Essity results hit by raw material and energy price hikes

Essity has said higher raw material and energy costs have had a negative impact of SEK3,268m on earnings in its third quarter results.

Net sales for the period 1 January 2018 and 30 September increased 8.4% to SEK87,388m compared to the same time a year ago, while operating profit before EBITA declined 10% to SEK8,085m.

Adjusted pre-tax profit decreased 6% to SEK8,026m, while profit for the period decreased 14% to SEK4,935m.

For the third quarter, the group’s net sales increased 9.1%.

Magnus Groth, president and chief executive, said: “The third quarter of 2018 was challenging as the negative impact from raw material and energy costs has accelerated further.

“On the whole, these factors negatively impacted our margins in the short term, despite higher selling prices, a better mix and costs savings in all business areas.”

To increase profitability, he said the company will continue to invest in its brands: “We launched 13 innovations during the quarter that strengthened our customer and consumer offering.

“Within Consumer Tissue, we have initiated negotiations regarding further price increases that are primarily expected to impact 2019.

“For some contracts in Europe, additional price increases have already been implemented with gradual effect in the fourth quarter of 2018.

“We are intensifying our efficiency improvements and restructuring of the business. We have decided on further restructuring measures as part of “Tissue Roadmap” and are continuing our work with “Cure or Kill”.”

During the quarter, a Group-wide cost-savings programme was launched that is in addition to the ongoing efficiency activities in the company.

The expected annual cost savings are being increased by approximately SEK 100m to approximately SEK 900m, with full effect at the end of 2019.

The programme includes headcount reductions of approximately 1,000 positions.

Essity is also making changes to its organisational structure and executive management team.

The two units, Global Hygiene Supply Tissue and Global Hygiene Supply Personal Care, will be merged into one unit under the name Global Manufacturing with responsibility for production and technology.

A new unit under the name Global Operational Services will be created with the purpose to further strengthen the group’s overall work related to operational and cost efficiency.

The unit will encompass sourcing, logistics, business services and digitalisation.

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