Hello, welcome to Essity's Q1 interim report for 2018. I'm Joséphine Edwall-Björklund, head of communications for Essity, today our president and CEO, Magnus Groth, will go through the highlights in the report, followed by a Q&A session where also our CFO, Fredrik Rystedt, will join. With this, I hand over to you, Magnus.
Thank you, Joséphine, good morning. Organic net sales increased with 3.4%, the adjusted EBITA margin decreased 40 basis points due to significantly higher raw material costs, actually the biggest increase in raw material costs that we have ever seen in any single quarter. We have been speaking about increasing prices in Europe consumer tissue now for the last couple of quarters, can now confirm that we have achieved price increases in the first quarter that will have an impact starting in the second quarter, with full effect in the second half of the year. We continue to see a good contribution from efficiency improvements. Same level as last year, which we think is a good performance in the first quarter. Typically, this picks up throughout the year. Of course, we had very good savings last year, the comparison becomes more and more difficult.
BSN medical, performing very well. We are happy with the integration work, we see the synergies coming according to plan. Summary overview of the numbers. Net sales increased with 10.9%, BSN, of course, has a big contribution here. While the organic net sales also increased with 3.4%, organic net sales is picking up quarter-over-quarter. Adjusted EBITA plus 7%, also with good support from BSN, organic adjusted EBITA down 5%. However, just the raw material impact was minus 26%. Through cost savings, mix improvements, volume growth, we have been able to compensate for a large part of this raw material headwind, but not fully. Adjusted EBITA margin, as a consequence, down 40 basis points to 11.1%.
Operating cash flow is in line with what we have seen the last couple of years in the first quarter, with the exception of last year when we had a much higher operating cash flow. At that time, we made it clear that that was a one-time impact from a very positive development, one time positive development of working capital. This operating cash flow is very much in line with our plans and expectations. Looking more at the balance sheet. The adjusted return on capital employed was 11.9%, adjusted earnings per share SEK 2.61, with BSN medical contributing positively to earnings per share, again, as we stated at the time of the acquisition, we see that BSN is contributing positively, actually, in all lines of our P&L and balance sheet. Net sales.
The organic net sales had support both from price mix and volume. This is something that's a change from previous quarters. We are happy about that development even though price mix is the smaller part in this quarter. We could see a positive price mix in consumer tissue in Asia and in professional hygiene. That contributed well also in Latin America to a smaller extent. Volume developed well in many of our areas, but I'd like to point out personal care, we have an excellent volume development. Again, you can see how BSN is contributing there to our growth. The EBITA waterfall. The raw material big red box, I think, is what really stands out here. If it hadn't been for a positive currency impact, this would have been a negative of over SEK 1 billion.
The actual raw material impact is much bigger. In this amount of SEK 755 million, we have a negative impact in all raw materials. Not only pulp and fluff pulp, but also recycled fibers and oil-based materials. In all areas. Again, cost savings are in line with our expectations. It's a good start of the year when it comes to savings. Raw material development compared to one year ago. This shows the picture, and maybe more importantly, is that we always give an outlook for the coming quarter, so second quarter this year. As before, for all of our three business areas, we expect to see significantly higher raw material costs, both quarter over last year's quarter, and sequentially over quarter four. The development continues in this area. Innovations.
Four innovations, which is typically the pace we have in the first quarter, where we don't have that many product launches. Typically, we have most launches during the second and third quarters in the year. I'd like to focus on Lotus Moltonel. We believe that this is a breakthrough. The simple insight here is The consumer insight is that it's an effort to keep my home in order. That's the insight. One of these efforts is that toilet tissue typically has a tube inside. This product, Lotus Moltonel, and we have it here, is the first. There have been tubeless products before, but this is the first one where actually it really works, so that it's easy to put it on the holder, and it's also the first where you can use it until the last sheet.
A very nice innovation that we've been working with for several years, and that we're quite optimistic about. Of course, it takes time before innovations like this really have a big impact on the overall numbers. Showing that also in consumer tissue, there are things to do and improvement opportunities. That's one important innovation this quarter. Briefly about the three different business areas, starting with personal care, where organic net sales developed very positively at 4.5%, and equally from emerging and mature markets. We had a positive volume impact of 5.9%, continued price pressure leading to a negative price mix of 1.4%. This price pressure we see very much in incontinence care, but in most categories actually, also in Baby Care. You can see here from the bars, organic net sales was positive in all the different segments here.
Adjusted EBITA margin is down with 30 basis points to 14.2%. Also in personal care, we have headwinds from raw materials, and the impact overall was -150 basis points. Again, we were able to mitigate a significant part of that, but not all. BSN medical integration synergies according to plan. In the quarter, we had a higher adjusted EBITA margin in BSN than last year. This is part of now our integration work to, as always, we are looking for value-creating growth, so that if we have areas with less value creation, we focus on fixing that before volume. I think that's what you see in the quarter for BSN medical. A good performance. Continued price pressure in most of the categories. No change here and no letup in spite of higher raw material costs.
Consumer tissue, where organic net sales really turned a corner and was +3.9%. Again, both contributions from mature and emerging markets, and from volume and price mix in the quarter. Adjusted EBITA margin is down with 220 basis points to 8.8%. Again, the negative impact from raw materials, which has the highest impact in consumer tissue, was -490 basis points. A massive impact here. We were able to compensate this in numerous ways. Higher prices in Asia and Latin America. Higher sales in Europe due to higher volumes and mix. Of course, this also contributes to supporting the margin, even though we had lower prices, which are rolling over from price decreases that we took a year ago.
We did, and I can again confirm, achieve price increases in Europe that will have an impact starting in quarter two, but with full impact in the second half of the year. Good contributions from cost savings, and in this case, a combination of ongoing cost-saving initiatives, but also very much the further restructurings that we have announced and that I'm sure you've seen in different press releases regarding Chile and Spain, for instance, following tissue roadmaps. We are aggressively pursuing those objectives and following this map and, of course, accelerating our activities in a response to the difficult market environment. Professional hygiene, finally, had a slight organic net sales increase of 0.4%. As you can see from the bars, all of this comes from emerging markets, which continues to really develop in a good way. We found a working formula there.
While in mature markets, we had a negative growth of 2.1%. EBITA margin, on the other hand, increased in this business area. Of course, there's a connection here. We had lower volumes, especially in North America, and we have been quite ambitious in our price increase initiatives, of course, across the business, but also in professional hygiene. Maybe in North America, we were overambitious, which led to a negative volume impact. Of course, we are working now to correct that in the coming quarters. Again, we prioritize profitable growth, and sometimes this could be the outcome of such activities. As you can see there in the next bullet, we did achieve higher prices in North America and a better mix, both in North America and in Western Europe.
For professional hygiene, we have announced restructuring efforts according to tissue roadmap, specifically to create a Napkin Centre in Europe, which gives the possibility also to streamline and increase efficiency in numerous sites in Europe in the next year or two. That's another announcement we made here. To summarize, we have an improvement in top line in a very challenging market, very tough market conditions, both from an overall growth perspective, but also a competitive perspective. We were able to mitigate a large part of cost headwinds, mostly coming from raw materials. We have achieved price increases in consumer tissue in Europe, as we have previously been talking about, but that we can now confirm. BSN medical is developing in a good way. That was my summary. Thank you for listening. Joséphine?
Yes. Let's open up the Q&A session. Welcome on stage, Fredrik. Who want to start? Yes, Mikael.
Thank you, Mikael of Kepler Cheuvreux. Two questions. The first one is around the tissue roadmap that you mentioned. We've heard a lot about it, but could you please try to explain a little bit to us how far are you on this travel? Beginning, middle, end? I know it's very difficult to give sort of super detailed answers, but just for us to get an understanding. The other question would be around the organic sales growth in incontinence. Seems like you've lost some price there. If you could describe the competitive situation.
Fredrik.
Welcome on stage.
I'll start with the tissue roadmap, then maybe you can take the rest. It's really difficult because I think if we talk about tissue roadmap, as you know, we have three different parts. The first one is perhaps what you see the most is the restructuring part, where we leave inefficient production, typically small plants in non-integrated in perhaps the wrong locations. The other part relates to more the efficiency gains in every plant. We also have a third part, which is the more structural part. If you take the first one, the restructuring, we have done a lot as you know. We have shut down many different facilities, many different paper machines. I think it's fair to say that we've come a very long way in that restructuring part.
If you take the efficiency, which is part of getting all the plants up to a higher level, we still have a long way to go. We have actually come a good part. If you look at the savings here, the SEK 230, just in that part, product cost fixed is a significant portion. Of course that comes from these activities. We have a long way still to go. We've come a long way, lots of stuff to do in the coming years. Incontinence?
Incontinence. We speak sometimes about tender balance, however, we try to talk less about it in Incontinence Care, healthcare. Actually, we've had an improvement here over the last one or two quarters as we've also communicated, which means that we have been able to gain some tenders and thereby grow volumes. We're also doing well in retail, especially in Europe, actually regaining some market share, which is also according to our plan. I guess in your question, I understood that have we then taken volume while giving away price? This is not our perception. Markets are still very competitive. The volumes we are gaining are at margins that we are happy with. We're not chasing volumes per se anywhere. It has to be value creating. The markets are very competitive.
Thank you.
Next question. Okay. Operator, please help us with the questions from the telephone.
Okay, thank you. Your first question from the telephone comes from the line of Stellan Hallström. Thank you. Please ask your question.
Yes. Hi. I'm wondering whether the price increases in Europe that you have achieved on consumer tissue will be enough to compensate the raw material headwind, and maybe especially given that we've seen continued increase in pulp prices.
Yeah. Stellan, as you know, we never give a margin forecast, and I guess that's what you're asking. Of course, as pulp prices gradually have continued to increase, it remains a challenging price cost situation in consumer tissue. Time will tell. Of course, we'll continue to work on the pricing situation. We have achieved a lot, but of course, it's obvious that pulp prices have continued to increase as well. We'll continue.
Maybe the only comment to add is that there is a strong momentum for price increases in the entire market because of these incredibly high raw material costs that we are seeing. If there would be a need for further price increases, there is some momentum currently in the market.
All right. On that note then, that you probably then pushed for price increases that you feel are sort of going the same direction in the overall market. It seems that you maybe have lost some market share in the previous quarters, whereas in this quarter, you had good volume development in mature markets in consumer tissue. Any reflections on that or any reason why that would look different in the coming quarters?
Overall, we are following our strategy to focus on our branded assortment and growing that part of our consumer tissue business in Europe, while then being very firm on margins when it comes to private label. When you see the restructuring we are doing, this is mostly then supply that has been provided to either some other reels or as private label volume. We continue to have that focus, and then where that ends up overall, we only see as a consequence in the coming quarters.
Maybe to add also, Stellan, that you will remember from last year that prices actually came down, and we perceived that many players on especially the European market were very aggressive on the anticipation of lower pulp prices. Of course, it has become pretty obvious that that has not happened. On the contrary, prices on or costs on pulp continues to increase. It's been very obvious that competitors, other players, have had a need to increase prices as well. Of course, that makes, I think, the whole market in having the same need, and therefore, of course, the loss to our own volumes becomes less problematic. We can compete much better.
Okay. Another price-related question here would be to Professional Hygiene in North America. The price increase that you announced, how do you feel about that? Maybe given that you've also seen still quite weak volumes here in Q1.
We're always trying to balance price and volume, and the impact was quite significant on volume in this quarter. Of course, we're looking at finding another balance going forward to regain some volumes. Always, of course, this has to be profitable, contributing volumes that we gain.
Okay. Did that price increase come through then?
Yes. As you can see in the margin improvement also quarter over last year's quarter of around a percentage point, this has had a positive impact on margins. Absolutely.
Very well. Finally, just on the cost-savings side here, you achieved quite a lot of savings in this quarter, you could say maybe a tough compare. Anything unusual in this quarter you expect? Could we expect something similar in the coming quarters?
No, we were very pleased with the development. As I mentioned earlier, we had a good development in the factory efficiency or the production cost. We had good development in pretty much all areas. We had slightly less savings as compared to previous quarters on the pure sort of negotiation or the purchasing part, which is quite natural in very, very tough situations like we see on the pulp market. Generally, we are very pleased with the level we have achieved in this quarter.
All right. Thank you.
Okay. Would you like to take another questions for the moment?
You can just take all of them.
Your next question comes from the line of Peter Testa. Thank you. Please ask your question.
Thank you. I was just trying to understand a bit more on the comment on currency and also maybe wrapping up also the past comments on rebates from suppliers and just trying to understand with the continuing increasing pulp price but a flatter slope and the currency, the krona going the other way versus the U.S. dollar in particular. Can you give some sort of view as to how those might influence differently going forward versus what you experienced in Q1?
I'm not sure I fully understood the question. The currency, how that will influence?
I can split it into two questions if you like. You mentioned the material costs would have been much higher, and currency-
Yes
had been neutral. Currency has moved a bit the other way now. You also in the past have talked about in the cost savings have been supplier rebates, as befits your strong purchasing position, the slope of the curve of pulp is flattening and whether those rebates are also flattening. Just trying to understand how these other factors might affect the material cost story.
It's just an FX transaction because we purchase a lot of our pulp, of course, in the European market. When the dollar gets weaker to the EUR, that means that that's our benefit. If we would have had a constant USD or EUR-USD rate, then of course our raw material cost would not have been SEK 755 but rather a bit over SEK 1 billion. This was a comment previously, of course, if the dollar would strengthen again versus the EUR, that would have an adverse impact, this is something we, of course, cannot anticipate better than you can. If you look at then the discount or the rebate, the way we calculate this is that in savings, we would just include additional discounts or more favorable purchase prices that we can achieve.
Of course, the ability to get more favorable discounts is subject to many different things. First of all, just pure negotiation power, and the second thing would be typically if we qualify more suppliers for our machines and equipment. We expect to continue to be able to generate better purchasing conditions or purchasing prices. The only comment there was that in a very, very squeezed or tough pulp supply situation, then of course getting additional discounts or the purchasing power simply becomes weaker. This is basically what you have seen now in Q1 versus Q4 and Q3, that we have slightly less gains on additional purchasing prices.
Yeah. The future is difficult to forecast here.
Okay. Thank you. You mentioned on personal care that it's a tough pricing environment, but you're launching products, and now you have price increases on material costs. Can you give some sort of thoughts as to whether you think your commercial initiatives can manage that more strongly in future quarters than we saw in Q1, or whether we should keep an eye on this?
Absolutely. Talking about personal care, I actually talked about Baby, Inco, Fem rather than BSN, where we don't see the same price pressure as in our other previous, what we previously used to call personal care. Innovation remains key, absolutely, and we have a very strong innovation pipeline going forward also this year. This is the only way, really, to build strong brands and have a healthy margin in the long term. We feel very confident that we'll continue to improve in that area in all our personal care categories.
I guess my question was whether you think this is going to be strong enough to improve the underlying margin performance through the year versus what we saw in Q1.
We're working, of course, pulling all the levers to improve our margins. Innovation, price increases, cost savings, everything with the material rationalization, everything we can do to improve margins. Growth, of course, which contributes to fixed cost coverage. We're working with all these different areas to improve our margins going forward.
Okay. My last question is on BSN. You talked about quality of profitable growth and BSN organic was flattish in the quarter. If you look at what you're doing to try to manage the ranges, can you give some sort of sense as to how you think that works through, i.e. some underlying growth in the core products you want to push versus those which you're kind of working on?
Now, after a year, we have a very good understanding of BSN and a very good level of integration and transparency, and the new organization is really up and running. What we see is that, as always, and as we've also seen in the rest of Essity, there are some product and regional combinations that are underperforming and that we are addressing also in BSN. Of course, there's a bigger opportunity initially in an integration process than later. The impact that you're seeing comes from addressing these different not only underperforming products, but also underperforming regions or countries.
Okay. Thank you very much.
We can have next question, please, operator.
Yes, ma'am. Okay. Our next question comes from the line of Linus Larsson. Thank you. Please ask your question.
Thank you very much, good morning to everyone. I wonder if you could please expand a bit more on consumer tissue pricing. You said that you do see generally in the market a strong price momentum. You had a good year-on-year price mix impact already in the first quarter. My first question is, could you please break that 2.0 figure down just a little bit for us? How much is mix and how much is price hikes of that 2.0% improvement in the first quarter?
In the first quarter, a large portion is from Asia from professional hygiene, only a small part from Europe, where we still in the first quarter had a negative price mix impact a good volume development. I guess that's the breakdown that I can provide.
Excellent. Price mix in European consumer tissue was negative in Q1 still?
Yeah.
Excellent. That's very helpful. Could you in any way guide us as to the second quarter price improvement that you're seeing? It sounds as if a large part is rather coming through in the third quarter. Could you in any way help us understanding the magnitudes of what's coming through in Q2 and Q3, please?
No, not really. I can only reiterate what we have stated now for the last two or three quarters, that we expect to see positive impact from price increases in consumer tissue Europe fully in the second half of the year, but with a gradual improvement in the second quarter. We don't have more information to give in this area.
Okay. That's fair enough. Just finally, on a more general note on organic growth, which started out really well in the first quarter. In a way, comps were still tough in the first quarter, and they will ease even in the second quarter. As the year progresses, should we expect an acceleration of group organic growth from what we've seen in the first quarter, do you think?
We don't give those kinds of forecasts, so can't answer that question. The market remains very competitive, so can't really comment on that. As we stated many times before, growth really comes from volume, price, and mix, it's only when we have contributions from all those three components that we really see numbers like in this quarter. Again, it's a challenging market, so we cannot give any forecasts in this.
If I ask the question somewhat differently, when you look at the first quarter and you take into account phasing of various campaigning activities and so forth, what's the timing of those? Was Q1 a particular favorable quarter in the sense of harvesting on marketing activities, or is that rather later in this year, do you think?
Again, can't really comment on that. What you can see in the report is that Vinda had a very strong growth in the quarter, that this has a strong contribution, of course, also to the Essity overall growth. I don't know, Fredrik.
No, I don't
comments.
It's very difficult to give that forecast, Linus. I think we're very happy with the growth that we've seen here in Q1. We have talked about before the exits that we had last year that are now largely out of the system. Of course, the quarter one growth was also assisted by that favorable comp as you referred to previously, and most of those impacts are out there. Of course, as Magnus said, we will have some help with price increases as we go forward, and as we have talked about, that will be beneficial. We hope to maintain a good mix, and hopefully the volumes will also be there. Recognizing all of those issues, Q1 was very strong, especially in Asia. I think it's very difficult to give more than that.
Thank you very much.
Our next question comes from the line of Iain Wood. Thank you. Please ask your question.
Hi, all. Thanks for taking my questions today. If I could just get started with what's going on in consumer tissue. I think, this quarter you are talking about some pricing coming through in Europe, it feels like that's been a bit delayed compared to historically how long it would take you to achieve pricing.
I know you've talked in the past about the expectation for pulp to come down and why that delayed pricing. Are you confident that that was the only real delay, and that was why it took longer, or do you think there's some change in the dynamic, in the future there would be a bit of a delay as well?
That was part of the explanation. Other reasons for the delay was the very competitive climate in retail, and thirdly, also that there was some new capacities actually coming into the market, especially in Europe. All of that contributed to making it more difficult to get pricing. We still see two of these factors, so tough competitive environment and some additional capacity, even though there's nothing new really announced, but there are still some plants or machines that are being started up. Nothing new, those two kind of negative impacts still remain this year. With the current pulp price conditions, everybody needs to work on their margins through pricing.
Yeah. When you think about the absolute price level of tissue in Europe and in some of your other markets, I appreciate the year-over-year price mix may start turning positive in the next few quarters. Thinking about the absolute, if you were to enter a market where pulp did keep grinding higher over the next few years, do you think consumers and end customers would be able to take continued price increases over the next few years, or do you not think the market is strong enough for that environment?
That's a hypothetical question and impossible to answer. I feel very confident and also with the innovation we're doing and of course, cost savings that mitigate the need for price increases and so on, that we will be able to work on improving our margins also going forward. Actually, it is almost better from a market perspective when everyone has the same view or outlook on the future, whether that is that prices are going up or down or stable. Of course, looking back, and we spent a lot of time looking back, and I'll ask Fredrik to elaborate on this. We have looked at the pulp cycles, Fredrik.
Your comment, Iain, you started with this expression that it's taken slightly longer. If you look back very long back in history, almost back 20, 30 years, you can see that we've had these cycles. There's been periods where both prices have been coming down and raw material costs have been coming up, which is very negative, and we saw that in 2017. Of course, there's also been periods where prices have been coming up and raw material have been coming down. We have been in what we referred to, I think, last time we met, kind of a negative. We're at the bottom or the negative part of the pulp cycle, if we put it that way, or consumer cycle. Yes, it's been a very challenging year. It's been also a challenging quarter in that respect.
Of course, when pulp prices come down, we also benefit. We have much, much higher profitability because prices remain relatively stable on our products and costs come down, and then of course we benefit. There is a certain cyclicality in pricing and cost. Right now we have a challenging position, but there's also been, for instance, in 2016, where the situation was quite the opposite. I think from the longer perspective over time, the important thing for us as a company is that we gradually increase the underlying profitability or the structural profitability of the consumer tissue business, and that's what we do with tissue roadmap, with innovation and all the other stuff. I think we feel very confident that we're still on that path.
That's very interesting. I guess, the restructuring that you've been putting in, about SEK 1 billion this year across a few places is aimed at that. I wonder if you had any comments on what your competitors are doing, if they are taking similar actions to you to improve the structural profitability of their businesses, or if you don't really see that.
We have seen announcements from our biggest competitor. I think that's it. Other than that, we typically don't comment on competitors' behavior from that perspective.
Okay, fair enough. Thanks a lot.
Okay, thank you. Your next question comes from the line of Charles Eden. Thank you. Please ask your question.
Yeah, hello. Thanks for taking the question. I'll just stick to one on Inco, actually, if I can. Going back to the 5% growth you did in that division, I just wondered if you could break down the growth between retail and healthcare. I think you cited price mix pressure, and I just wanted to get a sense of whether the price mix decline in personal care is more mix-led than price, and what your view was for the overall market pricing dynamic given input inflation.
We actually have positive price mix in all our different segments and categories, while the very good number in Inco primarily comes from volume, definitely. I think we also have a good mix development while pricing remains a challenge, which has been the case for many years, and typically we have compensated this with improving our efficiencies. The last couple of years, pricing pressure has intensified. However, as we are seeing higher raw material costs also, in this segment, we expect this to gradually change going forward. Also with the innovation that we see coming, we believe that we would be able to mitigate some of this pressure. We had a good growth momentum both in healthcare and in retail, which we're happy about, especially then in Europe and in emerging markets, maybe slightly lower, but still positive in North America.
Okay, thank you.
Okay, next question comes from the line of Iain Simpson. Thank you. Please ask your question.
Thanks very much. Good morning, everyone. I'm just slightly surprised to see that negative pricing in personal care, given the input cost picture there. I would have thought that might have been a little bit easier. Are you able to give us any sense as to, by category, what personal care pricing looks like in incontinence, baby and feminine? Also whether you're seeing any changes in that kind of competitive landscape there and whether you anticipate price remaining negative for the rest of the year. Thank you.
Yeah. We don't give those details specifically, we've had a price pressure basically on all of those categories. We never give the individual numbers for those categories. It's difficult to answer your question.
If you don't want to give absolute numbers, would I be right in assuming that the pricing is worst in Baby Care? Because that seems to be what your competitors are calling out as the most competitive category.
Could be a plausible theory.
Thank you.
Your next question comes from the line of Sanat Sudarsan. Thank you. Please ask your question.
Hello, Fredrik. Hello, Magnus. Two quick questions from me. One is, can you give us some color on your market share evolution across categories over the past few quarters? Secondly, how do you see the development of volume and pricing over 2018? Obviously, one key, you've demonstrated a lot of volume growth, but you're taking pricing throughout the year. How do you see the mix of that evolving through the year? Do you see the 3.4% like for like that you delivered sustainable through the year? Thank you.
I'll take the first easy question, leave the other two to Fredrik here. In general, we've had a positive development on market shares in the quarter and in the areas where we have focused. A good development there. Again, according to our priorities, where we are prioritizing our strong brands over private label. In general, a good development. What we can expect-
Volume and mix. I think your question was more can we retain the volume? We don't provide forecasts on our organic growth. As you know, we have a long-term target to be over 3%, so that's the only guidance that we give. We're very pleased with the volume development, and we typically have a positive mix. This quarter, we've had a positive mix in all of our categories, so we're very pleased with that. Hopefully we'll be able to continue that with innovation. The only, I think, really uncertain issue is basically the pricing. As we've talked about now, we have raised prices, or we will increase prices in the consumer tissue area. Personal care is of course, more uncertain. We'll see as we progress in the year.
Thanks, Fredrik. Magnus, can I just push you a bit on the evolution by category? If you can just give us some nuances around the evolution within personal care, baby, feminine, incontinence, and then tissue, please.
Let me think. As I said, it is actually positive in most areas, and especially in our branded assortment. I do not have really any more detail to give there in that respect.
We made a comment earlier, maybe as just a repetition then, but I think Magnus said that in the quarter for consumer tissue, of course, we still had a negative price development in the European market. The price declines of last year, they, of course, are still in the numbers. Q1 is negative from that perspective, and then we have raised prices, and that will have effect later gradually in the year. We have already raised prices significantly in Asia, and we have also done that in Latin America. This is the evolution so far. We will see a more positive pricing development in consumer tissue as we go forward.
Thank you, guys.
Okay. Your next question, sir, comes from the line of Rosie Edwards. Thank you. Please ask your question.
Yes, good morning, everyone. Two clarification points, really. Firstly, on the rebates within the cost savings. When you account for them, is it done versus the prior year or versus the prior quarter?
It's additional. For the sake, let's use a very theoretical number. Let's say we have 5% discount in any given quarter, and if we have 5% discount in the next quarter, the savings would be zero. This is only the additional benefit that we're able to create.
Is that versus the previous quarter? In Q1 2018, you'd be comparing it to Q4 2017, or are you comparing it to Q1 2017?
Exactly. No, it's Q1 compared to Q1 of 2017.
You're still getting additional savings even versus the second half of 2017 when obviously you had a pretty good level of rebates anyway?
Yeah, of course. They are in comparison to Q1. This is compared to Q1 of 2017. We'll live with that as a comparable, so to speak.
Okay. Sorry. You're getting savings versus Q1 2017.
Oh, you mean sequential? Yes, exactly. As I mentioned, the negotiation savings that we have within that SEK 232 is compared with Q1 of 2017.
Right. Is this what you meant by the comps getting tougher, i.e., in the second half of 2018?
Exactly
You'll be comparing the second half of 2017, and therefore, that's when you had good.
Exactly.
I understand. Got it. Second, just on BSN, you talked about addressing underperforming products and regions. Am I right, are you discontinuing SKUs and parts of the businesses, and is that part of the reason, is that a headwind to your like-for-like?
We're not discontinuing any geographies. We're working with assortment, and there's a huge assortment, which is good as a starting point, but we see efficiency opportunities there. We're not really kind of leaving any significant regions or product areas. It's more trying to address underperforming, improving the performance. If I refer to kill or cure, typically, of course, we are able to cure most of the addressable products and regions, and this is what we're aiming to do also in BSN.
Okay, it's not like in sort of what we've seen in tissue and, say, professional hygiene.
No
Where you've kind of actually been pulling back on capacity. Okay.
Not at all. No. Probably to the contrary, we are expecting to be able. Because it's interesting with BSN, they have a significant fixed cost, not only in their supply chain but also in their sales force. Growth is a very healthy way of also improving margins, which is somewhat different from some of our other categories. Growth is very important going forward. Of course, also in BSN, we need to grow in the right areas and with the right products.
Sure. Okay. Thank you.
We can have the next question, please.
Okay, ma'am. Your next question comes from the line of Guillaume Delmas. Thank you. Please ask your question.
Hi, good morning. It's Guillaume Delmas from Bank of America. A couple of questions for you. The first one is on your performance in mature markets for consumer tissue. There has been a significant improvement in organic sales growth in the first quarter. You've got positive 1.5% organic sales growth, and that comes after more than four quarters of negative organic sales growth. You've just said that it was not price mix, given that price mix was negative. It does imply a very strong rebound in volume growth in mature markets for consumer tissue. Anything unusual driving this? I'm thinking any trade loading ahead of the announced price increases there that maybe have helped the Q1 performance. My second question is on the personal care division.
I get that negative price mix and raw material inflation were significant headwinds, should we also see the margin contraction in Q1 as a function of kill or cure for that particular division, delivering a little bit less sequentially because you've now annualized the discontinuation of Mexico and India?
Okay. I'll take the first question. That's correct. We have a very good development on our branded volumes in Europe. I'm not aware of any kind of pre-buying. This is typically not the case in retail. We send full trucks to many supermarkets and of course there's no kind of loading there. This is not what we're expecting. We were subject in the last one or two quarters of last year to actually also boycotts during the negotiations that we were in, which had a significant negative impact on our volume. We're out of that now, and that has helped us also comparatively to previous quarters in consumer tissue in Europe. Volume development is good, in line with our strategy and expectations. The second one, margin contraction in personal care. Fredrik?
Yeah, you were asking about Mexico and the exits there. I didn't actually fully understand the question.
It was much more about the kill or cure contributing maybe less in Q1 2018 as far as the personal care division is concerned compared to 2017, because now you have the benefit in your base that you've discontinued less profitable operations in India and in Mexico.
Yeah. Cure or kill was not just India and Mexico. It is a large set of different things, primarily cure. The kill part was actually quite small in percentage of the sales addressed, so to speak. You're right, in comparison to Q1 of 2018, there is less additional contribution. That, of course, has not contributed to lower margins. It just has not contributed to much more additional margins, if I put it that way.
Very clear. Thank you.
Our next question comes from the line of Niklas Ekman. Thank you. Please ask your question.
Thank you. Just one follow-up here on raw material prices, where you said in the presentation earlier that for Q2 here, you saw raw material prices rising significantly both year-over-year and sequentially. I was just wondering, when you look at the year-over-year effect, it should be a lot smaller compared to what you've seen here in Q1, then maybe more back to the year-over-year increases you've seen in Q3 and Q4, also with the big difference that you have the ability for price hikes in Q2 that you haven't had in Q1. I'm just wondering if I've misunderstood anything, or if you could elaborate a bit on the actual year-over-year effect.
Well, since most raw material prices continued up during the first quarter of this year, the impact will still be significant, not only sequentially, but also quarter over last year's quarter. That's the guidance that we give.
I was just curious, looking at the year-over-year effect, it should be at least smaller based on the current spot prices, that you're kind of past the trough now, at least in terms of these effects. Is there any way you can elaborate on that effect for Q2?
Can't really elaborate on that. It's significantly higher is what we see and what we expect in all our segments.
A couple of maybe additional comments, because Magnus mentioned that previously this is in all of our three business areas. What we see is increases continued, as you saw on the slide on pulp, and we also see that in oil base. Of course, we continue to see a negative trend. In addition, we also have a time lag for our purchases. Of course, as Magnus said, the impact both sequentially and Q1 will be significantly worse. Of course, the absolute number, we'll come back to when we present next time.
Okay. Thanks very much.
Okay. Your last question comes from the line of Kari Vinta. Thank you. Please ask your question.
Just a few quick ones. Firstly, on the minority interest, which was a bit higher in the first quarter than previously. Is that all Vinda or is there something else there as well? Secondly, the recycled fiber prices in the U.S., what's driving this sort of divergence that the U.S. prices are up while the European prices are down?
I can just answer pretty much mostly yes to your first question.
The U.S. is again negatively impacted by Chinese authorities again allowing some imports of higher quality recycled fibers into China. What happened was, as you know, that a few quarters ago, China, in their countrywide cleanup project, decided to ban imports of waste in general, and this included then recycled fibers. This resulted in much lower recovery of recycled fiber in the U.S. over a period, and declining prices for recycled fiber in the U.S. because of this very quick shutdown of demand from exports to China. They've slightly opened up again, and I think the U.S. market is still trying to find the balance as volumes are again being shipped over to China, not as before, but still higher quality recycled fibers. In Europe, I guess there are fluctuations that are always very difficult to anticipate.
I don't really have an answer to the development in Europe.
All right. That's very helpful. Thank you.
With this, we finalize the Q&A session. Any final words from you, Magnus?
I think that we have been talking a lot about this quarter being a very challenging quarter, and many of you have also mentioned today that there's this combination then of very competitive markets and the high raw material costs, which is continuing throughout the first quarter this year. I'm happy to present that we've been able to, again, through self-help, our different programs, and other actions, mitigate a lot of the headwinds, and through our more longer-term efforts like restructuring programs or innovations program and so on, put us in good shape for the future. Thank you.