Essity has reported continued high sales growth and higher margins in its half-year report, as it fully exits the Russian market and announces restructuring plans in New York state.
Net sales increased 20.2% to SEK86,856m year-on-year, and sales growth – including organic sales growth and acquisitions – amounted to 12.8%.
Operating profit before EBITA increased 101% to SEK 8,660m, while profit for the period increased 139% to SEK5,254m.
In its Consumer Goods division, net sales for the half-year period increased 19.8% to SEK52,653m.
Sales growth, including organic sales growth and acquisitions, amounted to 12.6%.
The company said volumes declined on account of its “prioritisation of higher profitability ahead of volume.”
Additionally, volumes were negatively impacted by lower volumes in Russia.
In the second quarter, the division reported a year-on-year net sales increase of 14.7% to SEK 26,344m.
In Consumer Tissue, organic sales growth amounted to 4.8% in the quarter, mainly because of higher prices in addition to a better mix.
For the Consumer Tissue Private Label Europe division, organic sales growth amounted to 3.5% because of higher prices and lower volumes.
Magnus Groth, Essity President and Chief Executive, said the company “performed well” in the second quarter.
“During the second quarter, net sales increased 15.8% and sales growth, including organic sales growth and acquisitions, amounted to 8.7%.
“Sales prices were higher, and the product mix was better. The lower volumes are mainly the result of our focus on margin improvement, resulting in us exiting certain volumes with unsatisfactory profitability.
“Adjusted EBITA increased by 49% and the adjusted EBITA margin by 2.4% points to 10.7%. “The margin was positively impacted by higher selling prices, a better mix and cost savings.”
Groth added the business is progressing towards its return target: “We are working in a focused manner – through innovation, value-generating customer offerings, strong brands, efficiency improvements and sustainable, profitable growth – to achieve our target of an adjusted return on capital employed of above 17% by 2025.”
Essity has exited the Russian market
Essity began work in April 2022 to exit Russia, and as of 17 July 2023 has now “completely exited the Russian market”.
It has divested its operations for a purchase price of SEK1.2bn on a cash and debt-free basis.
The buyer is the company New Technologies, with the principal owner Igor Shilov.
Groth said: “Since the start of Russia’s war against Ukraine, we have been fully focused on exiting Russia. This has now been completed.”
In 2022, Essity’s net sales in Russia corresponded to about 2% of its total consolidated net sales.
Strategic review of Vinda and the Consumer Tissue Private Label Europe business
On 26 April 2023, the company also initiated an ongoing strategic review of its ownership in Asian hygiene company Vinda and Consumer Tissue Private Label Europe, with the aim of reducing Consumer Tissue’s share of the company’s total sales.
Groth said the review is “proceeding according to plan, and various options are being explored that may result in divestments, although no such decisions have yet been taken.”
Excluding these businesses, he added that the company’s organic sales growth would have amounted to 8.0% and the adjusted EBITA margin to 12.5% during the second quarter of 2023.
Essity to close manufacturing operations in New York state
The company has announced it will implement restructuring measures in its North American Professional Hygiene division that include the closure of two production plants in New York state.
Its paper mill in South Glens Falls has now been closed, while its converting facility in Greenwich and its warehouse and distribution centre in Saratoga Springs will remain open likely through to the end of the year.
Restructuring costs are estimated to amount to approximately SEK1.2bn, and Essity said the restructuring measures are expected to have a low single-digit negative impact on volume in the second half of 2023 and full-year 2024.
The company said: “Essity is continuing to improve profitability by focusing production and sales on the company’s more innovative and value-creating customer offerings.”
