B1. Net sales – revenues from contracts with customers

AP KAA Accounting policies and key assessments and assumptions

Essity applies IFRS 15 Revenue from Contracts with Customers that regulates revenue recognition and disclosure requirements for commercial agreements (contracts) with customers. The standard pertains to commercial agreements with customers in which delivery of goods/services is divided into separately identifiable performance obligations that are recognized independently.

Revenue recognition

Essity primarily generates revenues from the sale of finished products to, for example, the retail sector, industries and the healthcare sector. Revenue from sales of services occurs to a certain extent but only accounts for a small portion of the Group’s sales. Essity’s operations and sales are divided into various segments that sell different products in several regions. The product portfolio is diversified but the principles for revenue recognition are the same for all segments. For a description of the products, see the section on Essity’s three business areas, Personal Care, Consumer Tissue and Professional Hygiene. Essity’s contracts with customers primarily comprise framework agreements without established minimum volumes, which means that a binding contract according to IFRS 15 criteria does not arise until the customer places an order.

Performance obligations and timing of revenue recognition

Essity’s performance obligations in the contracts involve providing the goods specified in the contracts. The performance obligations are satisfied and the revenue recognized when control of the products is passed to the customer. The timing of when control is passed to the customer is determined by the delivery terms (Incoterms) applied in the contract. For most supply contracts, control is passed when the goods have been delivered to the customer’s warehouse and the customer thereby can control the use and receive the benefits of the goods. Invoicing is normally done in connection with, or directly after, delivery and recognized at a specific point in time, no revenue is recognized over time. Essity has chosen to apply the practical expedient in IFRS 15 not to disclose the remaining performance obligations that have a term of less than one year.

Determination of transaction price

The transaction price primarily comprises the fixed price of the quantity sold less estimated volume discounts. Marketing subsidies and discount coupons that reduce Essity’s recognized revenue exist to only a very limited extent.

The outcome of volume discounts is continuously assessed over the year and reduces recognized revenues in parallel with a provision being made that includes the estimated discount rate for each customer. At year end, the final volume discounts are determined on the basis of the actual sales volume and the provision is reduced in the following year when the discount is credited to the customer. Marketing subsidies entail that the customer receives a discount for carrying out marketing activities. In certain cases, Essity reimburses customers in the retail sector in accordance with contracts for loss of income due to discount coupons used by consumers. The probable outcome of used discount vouchers and thus discounts provided during the reporting period is assessed and revised every time the accounts are closed. Customers have only limited rights to return products and past volumes of return products are low. Essity essentially grants customers no right of return except when the products are faulty. When the right arises to return goods sold, a liability is recognized for the repayment that is expected to be made and an asset is recognized for the right to recover the goods. Past experience is used to estimate the share of returns at the time of sale and revenue is only recognized for products that are not expected to be returned. The total transaction price is estimated at the amount that Essity deems will accrue to the company when the contract is signed with respect to volume discounts and any marketing subsidies, discount vouchers and returns. The transaction price is updated if the conditions forming the basis of the estimate have significantly changed.

Trade receivables

Once the goods and services have been delivered and control has been passed to the customer, a trade receivable is recognized since this is the point in time when the consideration becomes unconditional (only the passage of time is required for payment to be made).

Contract liabilities

Contract liabilities pertain to liabilities for volume discounts and advance payments from customers. Both items are recognized under Other current liabilities. Advance payments from customers are normally recognized as revenue in the subsequent fiscal year.

Assets that have arisen from expenses to fulfill contracts with customers

In the Professional Hygiene business area, Essity supplies dispensers to customers to fulfill contracts for delivery of the business area’s other products. Expenses for these dispensers are recognized as prepaid expenses under Other non-current assets since Essity expects to cover these expenses through the sale of the business area’s other products. The dispensers are depreciated over three years according to the average term of the contract with customers. Recognition takes place in accordance with the rules in IFRS 15 since the expense is directly linked to securing contracts with customers. The rules on Property, Plant and Equipment in IAS 16 and IAS 2 Inventories are not deemed to be applicable since there are no economic benefits associated with the dispenser after it has been delivered to the customer.

The tables below show consolidated net sales broken down by operating segment: Personal Care, Consumer Tissue and Professional Hygiene.

Net sales in geographic markets reflects the perspective – sold to, which is based on sales to the countries where Essity has its customers, known as its “footprint.” See Note B2 Segment reporting for further information.

SEKm

Personal
Care

Consumer
Tissue

Professional
Hygiene

Other
operations

Total
Group

2019

 

 

 

 

 

Revenue from contracts with customers

 

 

 

 

 

Sale of finished products

48,325

49,904

30,726

0

128,955

Sale of services

15

 

5

 

20

IS Total revenues from contracts with customers

48,340

49,904

30,731

0

128,975

 

 

 

 

 

 

Geographic markets

 

 

 

 

 

Europe

27,417

29,880

13,322

 

70,619

North America

5,173

5

13,158

 

18,336

Latin America

8,869

5,946

1,816

 

16,631

Asia

5,007

13,902

2,178

 

21,087

Other

1,874

171

257

0

2,302

IS Total revenues from contracts with customers

48,340

49,904

30,731

0

128,975

 

 

 

 

 

 

Product category

 

 

 

 

 

Incontinence Products

21,205

 

 

 

21,205

Baby Care

9,183

 

 

 

9,183

Feminine Care

8,361

 

 

 

8,361

Medical Solutions

8,936

 

 

 

8,936

Consumer Tissue

 

49,904

 

 

49,904

Professional Hygiene

 

 

30,731

0

30,731

Other

655

 

 

 

655

IS Total revenues from contracts with customers

48,340

49,904

30,731

0

128,975

SEKm

Personal
Care

Consumer
Tissue

Professional
Hygiene

Other
operations

Total
Group

2018

 

 

 

 

 

Revenue from contracts with customers

 

 

 

 

 

Sale of finished products

45,333

45,125

28,011

16

118,485

Sale of services

9

 

6

 

15

IS Total revenues from contracts with customers

45,342

45,125

28,017

16

118,500

 

 

 

 

 

 

Geographic markets

 

 

 

 

 

Europe

26,327

28,107

12,383

 

66,817

North America

4,788

22

11,837

 

16,647

Latin America

7,933

5,207

1,575

 

14,715

Asia

4,611

11,624

1,935

 

18,170

Other

1,683

165

287

16

2,151

IS Total revenues from contracts with customers

45,342

45,125

28,017

16

118,500

 

 

 

 

 

 

Product category

 

 

 

 

 

Incontinence Products

19,355

 

 

 

19,355

Baby Care

9,079

 

 

 

9,079

Feminine Care

7,506

 

 

 

7,506

Medical Solutions

8,578

 

 

 

8,578

Consumer Tissue

 

45,125

 

 

45,125

Professional Hygiene

 

 

28,017

 

28,017

Other

824

 

16

840

IS Total revenues from contracts with customers

45,342

45,125

28,017

16

118,500

SEKm

Personal
Care

Consumer
Tissue

Professional
Hygiene

Other
operations

Total
Group

1)

Comparative data is prepared according to previous accounting principles.

20171)

 

 

 

 

 

Revenue from contracts with customers

 

 

 

 

 

Sale of finished products

40,580

42,014

26,696

–35

109,255

Sale of services

6

 

4

 

10

IS Total revenues from contracts with customers

40,586

42,014

26,700

–35

109,265

 

 

 

 

 

 

Geographic markets

 

 

 

 

 

Europe

23,532

26,439

11,422

 

61,393

North America

4,200

38

12,122

 

16,360

Latin America

7,077

4,916

1,423

 

13,416

Asia

4,224

10,474

1,513

 

16,211

Other

1,553

147

220

–35

1,885

IS Total revenues from contracts with customers

40,586

42,014

26,700

–35

109,265

 

 

 

 

 

 

Product category

 

 

 

 

 

Incontinence Products

17,885

 

 

 

17,885

Baby Care

8,906

 

 

 

8,906

Feminine Care

6,658

 

 

 

6,658

Medical Solutions

6,301

 

 

 

6,301

Consumer Tissue

 

42,014

 

 

42,014

Professional Hygiene

 

 

26,700

 

26,700

Other

836

 

 

–35

801

IS Total revenues from contracts with customers

40,586

42,014

26,700

–35

109,265

Trade receivables and contractual liabilities

SEKm

Note

2019

2018

2017

TE3:1 Trade receivables

E3

19,864

18,687

17,607

Contractual liabilities – bonuses and discounts to customers

D5

6,038

5,269

4,829

Contractual liabilities – advance payments from customers

 

157

96

99

Trade receivables decreased by SEK 135m compared with 2018 due to the divestment in Turkey but increased overall by SEK 1,177m in 2019 in line with rising sales. With reference to bonuses and discounts to customers in the comparative years 2018 and 2017, amounts were corrected compared with the annual accounts for 2018 by SEK +496m and SEK +428m, respectively. See Note D5.

Assets that have arisen from expenses to fulfill contracts with customers

SEKm

2019

2018

2017

TE3:2 Value, January 1

538

484

506

Costs for the year

408

358

351

Depreciation

–377

–344

–328

Translation differences

16

40

–45

Value, December 31

585

538

484