to SEK 5,714m (6,055)
• During the third quarter a Group-wide cost-savings program was launched. The expected annual cost savings amount to approximately SEK 900m.  

SUMMARY OF THIRD QUARTER OF 2018

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:

• We continue to invest in our strong brands and launched 13 innovations during the quarter that strengthened our customer and consumer offering.
• Within Consumer Tissue, we have initiated negotiations regarding further price increases that are primarily expected to impact 2019. For some contracts in Europe, additional price increases have already been implemented with gradual effect in the fourth quarter of 2018. Activities to increase prices are also ongoing in Personal Care and Professional Hygiene.
• We are intensifying our efficiency improvements and restructuring of the business. We have decided on further restructuring measures as part of "Tissue Roadmap" and are continuing our work with "Cure or Kill".
• During the quarter, we launched a Group-wide cost-savings program that is in addition to the ongoing efficiency activities in the company. 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 approximately SEK 900m, with full effect at the end of 2019. The program includes headcount reductions of 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.
• To strengthen competitiveness and increase efficiency, we are also making changes to the company's organizational structure and Executive Management Team. The two units, Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care, will be merged into one unit under the name Global Manufacturing with responsibility for production and technology. A new unit under the name Global Operational Services will be created with the purpose to further strengthen the Group's overall work related to operational and cost efficiency. The unit will encompass sourcing, logistics, business services and digitalization. The number of corporate functions will be reduced from six to four.

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.

INVITATION TO PRESS CONFERENCE ON INTERIM REPORT Q3 2018Media 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

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

Per Lorentz
Vice President Corporate Communications
+46-8-788-52-51

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 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

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SOURCE Essity