Hi and welcome. My name is Sandra Åberg. I'm Head of Investor Relations. On today's agenda, we will summarize the full year of 2024, a year that we here at Essity are very proud of and very happy with. We will also take you through the highlights of the Q4 report, and we will share our priorities for 2025 to enable accelerated, profitable growth. In the end of the presentation, we will give you the opportunity to ask questions. We will also be roadshowing here in Stockholm this afternoon and next week in London, so if you would like to meet with us, please reach out. Here to present are my colleagues, Magnus Groth, our CEO, and Fredrik Rystedt, our CFO. I will now hand over to Magnus, who will start by summarizing the full year 2024. Please, Magnus, welcome.
Thank you, Sandra, and good morning, everyone. First of all, as you know, I announced yesterday that I am resigning from this position at Essity, but I will continue to run the business with my full force and energy until a replacement is found. With that, let's get straight into the numbers, so to start with, SEK 146 billion of sales and a record operating profit for 2024, and the first time we actually did over SEK 20 billion of operating profit in a year. Key achievements, as I mentioned, highest profits ever and good volume growth, which has been a key focus. Strong cash flow generation, solid balance sheet, divestment of Vinda resulting in a more attractive portfolio, new financial targets, and the announcement of our share buyback program that we're in the middle of.
Of course, always impactful innovations driving the business, driving growth, profitable growth, and very importantly, last year we started to see a turnaround in market shares and improving market shares year over year. Actually, towards the end of the year, and we'll talk more about that, and into this year, we see very high demand for many of our products. That's really, really encouraging that there's a solid demand for most of our products and categories in 2024, but also going into 2025. A financial summary of the full year. Net sales were slightly down. This is due to the divestment of Russia in 2023 and the strengthening of the Swedish krona. Organic sales growth slightly up, and up 1.8%, and disregarding the restructuring in Professional Hygiene mostly. Strong operating cash flow, earnings per share up 10%.
EBITDA, as I mentioned, over SEK 20 billion, and as you can see, a very, very strong EBITDA margin of 14%, and the same with the return on capital employed at 17.6% and a big improvement year over year. We announced today a proposed dividend of SEK 8.25, which is an increase with SEK 0.50 or 6.5% on the back of this strong performance in 2024. Yes, talking about dividends, of course, this is behind that recommendation to the annual shareholders meeting to raise the dividend to SEK 8.25, a high EPS growth starting with the listing of Essity in 2027. The average growth has been 7% and in total 57%, and in the last year, actually 10% year over year. This is the dividend development over the last number of years, so a solid positive development here.
Also overall, the financial development, this is a slide I always like to show because Essity is very, very much about the long-term improvements and continuous development, and I think it's very well reflected here. It's good to see that when it comes to EBITDA, excluding IAC, so operating profit, we are fully back on track after the pandemic and showing another record year. Of course, our ambition going forward is to continue to build on this very, very nice curve. Over the last 10 years, operating profit has improved with over 130% and sales with over 80%. Big step every year, and this is what we aim to do also in the long term going forward. We do this very much through impactful innovations. Here are some examples.
Starting there at the left, we are turning more and more of our Tork Professional Hygiene products into a compressed offering, which has a better sustainability profile, reduces logistics costs, and is beneficial for those who are working with refilling our dispensers. So that's an example there to the left. The Zewa Deluxe that you also see to the left is an example of a product where we are looking at catering to the needs of those who are down trading, who are looking more for value offerings, which has been the case over the last couple of years. There's no change in this trend, but we still see that there is a demand for these types of products. So it's a very attractive value offering under the Zewa brand. And then a number of other innovations in all our different categories, as usual.
We also have a very, very ambitious program in 2025. What this leads to is product superiority and leading market positions. We took a big step up in 2024 when it comes to product superiority as regards to product brand and price. We expect to take a similar big step or even bigger step up in 2025. As we've seen now over many, many years, we retain number one or number two positions in over 90% of branded sales, which is so important for being a number one supplier with retailers and increasing market shares in over 40% of our market category combinations and including stable in 65%, which is an improvement compared to 2023. As you know, new product launches on average have a higher gross margin than the product they replace of around 3%.
So a very, very important part of what drives value creation and growth in Essity. We have ambitious targets also on sustainability. These are two of the most important ones: health and safety, where we've had a fantastic improvement in TRI, so total recordable injuries in the year, but also over the last couple of years. And we are approaching world-class when it comes to health and safety, which is so important. We have 16,000 blue-collar colleagues working in our factories, and it's so important that they feel safe and taken care of going to work every day. And that goes for all our 36,000 employees, of course. When it comes to greenhouse gas emissions, where we have a target to reduce our Science Based Targets, Scope 1 and 2, by 35%.
We also are progressing according to plan, and we're now at minus 27% after 2024 compared to the base year 2016, so that was a very successful, very busy 2024, and to summarize, adding to the numbers I just showed, we finalized the divestment of Vinda, we started a share buyback program, and we also raised our financial targets, but let's look now at the last quarter of 2024, so to summarize, strong organic sales growth, all business areas contributing, higher volumes, sales prices, and positive mix, and higher profit but lower margin in the fourth quarter. Basically, to summarize, Health and Medical, Professional Hygiene continue to deliver in a very, very impressive way when it comes to margin.
We saw lower margins in consumer goods in the fourth quarter, and this is related primarily then to Consumer Tissue, and Consumer Tissue was negatively impacted by the strong appreciation of the dollar during the second half after the U.S. election of the fourth quarter. This was partly offset by another strong quarter of cost savings, but not entirely, resulting in the numbers you see there to the right. So organic sales growth, which is of course way above our long-term target. We're very happy about that. I already mentioned that we see very strong demand for most of our categories. EBITDA slightly up year over year, but margin slightly down and ROCE on a stable level.
Then, moving into each of the three business areas, and just here looking now at the split after 2024. Health and Medical accounting for 20% of sales, Consumer Goods 54%, and then 26% from Professional Hygiene. Starting with Health and Medical, really strong number across the board here. Organic sales growth 5.6%, volumes 4.9%, higher prices and positive mix. What I'd really like to point out is the growth you see there in medical, which is to a large extent volume-driven. So we have really good momentum in the medical business. I'm always reminded by our business unit president here that we have been growing the medical business now for 15 or 16 consecutive quarters, but it's really accelerated in the quarter. Maybe also some end-of-the-year effects where maybe some customers were actually building some stocks in this area, but still a very nice development.
Profitability, as you can see there, EBITDA up 21% and the margin at 18.3%, so a very, very solid performance here. Consumer Goods, strong growth, cost pressures, organic sales growth 4.5%, high volumes in all categories, exactly according to our plan, because we know that higher volumes means that we get operating leverage. It also indicates that we are growing market share, which we are doing in the highest margin parts of our business. A highlight on this page is definitely incontinence care retail. This is such a competitive category, even though the underlying growth is nice. I mean, this is the reason why it's really growing also or why we have strong competition.
But look at that, 11.2%, fantastic numbers, which shows that we really are competitive here now when it comes to product offering and brand positioning, and also now winning after several years, as you know, when we have been very much under pressure from private label and from other big competitors, really back here as the market leader and as we should be, growing very, very quickly. But also feminine care, another very strong development, baby care. This is an event, some product recalls, which are referable to this quarter, and this will move to a positive development going forward. And Consumer Tissue, very strong at 4.3% organic sales growth. Profitability down, as I mentioned, and margins, and primarily related then to the stronger dollar that we saw in the second half of the quarter.
Even though we also saw higher costs in some other areas, distribution, we saw that distribution costs or energy costs did not decrease to the extent that we had expected due to the shutdown of the last gas pipeline from Russia during the quarter, and of course, we are now working very, very hard to manage this margin development, and as you know, in the mid-long term, we always compensate in different ways, as we are doing this time as well. Professional Hygiene, finally, strong growth of premium products, higher profits. As you can see here, organic sales was up 5.1% excluding restructuring. Volumes were down 6%, but with a very, very positive price and mix. These two numbers actually go together.
We had a few large customers in the U.S. that did not buy as much from us as they usually do, and we believe that this is a temporary impact. That means that volume rebates that we had accrued for were released during the fourth quarter. So the negative volume actually accounts also for parts of the higher prices that you see there and positive mix, 7.4%. Nevertheless, profitability also on extremely good levels, EBITDA margin up on levels that we've seen over the last couple of quarters, but historically, of course, very, very good levels. So with that, I'd like to hand over to Fredrik to dig into some financials more in detail.
Thank you, Magnus. I will do exactly that. And I'll start with summing up the net sales bridge for the fourth quarter of 2024.
As you can see, we continued, and Magnus alluded to it, we continued to have a very strong organic sales growth. Underlying, if we adjust for restructuring in Professional Hygiene, we reached almost 5% of growth. Volume was positive for all the categories with the exception of Professional Hygiene. It was a very, very strong quarter from a volume perspective, and especially so for the medical part in health and medical. Magnus, you alluded to it earlier, also for Inco Retail with double-digit growth. It was super strong in terms of volume. The restructuring in Professional Hygiene is still there in the fourth quarter, and the impact was 1% on group sales and actually 3.5% if you look at isolated business area Professional Hygiene. Most of that impact is now gone.
There is a small impact that will be there also in Q1 of 2025 from that restructuring, but it's not really material, so most of that impact is now gone. Price and mix quite positive, as you can see, 2.2%, out of which 1.9% relates to price and 0.3% to mix. We also saw in the fourth quarter sequentially a strong development of price, 1.2%. This is mainly related to Consumer Tissue, but also partly to that volume provision release that Magnus alluded to in Professional Hygiene. Just generally, a strong pricing performance in Consumer Tissue on the back of higher cost. Mix was mainly related to Professional Hygiene, but we also saw good mix development in health and medical. Overall, growth very, very good in the fourth quarter.
If I turn then to the EBIT bridge, you can see that we're slightly down if you compare to the same period of 2023. And this is all gross margin related. We saw 20 basis points decline in gross margin. And we saw that despite a very good pricing performance that I was alluding to before, very strong volume and also mix. And of course, the impact was caused entirely by a quite strong increase of cost of goods sold. And if you decompose that, actually the net impact of cost of goods sold for comparable products was roughly about SEK 760 million or 2%. And this is mainly related to raw material, actually all of it. We had a very, very significant raw material impact of SEK 880 million. And part of that, actually a big part, SEK 330 million related to currency movement.
Of course, this is mainly a result of the very strong appreciation of the dollar that took place in November and onwards, as you already know. It occurred in the quarter, so to speak. Currency was quite negative. We also saw a bit of negative impact from distribution, but all of that compensated to some extent by the cost savings that we continue to execute on. We're quite happy with the execution during the quarter, but all in all, COGS increased a bit more than we actually expected at the beginning of the quarter. When you look at SG&A, A&P and SG&A excluding A&P, you see flat development here, so no real impact on the margin. But in absolute terms, both of them were actually growing.
When you look at SG&A excluding A&P, this is, you can say, largely related just to normal salary inflation and a bit of added investments into our sales network and digitalization, and when it comes to A&P, same thing there. We have invested more into A&P, and of course, clearly, you can see this is working as we also have that strong growth in net sales, so overall, we think this is quite profitable investments into SG&A and A&P. Turning a bit to cash flow, we continued in the quarter, Q4, actually having a good operating cash flow, but it was a bit lower than what you would typically expect from a fourth quarter.
So for those of you that know us really well, you would know that we typically consume working capital or increase our working capital in the first two quarters of any given year, and we reduce our working capital in the last two quarters of every given year. So if you look at Q4 specifically, we actually had flat working capital, so no real change there. And normally, we would have expected to actually have a slight positive working capital contribution in terms of cash flow, and that didn't happen. The reason was quite simple. In the last part of the quarter, we had a very significant growth of sales. So basically, you can say November and December, very, very strong growth overall. And this, of course, means that we build up our accounts receivables, and we get paid for those more in the beginning of the first quarter.
So you can say the relatively lower operating cash flow is all attributable to accounts receivables being a bit higher. And so this is more a temporary timing impact. If you look at it in terms of credit days and accounts receivables, we're actually improving, and we're also improving in our inventory in terms of cover days. So all fine really when it comes to working capital. So this is more timing. And if we look at net cash flow, we also there had a bit of temporary impact. Our overall tax rate in terms of effective tax rate for the year is roughly about 25%, as it should be. But tax payment was a bit elevated in Q4, and that will also come back during 2025. So all in all, a bit of temporary impact from a cash flow perspective.
But if you look at the year as a whole, very strong cash flow, and that is both on an operating level and on a free cash flow level, so after finance net and pay taxes. So as a consequence of the strong cash flow generation that we have, you can see that we have a net debt of just under SEK 31 billion and a leverage ratio of 1.2%, so a very strong balance sheet. And we continue during the quarter to execute our share buyback program. We have now in possession of, at the end of the year, I should say, 31st of December, of SEK 2.2 million shares. And as we have communicated a few times before, we expect to cancel that at the upcoming AGM. So all shares that we have in possession, we will ask for a cancellation at the AGM.
And with those words, I'll turn over to you, Magnus.
Thanks, Fredrik. Good that cash flow remains strong and we just have some temporary cut-off effects. Okay, so to summarize 2024, highest profit ever, strong cash flow, solid balance sheet, a more attractive product portfolio, and we can see that even when we have, in spite of the dollar appreciation that we saw now in the quarter, we still have a very solid margin and profit development. Health and Medical, a record year, record high profits, margin improvement of 470 basis points. Consumer Goods, high volume growth, margin slightly down, but from a high level and Professional Hygiene, again, very, very strong 2024 with a margin improvement of 200 basis points. Looking forward then into 2025, accelerating profitable growth. Our focus remains to grow in high-yielding segments. You know which they are.
It's Professional Hygiene, it's health and medical, it's Inco Retail, feminine care to a large extent, and in segments of the other categories. We also have an ambition to grow further in North America, where we have very, very good momentum in several areas, and also in Latin America that continues to develop very strongly. Innovation, brands, market share gains that has contributed so much to our long-term development is a key focus, and we have a very exciting program ahead of us here. Operational efficiencies, digitalization remains a key focus area, and of course, to continue to progress on ESG. So thank you so much for listening. It's time for questions. And Fredrik, you want to join me? And operator, let's open up then for the Q&A session.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad.
Thank you. We will now take our first question from Celine Pannuti of J.P. Morgan. Your line is open. Please go ahead.
Thank you very much. Good morning, everyone. And good morning, Magnus, to you. Sorry to hear that you are leaving, but I wanted to congratulate for your tenure at ECD and for having driven ECD as an independent company and wish you all the best for your next chapters. My first question is on the need for price increases. Obviously, you were mentioning the sudden rise in USD hitting your cost inflation. Can you talk about the pricing negotiation with retailers as you look in Europe? And maybe a follow-up on that, my second question is on how your market share performance is doing in private label and brand in the Consumer Tissue division in Europe. Thank you.
Yes, so starting with the second question, we don't follow specifically market share in private label and brands, but both are doing quite well. So we saw volume growth in both areas, even though it's slightly skewed in this last quarter to the private label part of Consumer Tissue. When it comes to pricing, so when we went into the fourth quarter, we went in with raised prices in Consumer Tissue, actually in most geographies that we at that time believed to be sufficient because what we saw was that even though pulp prices started turning down, the pulp prices that you read about, since we have a time lag, we would see higher pulp prices also in the fourth quarter. And this was what we were aiming to compensate for and not taking into account then the dollar impact.
These higher underlying pulp prices, they actually turn around in the first quarter. So we'll have some benefit in our books from lower pulp prices. So how we now manage pricing, I mean, it was easy to talk about this three or four years ago during the pandemic when it was everyone raised prices. It's very much now delegated to the individual businesses and to the individual geographies to manage the price cost gap and the margins in the best possible way. And of course, always with the aim of restoring and increasing margins. So there's a lot of work going on in that area now in various parts of the business without being more specific than that. And thanks for the kind word, Celine.
Thank you. Maybe can I ask a question to Fredrik?
Could you please help us with, as you usually do, given some outlook on the component of cost inflation? I mean, you were mentioning, for instance, energy didn't turn out to be what you expected for Q4. So as we look into Q1, could you please help us with a different component on cost, please?
Yeah, I mean, generally, when you look at cost or COGS as a total for Q1, we expect it to be somewhat lower. And part of that story is, as Magnus just alluded to, actually pulp becoming a bit lower there. So overall, we expect to have somewhat lower COGS. And then there's lots of moving parts. So COGS or pulp is expected to be down, energy actually expected to be higher. This is partly seasonal, also partly from a pricing perspective.
So they're moving parts, but we prefer to give you an overall estimate of COGS as sequential comparison, Celine. And so we will see hopefully somewhat lower COGS than in Q4.
Thank you.
Thank you. And we will now move on to our next question from Patrick Folan of Barclays. Your line is open. Please go ahead.
Hi, thanks for taking my questions, Magnus, Fredrik, and Sandra. Just kind of going back to the comments on COGS inflation, just in terms of the agile pricing structure you guys talked about last year, it didn't seem like that maybe came through. I understand the FX impact and as well, you also had positive cost savings coming through in Q4. Can you just maybe highlight maybe what is the pricing environment just a bit more difficult to get that through?
Second of all, just on the kind of also looking at sequential kind of costs into Q1, how should we think about SG&A, any other items other than energy and pulp to think of for that EBITDA bridge? And then lastly, you talked about product recalls and baby care. What was the kind of headwind there, the impact on the baby care number? And just double-checking, will there be any impact in Q1 to think about?
Thanks. Yeah, so pricing. No, actually we did achieve the price increases we're talking specifically about Consumer Tissue now that we planned for, but then actually costs increased even further. And within a quarter, I mean, we are much more agile than we were before. And of course, the overall impact on us is much less since we don't have Vinda anymore.
But when there's such a drastic change within a quarter, I mean, there's nothing you can do in that short time horizon. And as I mentioned, we are more agile and our organization is looking for ways of, of course, restoring margins also in Consumer Tissue. Margins are very, very good in most parts of our business, but also in Consumer Tissue. And then when it comes to baby, yeah, what I wanted to say with the recall with one specific customer is that this was temporary and we expect to see growth in the baby care category in 2025 going forward, specifically in individual quarters. Very difficult for me to comment, but the recall was specifically happening in the fourth quarter of last year.
Maybe just a comment, Patrick, on SG&A, but just before that, the kind of negative things that happened, and you said it, Magnus, but just to emphasize that the negative things that happened during the quarter from November and onwards were very significant. So when you talk about currency, it was very, very significant. You know roughly what our exposure is to the U.S. dollar, mainly relating to pulp purchases, and of course, that's very significant. And if you add the energy that was clearly elevated during parts of the quarter, you can clearly see that had that not happened, our margin would have been considerably better. So I think we have that agility. There's no doubt about it. You asked about, Patrick, the SG&A there, and we expect it to be slightly higher in Q1. This is mainly related to A&P, actually.
You have seen an overall increase of spending, and the result is quite obvious when you look at our net sales. So as I said before, we think the investments we are doing there are value creative, and we expect to do that also in Q1. So A&P a bit higher, and as a consequence, SG&A slightly higher.
Okay, thank you. And just if I may just squeeze one more in on Professional Hygiene, the underlying volumes looked a bit weaker quarter on quarter, and it sounds like the restructuring still is not complete, but you said there's a marginal impact. It's very limited in Q1. Should underlying performance improve? How should we think about that?
Yeah, I can start maybe, Magnus, but I think we have reached a very, very healthy underlying margin in Professional Hygiene.
So Magnus, you were talking about the release of the provisions related to volume, which is not unusual. Typically, what you do in Professional Hygiene, you account for these or you accumulate these provisions during the year. And depending a bit on how the year actually ends, you tend to typically release a bit. So we normally have that. We didn't actually have it in 2023, but we have it in 2024 and most of the years previously. And this is why the Professional Hygiene margins are typically quite strong in Q4 and a bit lower in Q1. And so we'll see that pattern, of course, this time as well. So I think it's fair to say that the underlying performance of Professional Hygiene remains very strong, and hopefully that will continue, of course, obviously.
Thank you.
And just reiterating earlier comments, sad to see you go, Magnus, and good luck in your future endeavors. Thanks.
Thanks.
Thank you. And we will now move on to our next question from Tom Sykes of Deutsche Bank. Your line is open.
Please go ahead. Yeah, morning, everybody. I think before in Q3, you alluded to some lower production levels in Q4. And I wondered to what extent are you managing the seasonality, if you can, of your production? And in particular, I guess, to reduce production in kind of colder months when energy costs are higher. And if that's true, then to what extent is you maybe increase your production volumes coming into this year? Do we get less fixed cost absorption, but then maybe a higher marginal cost? And is that then are you trying to say that your all-in unit costs will be lower, sequentially lower?
Is that what we should take away, and I guess just to be clear on your COGS comments, which currency are you saying that COGS will be sequentially lower? Is that in SEK or dollars or euros or what? Just to be clear on the COGS comment, please.
Yeah, so we'll start with the kind of production volumes. We don't have much room to maneuver when it comes to kind of moving production versus sell out from us because our products are so bulky and low value, as you know, they need to get on trucks and be shipped out every day. So actually, when demand is high, we have to produce every day, and this is what happened last year where we were actually running most of our mills at higher capacity than we usually do.
One of the reasons also why we had this cutoff when it comes to cash flow. Our operations were running at a very, very high rate throughout the year. I also mentioned that we see a very high demand for many of our products, which is, of course, good. To see any kind of seasonality or even quarter-over-quarter variations in cost due to that, I think it's very, very difficult. Handing over to you, Fredrik, on the. Is it dollars or kronor or?
Yeah, I think, Tom, you were referring to comments we made in Q3, if I'm not mistaken, that we expect slightly lower production volumes in Q4 versus Q3, which leads to an absorption impact. We had exactly that.
It was not super big, roughly about 60 or 70 million in that ballpark, but it was there pretty much in line with our expectations, so just to complement, it's not big, as you say, Magnus, but yeah, and the currency? Yeah, currency is actually based on SEK, obviously, because that's our reporting currency. But we are not forecasting when we say that, we're not forecasting any specific movement other than what you see out there, so we expect the euro SEK rate to be constant, as we do expect the U.S. dollar SEK rate to be constant from where we stand here and now when we give that forecast, so the answer is to your question in all currencies, but of course, that may or may not change as we go forward in the quarter, but typically, we don't. Yeah, if you understand, so somewhat lower.
Okay.
Many thanks indeed.
Sure.
Thank you. And we will now take our next question from Charles Eden of UBS. The line is open. Please go ahead.
Hi, morning. Thank you for my questions. Fredrik, first one for you. Could you please break down the SEK 759 million sort of COGS headwind between the usual buckets? So I guess I know there's this SEK 430 million tailwind from COGS cost savings because that was in the press release. But I guess that means there's a SEK 1.2 billion headwind from energy and raw mats. Could you just sort of clarify the numbers there? And was there a one-off sort of inventory revaluation downwards related to lower pulp prices? And if so, if it was material, could you sort of help us quantify?
Second question, just on the sort of share buyback, obviously no announcement of an additional program this morning, but you highlight in the press release that it will remain a recurring part of capital allocation going forward. So could we expect an additional share buyback at the AGM on the 27th of March when the current program completes? And then if I can just squeeze in a clarification, and this has been touched on a bit, but the North American Professional Hygiene sort of delayed orders, if that's the right phrase that you quoted, can you help us quantify what that is? And would you expect that to materialize in the Q1 volumes? Thank you.
I can start with the share buyback. So you should expect to hear us announce the plan going forward after the AGM since it's required a decision by the AGM every year.
We cannot actually give any information before that. Soon after the AGM, we will announce our plans for the recurring share buyback program. Then the bridge. I hand over to you, Fredrik.
Yeah, Charles, I actually gave you a little bit of insight into that when I spoke earlier. So if you look at raw material, it's SEK 880 million, and out of that, SEK 330 is basically currency. So if you take raw material excluding currency, it's a bit over SEK 500 million, give and take SEK 540 million. And so when you look at, and if you want to kind of decompose that even further, pulp is actually a bigger amount and the other materials are positive. So there are lots of moving parts, but to make it maybe simple, total raw material, SEK 880 million. I also mentioned to you distribution of SEK 160 million there.
So if you add all of that up, of course, you come very close to that or more than a billion, basically. And then there are the cost savings plus a lot of other smaller, and I actually mentioned one of them earlier with production volume. So there's a bit of back and forth, but these are the main components, Charles. And when it comes to the Professional Hygiene North American lower sales in Q4 and when we expect that to normalize, I mean, I can't say. Typically year over year, our large customers tend to buy similar volumes or, of course, gradually step as we grow higher volumes. And when this normalizes, I can't say. It depends on the plans of those big distributors that we're talking about in this case. Thank you very much.
And congrats again, Magnus, looking forward to continuing speaking to you in the coming quarters. Thanks.
Thank you. And we will now take our next question from Jeremy Fialko of HSBC. Your line is open.
Please go ahead.
Okay, morning. So first of all, yeah, I'll reiterate the comments for Magnus and yeah, so good luck with your future endeavors, but obviously not after a bit more time with Essity. So yeah, the couple of questions from me. First one, just maybe to sort of frame this question on kind of the dollar and sort of sequential cost movements. To what extent would you see what happened in Q4? Is it a little bit of a kind of a temporary impact?
As in, you obviously saw this unanticipated dollar impact, but then you perhaps, is it fair to say you've seen the pulp prices come off a little bit more than you might have expected? So actually, when you look at the situation in Q1, it's not a lot different to what you would have expected a quarter ago, albeit the components are a little bit different where you've perhaps got better underlying commodity costs, but then slightly worse currency. The net of it is actually a bit of a wash. So we could see this little bit of a profit miss as being perhaps a slightly temporary impact. And then the second question is just on the demand that you spoke about being quite strong into the year, into the sort of the start of the year. What can you sort of attribute that to?
Is there anything kind of temporary there, or do you think this is just a good read for where the business is trading at the moment and sort of quite a robust volume outlook for the first part of 2025?
Thanks. Yeah, so the demand is, we believe in some areas, in incontinence care specifically, both in retail and healthcare, that there is a stronger underlying demand. And maybe this is a result of a higher acceptance for these products, aging population, and so on. We're actually something we're discussing internally. Then we are doing better and better in terms of market shares and stabilizing or growing market shares in most areas. So I think that's also helping. So I mean, that combined leads to a need for us to actually increase our capacities. And this is now in the professional or in the personal care categories primarily.
And also, one of the reasons for some of the higher COGS in the fourth quarter, we were actually having startup costs for new machines to cater for the higher demand. Then, when it comes to what extent the Q4 costs were temporary or not, I think it's very, very difficult to say. What I can say is that our organization is working very, very hard to manage variations both in costs and pricing and so on to be able to kind of come back to the margins we're looking for for the immediate term, for the medium term, for the long term as quickly as they can. And it's very difficult now to start. Of course, we don't provide forecasts for individual quarters either, but to break it down into details.
Maybe, Jeremy, to add on that, because I'm not sure if I understood your question fully.
I interpreted a bit that you felt that because of the dollar strengthening, you saw that where you anticipated perhaps that pulp prices were coming down faster or more than what otherwise would have happened. That we don't see. So from that perspective, the dollar impact is actually kind of coming through at its full. So it's more what you say, Magnus, a matter of how we compensate and how we deal and compensate for that dollar increase. But I'm not sure I interpreted the question correctly, Jeremy.
I guess it's more the point is that you're still seeing your underlying pulp price is still falling and you're still seeing kind of sequentially lower costs in Q1.
So I just felt that there's perhaps a bit. It's a bit of a—is it a transitory impact from the dollar given you're actually seeing more favorable developments kind of elsewhere in your cost base? I suppose that was what I was trying to.
Yeah, I get it, Jeremy, but you can say the fact that we see that sequential decline, as I mentioned, somewhat lower in Q1, has the reason there is that we have a delay, as we've talked about many times. So you can say that that fall of the pulp price has already occurred in the marketplace. It's just that for us in the P&L, it comes in Q1. So yeah, I don't, clearly the dollar impact is, of course, negative.
And they are separate, these two impacts. So they're not connected in any way.
No, exactly.
Just one other question.
You mentioned these startup costs. Any rough impact of that?
No, it's just one. I just, since Fredrik said many other moving parts, I just wanted to mention one. And this is just a specific in Q4. And actually, what's really pleasing is that we are really, really good at starting up new machines. We typically do this now in days or weeks rather than months and with very high capacity utilization in a short time frame. But we have had some of that in the fourth quarter, which is, of course, not recurring.
And of course, those were expected.
Yeah, yeah.
So the only unexpected impact in kind of margin in comparison to our own expectations was currency and a bit of energy.
Okay, thanks very much.
Sure.
We will now take our next question from Linus Larsson of SEB. Please go ahead.
Thank you.
A very good morning, gents. I wonder how you're seeing 2025 in terms of investments and how you're planning the year ahead and maybe if you could comment on your CapEx budget, but also in terms of marketing investments. And maybe as a third point, this long-going IT project that has appeared or affected the other EBIT line, if you could also give us an update on where you're seeing other EBIT in 2025 for the year, please.
Fredrik.
Yes, I'll be very happy to do exactly that, Linus. So starting with CapEx, we expect it to be SEK 8 billion or slightly thereabove. So between SEK 8 billion and SEK 8.5 billio , so clearly higher than the SEK 7.3 billion that you saw in 2024. And this has to do with what Magnus already alluded to, basically capacity investment. So that is the absolute driving part.
So roughly eight or perhaps a bit there above. When it comes to the market investments, we have not given you a specific number there, but we have said that we expect A&P as a percentage of sales to increase as we go forward. Not going to be super big. It's not a kind of a massive number, but it will, in terms of percentage, be bigger. That's at least what we expect for 2025. And finally, the digital investments and the other line, it will remain elevated also in 2025 for that reason. We are not giving you an exact number for the other line, but it will be perhaps you can say slightly higher than for 2024. And part of that relates to the digital project that will remain with high cost also for 2025.
Yeah, and just to follow up on the A&P and CapEx, of course, this is profitable growth. This is what we're aiming for. We're talking about the cost parts here, but I mean, this translates into high margin growth. These are new incontinence care lines, feminine care lines mostly, and something that will benefit very much also and an important part of our journey to reach our new financial goals. I mean, that's why we're doing it to accelerate profitable growth for the future. I mean, sometimes we talk about this just as cost items, but these are decisions that we have taken in the company in order to hit our targets.
Great. That sounds great. Very clear. Thank you very much. And a special thanks to you, Magnus, and good luck in your future endeavors.
Thanks, Linus.
Thank you.
We'll take our next question from Matt Charleston Doyle of Danske Bank. The line is open. Please go ahead.
Hi, thanks for taking my call. I want to get back to the Mexican legal issue. You updated that the matter has now been taken to the English courts. It's been ongoing for quite a while. I guess you're still interested in fighting this. I mean, you believe the claim is unfounded, but what sort of timeline can we expect here before this is resolved? And could you be looking into doing some kind of settlement to get it out of the way, or are you just still interested in fighting this?
We have no new information to give. We see these claims as completely unfounded. So there's no difference, and there's no more information since our last press release. So no news in this area.
Okay. Thank you.
Thank you. We'll take our next question from Oskar Lindström of Danske Bank. Your line is open. Please go ahead.
Thank you. Three questions from my side. The first one is on the U.S. dollar impact. The current spot exchange rates, are they sort of fully in Q4, or will there be sort of a delay, lag effect into Q1? So that's the first question. The second question is on COGS inflation affecting Consumer Tissue and margins there. You say that you are looking at ways to restore the margins. Do you believe the market would allow for further price increases on Consumer Tissue, or are you more leaning towards cost cuts or even restructuring as a means to restore margins? And how soon do you think, well, any of these could be impacted or could be implemented? That's my second question.
And then the third question, you may have answered this already, but I didn't quite catch it. In Professional Hygiene in the U.S., where you mentioned customers holding back on volumes in Q4, have they sort of come back to normal buying in Q1, or will there be a sort of higher level of volumes in Q1? What's your expectation? I realize it's still quite early in the quarter, but still.
And of course, we don't provide, I mean, in this case, I actually don't even know the answer, but I mean, we don't provide that level of detail. I mean, what I know is that the team is working very, very hard to grow volumes, of course, and hit their targets. And I think the same answer applies to when it comes to Consumer Tissue, restoring the margins, pulling all the levers we have.
Again, after the pandemic, after the bottlenecks that we had in the supply chain and all this, we are much more agile, and we are working very, very hard in the Consumer Tissue part of our business to restore margins in every different way. I can't give that level of detail. Our teams have their targets, and they have their goals, and they're working very, very hard to hit those goals, of course. I think we can say something about the U.S. dollar, Fredrik.
Yeah, I can't forecast the U.S. dollar, Oskar. But of course, as the strengthening of the U.S. dollar actually occurred in the middle of the quarter, you can say there is a bit of lag impact. But as I said earlier, we expect COGS to be somewhat lower, and that's driven by pulp.
So obviously, the impact, the lower pulp prices, that positive impact is bigger than the remaining lag negative impact from the dollar, if that makes sense.
Wonderful. Thank you. Thank you. And thank you, Magnus, also for these, I think it's going on 10 years you've been with us.
Yeah, Q report number 40 today. Thanks, Oskar.
Thank you. And we will now take our next question from Molly Wylenzek of Jefferies. Your line is open. Please go ahead.
Good morning. This is Molly. Just trying to get a little bit more information on energy. Maybe I missed it, but did you give us the energy impact in the quarter other than it was higher than you expected? And on your hedge position heading into 25, should we expect that to be a headwind or a tailwind or relatively neutral versus 24? Thank you.
Yeah, Molly, it depends a little bit on what you're comparing with. Sequentially, the impact was negative with SEK 60 million, roughly. So just to give you a bit of a number there on the energy for Q4 versus Q3. When we look at our hedging position as we go forward, it actually is neutral. So the level of hedges is somewhat lower, but what is more perhaps important is that we are now very close to market rates when you look at the hedging prices, if I put it that way. So to use your own terminology there, Molly, I would say neutral.
Thank you.
Thank you. And we'll take our next question from Karel Zoete of Kepler Cheuvreux. Your line is open. Please go ahead.
Yes, good morning all. Thanks for taking the question. I have two questions.
The first one is on top-line growth in your Health and Medical business, particularly the Medical Solutions seems to be growing volumes mid- to high-single-digits. You partly discussed this already, but can you give more insight in what is going well and where, and particularly the reason also why, aside from innovation? Is the sales team more effective? Have you expanded there? Because that seemed like very good growth rates. The other question is something you mentioned on accelerate your business or grow your business further in North America and Latin America. Can you give more color here and also discuss the North American washable underwear business, how that's performing nowadays? Thank you.
Okay, yes. Top-line Medical, as we said, been growing now for, I think, 15 or 16 quarters, but very good growth here.
Actually, we're growing in all our three different therapy areas, wound care, OSG, so orthopedic soft goods, and compression. I would say that what the difference is from a therapeutic areas perspective is that we had a good growth in advanced wound care and wound care for a long time, but actually, we see also now an improvement in compression, partly because of our improvements that we've done in the business, partly because there's a new scheme for reimbursement for compression products in the U.S. that's really helping. Also, the OSG part of the business is growing better. Geographically, we've seen an improvement in the U.S., and this is very much due to changes in organization, actions taken over the last year and a half to really improve.
The Hydrofera acquisition that we did a couple of years ago has been doing extremely well ever since the acquisition, but we also see an improvement now, as I said, in compression and in all parts of the medical business in North America and in Latin America. So it's good growth all over with an emphasis on the U.S. and Latin America. Then when it comes to that, we have a couple of efforts specifically focused on North America. One is, as I already mentioned, the medical, of course, but also in incontinence care retail, we are growing very, very nicely. So part of the growth you saw there over 11% actually comes from a very nice growth on Amazon and in other channels, and increasingly also now getting listings in the trade for Inco Retail in the U.S. So that's very, very encouraging.
I mean, Latin America has been doing really good for a long time now, and it just continues to develop all over, I would say, with emphasis on our biggest markets, which are Mexico, Colombia, and also now, in addition, Brazil, where we have established market-leading positions in Inco and see a very, very good growth. So that's that. And then, yeah, Knix had a somewhat subdued year last year. That's our North American washable underwear. And we did not grow with the market, and we are working very hard to establish plans, and we have now good plans for 2025 because the brand is so strong, the market position is so strong to get that back on track in terms of growth and margins. And the underlying growth is good. So we see big opportunities for Knix in 2025.
Super. Thank you.
Thank you.
We will now take our last question from Antoine Prévost of Bank of America. Your line is open. Please go ahead.
Yeah, good morning, everyone. And thank you for taking my questions. So three for me, please. First, in the Health and Medical, you talked a bit about maybe some stock building at the end of Q4. Anything to quantify or maybe the impact on the profit outcome for Q1? Second, I mean, in Consumer Goods, branded sales winning market share has come down in Q4 versus Q3. Anything specific there to flag? And do you expect improvement in Q1? I mean, from what you are a bit seeing maybe in current trading. And last one, on return on capital employed for Q4, I mean, it was a bit down sequentially in Medical and Consumer Goods.
I mean, I understand a bit the margin erosion there, but what is behind maybe the increase in capital employed for both divisions, please?
Thank you. Okay. I leave the capital employed to Fredrik, but when it comes to market shares, it's actually difficult to judge individual quarters. Overall, we had good market share growth last year, and we expect to continue to grow market shares based on the high demand we're seeing. It's difficult to say more than that and to be more specific. We have good momentum. So step by step, we see that we are growing market share in larger parts of our business. And then when it comes to H&M, now this was just something that I know we've been discussing in the business that, I mean, perhaps there could have been some stock building in Q4.
We have seen that sometimes before, and maybe that's also kind of a question raised when you see those very, very high numbers in Q4. To what extent that's the case or not, I don't know. So I don't think it would have a major impact in going forward.
Yeah, working capital, sorry, capital employed, I think your question was, it's nothing out of the ordinary there. So this is just normal variations. A bit of higher working capital, actually, for especially health and medical, and this was due to the very strong sales at the end of the year. And then we actually have a bit of higher and elevated capacity investments, as Magnus alluded to before. So there is nothing kind of out of the ordinary there.
Thank you.
Thank you.
Okay, so thank you very much for the Q&A.
Before leaving, I would like to flip to one last slide here, and maybe it needs to be zoomed out. Just how we continue to drive increased shareholder value, our equity story, to make that clear and underline that, and that we are very purposefully and focused in driving to these what we see as our key components of the equity story, that we are globally leading in attractive and growing hygiene and health markets. We have leading market positions, strong brands, and successful innovation, and more and more every year. I mean, this is continuously improving. We focused increased sales in the fastest growing and highest margin parts of the business. That's a very important part of combining the accelerated growth with profitable growth. And of course, sustainability and a winning corporate culture as foundations for achieving this.
We're doing this based on a very, very strong financial position with the stable cash flow, attractive dividends, and the EPS growth year over year. To leave you with that overall equity story that's so compelling for Essity. Thank you very much for listening.