Progress in many areas during a challenging year
In 2018, we strengthened our brands through successful innovations, improved our product mix, implemented price increases and intensified efficiency improvements and restructuring measures. We took actions in all parts of the business to increase profitability and offset the negative impact on earnings of the significantly higher raw material and energy costs. The work to contribute to a sustainable and circular society was rewarded. We qualified for inclusion in the Dow Jones Sustainability Index and were named industry leader in the Household Products sector. External factors made 2018 a challenging year, but with a strong customer focus and hard work we strengthened the business for the future.
In 2018, organic net sales increased 2.6%. In emerging markets, which accounted for 35% of net sales, the increase was 5.9%. The adjusted EBITA margin1) declined 1.4 percentage points to 10.9%. Price increases, improved product mix, volume growth and cost savings enabled us to offset a large share of the higher raw material and energy costs, which had a negative impact on the margin of 4.2 percentage points.
1) Excluding items affecting comparability.
Measures to increase profitability
We continued to invest in our strong brands and improved our product mix through innovations. During the year, we implemented price increases in all business areas and further price increases are anticipated in 2019. We intensified our efficiency improvements and restructuring of the business and achieved SEK 1,040m in cost savings during the year. These cost savings were primarily a result of measures as part of Tissue Roadmap, operational efficiency improvements, material rationalizations and sourcing savings. To improve profitability and strengthen long-term cost efficiency, a Group-wide cost-savings program was launched in 2018. We also made changes to the company’s organizational structure and Executive Management Team.
Innovation for increased customer and consumer value
With a focus on our customers and consumers, we launched successful innovations in all product categories, which strengthened our brands and market positions. Within Incontinence Products, with our globally leading TENA brand we, for example, improved our offering with TENA Complete™, a high-quality and cost-efficient incontinence product that represents an improvement for both users and caregivers. In the retail trade, we launched TENA Men and lights by TENA with higher absorption, better fit and discretion. Within Medical Solutions, we launched Cutimed® Siltec® Sorbact®, a dressing for chronic wounds. With our globally leading Tork brand, we launched in Professional Hygiene our new Tork Reflex® paper dispenser. Within Consumer Tissue, we launched Lotus Moltonel Sans Tube, our first coreless toilet paper.
“Poor hygiene and sanitation constitute a barrier for the health, livelihood, well-being, and development of millions of people. Our vision is: Dedicated to improving well-being through leading hygiene and health solutions.”
With the TENA brand, Essity is the global market leader in incontinence products.
Digitalization in all parts of the business
For Essity, digitalization offers many opportunities to optimize and develop all parts of our value chain. In 2018, we robotized and automated processes to improve product quality and efficiency in production, administration and logistics. We are working to develop digital solutions that improve our offering to customers and consumers. Our online sales increased in 2018. Together with the retail trade and e-commerce, we are developing and strengthening our presence in this channel. The target is to have at least the same market share online as offline in all markets and for all product categories.
With a vision of improving well-being
Poor hygiene and sanitation constitute a barrier for the health, livelihood, well-being, and development of millions of people. Our vision is: Dedicated to improving well-being through leading hygiene and health solutions. In 2018, hundreds of millions of people across the world used our products every day and we educated approximately 2.5 million people in hygiene and health during the year. Knowledge is the key to improved hygiene and health, at the same time as this creates business opportunities for us. Through our business model, we also contribute toward the UN Sustainable Development Goals (SDGs) and we were the convening partner for the United Nations Foundation Global Dialogue concerning these goals. Essity supports the UN Global Compact.
We develop products and services that contribute toward a sustainable and circular society in order to be relevant both today and in the future. One important aspect of this is to offer products and services that help customers and consumers reduce their environmental impact. We endeavor to reduce resource consumption and enable efficient recycling of our products. To achieve this, we need innovation and collaboration. Our Tork PaperCircle™ innovation, the world’s first recycling service for paper hand towels, is one example. In 2018, our new targets to reduce greenhouse gas emissions were approved by the Science Based Targets initiative. This means that our climate commitment supports the Paris Agreement’s target to keep global warming below 2 degrees Celsius.
Developing our employees and corporate culture
Health and safety is a top priority for Essity. Essity’s aim is zero workplace accidents and we are working continuously to nurture a culture where safety is a top priority and where unsafe working conditions and behaviors are immediately reported and resolved. During the year, we updated our Code of Conduct, which describes how we conduct our operations in a responsible manner and helps our employees make correct decisions in their day-to-day work. We conducted our first employee survey as Essity. The survey shows strong employee engagement with particularly high scores in areas such as collaboration, results orientation, team spirit, health and safety.
We prioritize growth in product categories where we have the highest margins, meaning that Incontinence Products, Medical Solutions, Feminine Care and Professional Hygiene are to account for an increasing share of Essity’s net sales in the future. In Consumer Tissue and Baby Care, our priority is to improve margins. In addition to organic growth, our ambition is to grow through acquisitions. One prioritized area for acquisitions is Medical Solutions, a product category with favorable growth opportunities and high margins, where we – through the acquisition of BSN medical – have created a growth platform that we aim to grow both organically and through acquisitions.
Our ambition is to improve the well-being of 2 billion people every day by 2030. We plan to achieve this through our unique knowledge and insight about the needs of customers and consumers and our ability to transform this into innovative offerings that increase well-being and simplify everyday life for people, regardless of where you live in the world.
President and CEO