B1. Segment reporting

AP Accounting principles

Operating segments are recognized in a manner that complies with the internal reporting submitted to the chief operating decision maker. The chief operating decision maker is the function that is responsible for allocating resources and assessing the result of the operating segments. At Essity, this function has been identified as the company’s President, who is responsible for and manages the day-to-day administration of the Group in accordance with the Board’s guidelines and terms of reference. One Executive Vice President and the Executive Management Team support him in his work. Essity’s three business areas, Personal Care, Consumer Tissue and Professional Hygiene, comprise the operating segments. For management purposes, the Group is organized into business areas based on their products. Personal Care’s offering includes Incontinence Products, Baby Care, Feminine Care and Medical Solutions. Products are sold under brands including Jobst, Leukoplast, Libero, Libresse, Nosotras, Saba and the globally leading brand TENA, and as retailers’ brands. Distribution channels for the products are the retail trade, online sales, pharmacies and care institutions. Consumer Tissue’s offering includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Products are sold under brands including Edet, Lotus, Regio, Tempo, Vinda and Zewa, and as retailers’ brands. Distribution channels for the products are the retail trade and online sales.

Professional Hygiene’s offering, with the globally leading brand Tork, comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand lotion, hand sanitizers, dispensers, cleaning and wiping products, IoT sensor technology as well as service and maintenance. Professional hygiene customers consist of companies and office buildings, universities, healthcare facilities, industries, restaurants, hotels, stadiums and other public venues. Distribution channels for the products consist of distributors and online sales.

Essity’s business is an integrated operation in the form of a matrix organization with four business units (Health and Medical Solutions, Consumer Goods, Latin America and Professional Hygiene) and three global units (Global Hygiene Category, Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care). The business units have limited responsibility to impact operational costs, since the global units are responsible for production, planning, technology development, purchasing and product development. Accordingly, the business unit manager’s main tasks are to address the markets from a sales perspective.

No business segments were aggregated to form the aforementioned segments.

The President monitors the operating profit for the business areas separately in order to make decisions regarding the allocation of resources and how performance targets were achieved. The segments are evaluated based on the income statement and are measured in the corresponding manner as for the income statement in the consolidated accounts.

The tables below show parts of the consolidated balance sheet and income statement broken down by operating segment: Personal Care, Consumer Tissue and Professional Hygiene.

Operating segments: Essity is a leading global hygiene and health company that improves people’s well-being through our products and solutions in the Personal Care, Consumer Tissue and Professional Hygiene business areas. Personal Care’s offering includes Incontinence Products, Baby Care, Feminine Care and Medical Solutions. Consumer Tissue’s offering includes toilet paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. Professional Hygiene’s offering comprises complete hygiene solutions, including toilet paper, paper hand towels, napkins, hand soap, hand lotion, hand sanitizers, dispensers, cleaning and wiping products, IoT sensor technology as well as service and maintenance. Other operations comprise Group-wide functions and non-allocated tax.

Assets and liabilities: The assets included in each operating segment comprise all operating assets used in the operating segment, primarily trade receivables, inventories and non-current assets after deduction for operating liabilities and provisions. Most of the assets are directly attributable to each operating segment. Assets that are common to two or more operating segments are allocated among the operating segments.

Intra-Group deliveries: Revenues, expenses and results for the various operating segments were affected by intra-Group deliveries. Internal prices are market-based. Intra-Group deliveries are eliminated when preparing the consolidated financial statements.

Customers: Essity had no customers in 2017, 2016 or 2015 from which it generated income that accounts for more than 10% of the company’s net sales. Essity’s ten largest customers account for 22.9% (26.6; 26.4) of the company’s sales.