Highest profits ever
During 2020, the COVID-19 pandemic had a major impact on people and the global economy. Essity has had three priorities: care for our people, contribute to society and secure business success. COVID-19 and related lockdowns and restrictions had a negative impact on Essity’s sales. Nonetheless, in 2020, Essity achieved its highest operating profit (EBITA) and its highest EBITA margin ever. Vaccinations have started and market conditions will gradually improve. As a company, we are emerging from this stronger. Our vision to improve well-being through leading hygiene and health solutions is more important than ever.
Higher return target and dividend
In 2020, we achieved the target for adjusted return on capital employed and, accordingly, the target was raised to above 17% by 2025. This target will be achieved through continued focus on profitable growth, accelerated digital transformation and further efficiency improvement of sourcing, production, logistics and distribution.
The original dividend proposal for the 2019 fiscal year was withdrawn in the spring of 2020 as a consequence of the major uncertainty surrounding COVID-19. Since Essity displayed continued strong cash flow, a robust balance sheet and financial flexibility in 2020, a resolution was passed at an Extraordinary General Meeting in October to pay a dividend of SEK 6.25 per share. The Board of Directors proposes an 8% increase in the dividend to SEK 6.75 per share for the 2020 fiscal year.
Innovative offerings and medical technology acquisitions
2020 was a strong year of innovation for Essity. We are making use of sensors and new technology to deliver digital solutions that simplify and improve everyday life for customers and consumers. During the year, TENA SmartCare was launched, a reusable sensor that can easily be attached to the outside of a TENA product and notifies the caregiver or family member via an app when the product needs to be changed. COVID-19 has placed higher demands on hygiene and health and we have strengthened our offering to help people to manage the new challenges of everyday life. For example, we broadened our offering to include face masks and increased supply capacity for hand sanitizer.
Acquisitions are one way of further broadening our offering. Through the acquisition of medical solutions company ABIGO Medical AB, Essity owns the unique Sorbact® technology for advanced wound care. We also acquired Novioscan, which is developing a wearable ultrasound sensor for the bladder and provides the user with a discrete notification via an app when it is time to visit the bathroom.
Digitalization and efficiency
We have been investing in digitalization in all areas of the business for several years. From increased automation and robotization of production, logistics and administration to digital offerings and a strong platform for e-commerce. These investments were a major contributing factor to Essity’s high level of delivery reliability during the pandemic. We had the infrastructure in place for the rapid shift to a more digital world. We are now increasing our digital initiatives and investing in a new digital platform. This investment is expected to increase our sales through an even better customer and consumer experience in the form of enhanced flexibility, speed and accessibility. It also enables further efficiency enhancement of sourcing, production, logistics and distribution, which is expected to lead to cost savings and a reduced need for working capital. The initiative goes hand in hand with our new Manufacturing Roadmap program with the aim of optimizing and streamlining all of Essity’s approximately 60 wholly owned facilities for world-class cost efficiency, quality and service levels.
Higher market shares and increased e-commerce sales
Through high delivery reliability, successful product launches and strong brands, in addition to increased activity and a strengthened presence in digital sales channels, we have gained market shares for more than 60% of our branded positions in the retail trade. Increasing numbers of people have started to shop online during the pandemic, which has favored Essity’s strong brands. The Group’s e-commerce sales increased to approximately SEK 15bn, corresponding to approximately 13% of net sales.
Increased sales and profitability in emerging markets
We have a strong presence in China, Southeast Asia, Latin America, Eastern Europe and Russia. In emerging markets, which accounted for 37% of net sales, organic net sales increased by 2.6%. In addition, the adjusted EBITA margin increased 2.7 percentage points to 12.9%. Our ambition is that emerging markets will continue to grow as a share of net sales and earnings.
Our employees have shown an amazing commitment and ability to quickly adapt to help raise the global hygiene and health standard and position Essity for future growth.
Highest operating profit and margin ever
In 2020, Essity achieved its highest operating profit (EBITA) and its highest EBITA margin ever. This was the result of successful product launches under our strong brands, higher market shares, improved profitability in emerging markets, lower raw material and energy costs, continued efficiency and digitalization of the business, as well as reduced resource consumption. Continuous cost savings amounted to SEK 1.1bn. Adjusted EBITA increased 11% and amounted to SEK 17,626m, while the adjusted EBITA margin rose 2.2 percentage points to 14.5%. The adjusted return on capital employed rose by 1.9 percentage points to 15.7%. Earnings per share increased 11% to SEK 14.56.
As a result of the COVID-19 pandemic and the related lockdowns and restrictions, Essity’s organic net sales declined 1.9% in 2020 and net sales amounted to approximately SEK 122bn. Organic net sales in the retail trade increased 3.4%. For Professional Hygiene and Personal Care, the lockdowns and restrictions led to a temporary decrease in demand. Demand for Consumer Tissue, however, was positively impacted by the fact that consumers were spending more time at home. The requirements for high hygiene standards at home and outside the home have increased, which is positive for the demand for our solutions. During the year, for example, we saw higher demand for our offerings of soap, hand sanitizer and dispensers. In Medical Solutions, we improved our underlying growth.
In our efforts to reduce climate impact, Essity strives to raise the share of recycled and renewable materials, increase the recycling of products, and launch more products that can be reused. One example of this is our launch of washable absorbent underwear during the year. Under “Pure Natural”, toilet paper, handkerchiefs and facial tissues were launched with an extra soft quality. The tissue is made of certified fiber, of which about 30% is unbleached. The plastic packaging is recyclable and 30% of it is made from recycled plastic.
We are working to achieve a world-class sustainable value chain with three focus areas: reduce the use of fossil fuels and electricity, improve product design and optimize resource utilization. Our targets to reduce carbon emissions are approved by the Science Based Targets initiative and, between 2016 and 2020, we reduced our Scope 1 and 2 carbon emissions by 11%. During 2021, we are starting the production of tissue from wheat straw at our facility in Mannheim, Germany. It is a good example of ground-breaking production that generates a significantly lower climate impact while retaining quality.
Essity is working actively to identify and minimize climate-related risks. We report our conclusions based on the recommendations in TCFD in the chapter Climate-related risks and opportunities. We have also extended our sustainability reporting to comply with the SASB Household & Personal Products Standard.
Sustainability awards and the UN SDGs
In 2020, Essity was included in the Dow Jones Sustainability Europe Index, one of the world’s most prestigious sustainability indexes, in the Household Products category and secured a place on the CDP’s prestigious ‘A List’ for the company’s action to tackle deforestation and to source more sustainable commodities. Essity has also been recognized as one of the world’s 100 most sustainable companies by Corporate Knights.
Essity was a convening partner to the United Nations Foundation’s annual Global Dialogue, where we discussed with our customers how we can contribute to the UN Sustainable Development Goals (SDGs). We support the UN Global Compact.
Diversity and cooperation our strength
In 2020, our employees showed an amazing commitment and ability to quickly adapt to deliver our important solutions to customers and consumers and to help raise the global hygiene and health standard and position Essity for future growth. By applying rapid and concrete measures and delegated responsibility, we quickly found a way to protect our employees’ health, while also maintaining production. The strong earnings reported for 2020 is confirmation of the competent and professional organization we have. I am proud of the culture we have at Essity, where each individual is important, as is the cooperation between us. We value and work to promote increased diversity and inclusion. It makes us stronger when we are different and contribute our unique expertise, background and experience.
Priorities in 2021
Vaccinations have started and market conditions will gradually improve. In 2021, we will work to accelerate growth in Personal Care and prepare for a strong comeback in Professional Hygiene. Within Consumer Tissue, work is continuing to improve structural profitability. Continued digital transformation, the Manufacturing Roadmap and further acquisition opportunities support our strategy for profitable growth. We will continue to lead in the area of sustainability and contribute to the UN Sustainable Development Goals. Together, we make improvements for people and the environment, and create value for our shareholders, customers, consumers, society and employees.
President and CEO