Essity AB (publ) (ESSITYB) Earnings Call Transcript & Summary

My name is Pilar Rocafort. I'm the consumer and luxury specialist just at UBS. And I'm delighted to be here again with Essity's CEO and President, Magnus Groth; and also with my colleague, Guillaume Delmas, HPC and full analyst. So we're going to start with a presentation by Magnus, and then we're going to have Q&A. If you would like to submit your questions, we can ask them to Magnus. With that, the floor is for Magnus.

Thank you, Pilar, and it's good to be out and about again, meeting some real people after 2 years of pandemic, but of course, it's a very sad time. And I don't have any updated slides here about the situation with Russia and Ukraine and all the terrible things ongoing, which is partly influencing our business as well, but I'm sure that we will cover this in the Q&A session. So with that, an overview of Essity and just the big numbers. Last year, our sales were SEK 120 billion with approximately SEK 13.7 billion of adjusted EBITA. We're active in 150 countries with hygiene and health products. And starting this year, we are presenting a [indiscernible] Consumer Goods and Professional Hygiene. And I think having Consumer Goods is self-explanatory. Health & Medical, it's a B2B business focused on medical wound care, compression therapy, orthopedics as well as incontinence products in the health care sector. While Professional Hygiene is the global leading Tork brand away-from-home hygiene services and products. And from a sales perspective, Consumer Goods is the biggest part. That's the dark blue part of the pie chart to the left, the different categories we have there. So Tissue, Family Care, Baby Care, Incontinence care. And part of this is also Private Label that we have started accounting for separately. We are carving out the European Private Label Tissue business to see how that eventually fits into the company in the longer term. And then Professional Hygiene and Health & Medical, approximately 20% each. And I will get back to the priorities, how we aim to grow in these different areas going forward. And by geography, you can see that Europe is still a little over 50%, with Asia and Latin America growing very, very quickly and becoming a bigger part of our overall sales here. And that's part of our strategy, to grow in dynamic emerging markets, and we've done that very successfully over the last 10 years. We have exceptionally strong market positions, and this is something that's also part of our long-term strategy, and that's been developing very positively over the last number of years. In Health & Medical, we are #1 in Incontinence Care. We're #1 in compression therapy and have very strong local and regional positions in orthopedics and Wound Care. And if you look in advanced Wound Care, we have a quite strong position in, for instance, Europe and other important markets like Southeast Asia. Consumer Goods, the same here. Typically a top player. And again, regionally and locally, we're always aiming to be #1 or #2. And in Professional Hygiene with the brand Tork, we are the global #1. So hidden in the brands at the bottom, you will find at least the 3 billion-dollar brands. It's the Tork brand, the TENA incontinence care brand. They're both double billion-dollar brands and, of course, the Vinda tissue brand that we have in China where we are the #1 tissue provider. A little bit more about the background before we turn into the future. So financial targets and policies. We increased our targets quite recently when we were kind of leveling out on the old targets. So sales growth of about 5%, and we have been in that vicinity over the last 5 years, and that's a combination of organic growth of approximately 3% and then self-financed growth through acquisitions, around 2% per year, adding up to the 5%; and a target for adjusted return on capital employed to be above 17%. And we raised that target approximately 2 years ago when we had been sustainably over 15%, which was the previous target. Of course, since then, we have had the pandemic inflationary shocks and now the war, but we'll get back to all of that, of course. Capital structure, solid investment grade and long term and stable rising dividends. And this is the outcome '21 for the full year compared to the year before. And of course, last year was hugely volatile. The first 6 months, very much impacted by the pandemic. That typically had a negative impact on all our businesses except Consumer Tissue and especially Professional Hygiene due to lockdowns and restrictions. So in spite of that, sales growth was good, organic 3.3%; overall, 4.5%. And we made a number of acquisitions, I'll get back to that, contributing on a full year to a higher number. But compared to the year before then, a lower adjusted EBITA and reduced margins based on first half of the year when we had lower capacity utilization and second half of the year when we had, especially in the fourth quarter, raw material transport cost and other cost hikes that were quite significant. And we'll talk more about that, I'm sure, later. We have a positive view on how things will develop throughout 2022 and going forward. So the proposed dividend that will then be decided at the Annual Shareholders’ Meeting in 2 weeks' time is an increase with 4% to SEK 7 per share. Getting back to our return on capital employed target, how do we expect to get there? We're very much focused on capital turnover. But having said that, the biggest opportunity to get there is through margin improvement, and this is just an illustrative slide to show how we aim to get to the 17%. So of course, we work with capital efficiency every day, but the big part of the improvement will come from margin improvement. And the main areas, of course, in the short term, there's only one priority, and that's price increases and price increase and price increases. But other than that, typically, we have had approximately 0.5% to 1% margin improvement every year from innovation-led pricing, premiumization, mix improvements in our portfolio and maybe 0.5% to 1% margin improvement coming from savings in cost of goods sold and efficiency improvement. And we've also seen an improvement year-over-year, which is more of an underlying structural improvement from improving the portfolio mix. So doing more Health & Medical, where we have the highest returns and less Consumer Tissue and less Baby Care where we have the lowest returns. So that's a very important long-term strategy. And all of this is, of course, ongoing, but it's kind of right now kind of hidden behind the raw material shocks that we're seeing. That's, of course, challenging in the short term, but I think actually, in the longer term, will create better market conditions for many of our categories. I will go through our strategic priorities, so I won't talk about this slide specifically, but I have kind of one slide on each topic here that you see in the bubbles. And continuing the transformation journey is very important. I already touched upon growing in the highest-margin, least capital-intensive part of the business, which is Health & Medical. And in the Personal Care categories, they’re also less capital intensive like Feminine Care and Incontinence Care. And these are the acquisitions we did just last year. And it's a mix of acquisitions of [ partner ] companies that were very strong and are very strong in FemCare, inco care and in Professional Hygiene and the number of the med tech acquisitions then in the medical space, AquaCast Liners in orthopedics; ABIGO, advanced wound care; Hydrofera, advanced wound care here in the U.S.; and Coach, you know the sports tape I'm sure, and we acquired this iconic brand, becoming the world leader in sports tapes in the U.S. We were before already the global #1 in sports tapes. And finally there, down at the bottom, Legacy Converting that I visited yesterday, they have a facility in New Jersey where they are supplying then advanced wiper systems for industrial use, so cleaning down different types of products that are -- like airplanes and so on with the wipers, but you'll find their products, Everwipes also in your gym locally. So look out next time you use a wiper in your gym if it's an Everwipe because that's the name of the brand. So a lot going on, on the structural changes as well. Then briefly on innovations. This is what's giving the underlying margin improvement, the structural margin improvement that we have been seeing over the last 6, 7 years. So it's a very, very important part of our strategy, and we can see that it's paying off in stronger market positions and in better price and mix. And of course, last year, there was a huge focus not only on the hygiene and health aspects of our products, which became more important through the pandemic, but also sustainability, which is coming as the #1 driver of innovation and product development. I just decided to pick a couple of examples, which is kind of a complete mind change and very disruptive products from our perspective because we've always been making disposable products, whether it's toilet tissue or pads, liners, baby diapers and made of plastic, of course. And going forward, we are gradually shifting now to reusable products, which you can see here like menstrual cups; washable, leak-proof apparel or underwear and different types of the wipers that are not tissue-based but microfibers. So we're really, really doing a shift here in how we run the company, and I think that's a very important contribution to improving customer -- consumer satisfaction, our sustainability performance and that this is the way forward for us. And we will see less and less plastic in our products and more and more reusable products going forward. Based on all this innovation, we have an extremely strong position in our branded market shares in retail, which are the shares that are, of course, measured in the Nielsen universe. And you saw the overall market positions before, but actually, specifically in 90% of our branded retail sales, we're always #1 or #2. And if we're not, we try to get there or we do something else. And that gives us position overall that we have increased our branded market shares in over 70% of our positions. And a position is a category in a country. And this is an important measure. And if we grow in 70% of those category/country combinations, of course, we're growing overall. And then in 20%, we're typically stable and then losing market shares in 10%. So overall, a very good -- I think it's difficult to actually achieve a higher number than that because there's always some wins and priorities and so on going forward. And you can see again some of our fantastic brands there to the right. Digitalization, covered some of this, but we have been really, really working with digitalization, change management, training, in all parts of the business, not on e-commerce, which I'll talk a little bit more about, but also digital solutions, sensor-enabled incontinence care products, sensor-enabled dispensers in public washrooms, how we interact with our consumers, of course, in social media, digitalization in operations where we are seeing maybe the biggest saving opportunities now in our plants through digitalizations and then, of course, using data analytics to further improve efficiency. And I would say that net revenue management, right now, when we are in a storm of price increases, the tools we have for net revenue management and pricing based on advanced analytics and even AI is really helping us. Sustainability, we have very ambitious targets. We signed up for the 1.5 ambition with the United Nations, and we have raised our targets to 2030, and we have very, very tangible actions to reduce our CO2 footprint, and we achieved that last year, very much in line with our longer-term planning. And not on this slide, we have a very strong focus also on reducing plastics in our products, as I mentioned before. Another strategic priority is to grow in emerging markets. We want to rise with the tide. And the prioritized markets for us are China, Southeast Asia and Latin America. And of course, we've been growing very, very strong also in Eastern Europe and Russia until recently. We'll talk about that in a while. And as you can see here, the margins to the right or to the left here in adjusted EBITA, there used to be a big difference in margin, and that kind of slowed us in growing in the emerging markets because it was margin diluting. But now we are in a situation where our margins are quite similar, and that makes it more attractive for us to speed up even further in emerging markets. Efficiency. We have an ambition to achieve savings in cost of goods sold by between SEK 0.5 billion to SEK 1 billion every year. This is what I referred to earlier when I said that we were seeing kind of structural margin improvements every year, part of it from efficiencies and savings, part of it in -- from innovation and pricing and mix. And a few years ago, we -- or just last year, we launched the manufacturing road map that gave us an outlook for the next 5 years saying that we should be able to keep this pace of savings. Of course, it's been very, very challenging during the pandemic when we have had absence rates in some of our plants of 20%, 30% for periods. And this is not fully -- this hasn't fully recovered yet. So we still have a higher absence in -- typically in our production facilities than before the pandemic. Very much focusing on SG&A efficiency as well and a general cost culture, and here's a beautiful picture as well. This is -- put this here because it's also, I mean, a very important innovation for us is the first plant for manufacturing consumer tissue with wheat straw which is leftovers. This is a plant -- our biggest plant actually in the world, which is located in Germany, where we are now producing consumer tissue, not only from virgin fiber and recycled fiber from all over the world, but also from local wheat straw. And you can see the bales there going into the production process. But with all of this being said and all that hard work ongoing everywhere in the company, the only thing I'm talking about now with you, but also when I'm out back out on the road again traveling meeting with colleagues after the pandemic, is pricing, pricing and pricing. Because even if we achieve savings and even if we achieve price increases due to innovation and premiumization and so on, that's not nearly enough to offset the inflationary pressures that we have from all the raw materials that we're using, which is then the virgin pulp, it's fluff pulp, it's recycled fibers, it's the transport costs, distribution costs and also, of course, over the last 6 months increasingly, energy costs, natural gas and electricity, which we never really spoke that much about because it was always the same and suddenly, as you know, natural gas costs in Europe are 20x higher than a year ago. So we will get back to that, I'm sure, how we're managing that, and we are managing that, of course. So we are going in wave after wave of price increases. We were very aggressive last year. We issued a press release to all our customers globally that we were implementing price increases in April. Many of our competitors said they're crazy. They used our letter to go to customers saying, as it is crazy, work with us instead. And then, of course, eventually, we were more right than we had hoped for because everything just continued up, especially in the fourth quarter and now also in the first quarter. And that's just before finalizing this presentation. We made it very clear when we announced the Q4 results, and many of you maybe listened to that, was that Q1 this year will be our toughest quarter. And after that, we expect to see sequentially improving margins. And this is very much still on track. So in spite of even higher raw material costs and gas prices, this is still the case, and this is because we're also having great momentum in pricing. And you can see some of the bullets here. I think the new mindset, both in our sales force, but also with our customers, is that it's not about recovering or catching up to previous margins. It's about continuous inflation-led pricing increases, similar to what we've been doing in Latin American countries, for instance, which will lead to a much high flexibility both from our customers, retailers, distributors, health care providers and so on and also a much bigger flexibility in then retail shelf prices and prices to the customers and consumers as we have seen for -- I mean, for many years in emerging markets and in the inflationary markets. And that's why I think will be maybe a good thing coming out of this. There will be more -- it will be easier to adjust prices in the future to raw material and other cost swings than it has been historically. So we have also reweighted of course, in our short-term incentive programs to our entire staff focused on margin enhancement because every time there's a choice between raising prices or protecting volumes, we have good capacity utilization. We have strong brands. We always go for pricing every time. And I always tell the sales reps that if you don't lose significant volume with one of your big accounts, you haven't tried hard enough, you haven't stretched all the way. You don't know if you raise prices enough before you lose something. And actually, what's happening now, and that's why the momentum is strong, that we are losing some volumes. And then these big retailers decided to just come back after 2 weeks and say that this smaller player who promised to undercut you by 10% or something, they can't deliver or prices -- their costs have gone up, and they're not standing by their offering, could we please have you as a supplier again? And we're seeing this happening left and right. And then, of course, yes, but then we have to increase another 5%, 10%, 15%. So that's it. And these were the everyday -- this is my last slide, the everyday priorities we set at the beginning of the pandemic, caring for our people, contribute to society and secure business success. And I mean, this is still the case now, of course, with the terrible war in Ukraine and I'm sure that we'll talk about this. We have 75 employees in Ukraine, and we are checking every day that they're safe. They are prepaid for a quarter at a time, and they have satellite phones. Some of them have, of course, signed up for military service. About a dozen have left. So -- and we are still supplying all our products in Ukraine. It's an amazing job they're doing. In Russia, we have 1,300 employees. We have 3 production plants. We have announced publicly that we are winding down operations. We will continue with a basic assortment to provide them toilet tissue and FemCare products to the population of Russia. This will be like an island operation because we're not importing or exporting any finished goods or anything like that. And we're doing this on a very basic level, and we continue to employ our 1,300 employees for -- until further notice. And we just -- I mean, there are so many things where we don't have an answer today. So what will happen and what's next and so on, we don't know. This is what we're doing currently. And I think that's very much in line with many other FMCGs and companies who are providing these types of services. Okay.

That's a great presentation, Magnus.

Thanks.

So thank you very much. I mean it's great to see the market shares because I think in this day with all the headwinds that you have, everybody has around the world, it's important to have those market shares to be able to push that pricing. So I'm going to go back, first of all, to Russia because it's kind of one of the key topics being discussed these days. I mean, it's 2.3% of your sales. And you said you're winding down production, but it's still going to be delivering some of the products. Did you also produce in Russia for other countries? And could you move that production anywhere else?

Approximately 10% of our production in Russia was exported to Eastern European countries, but we can replace that from Western Europe. So that's really not an issue for us. So for now, I think that is all under control and all managed. And then we take it day by day and see what happens. So it's not material for us. But of course, it was a nicely growing business based on our strong brands. So I mean if in sometime in the future, it would be possible to get back to where we were, we would like that, of course, preferably. But right now, this is how we run the business, considering the sanctions, the transport issues, the lack of raw materials, all the other challenges that we experience, of course.

How do you think about the indirect impact or the direct impact? It's your sales in Russia, your business in Russia and Ukraine. How about the indirect impact I'm thinking in particular inflation and how it's changing energy prices?

Yes. Of course, the impact on electricity and gas, you have to check every morning and every evening what went by. But overall, there's been a huge price cost increases. And yesterday, some of our regional and local competitors, especially in the tissue area, announced that they were shutting down paper machines due to this is looked at an Italian player that are shutting down 2 very modern nice paper machines in Spain due to the high natural gas prices. And we've seen similar actions also in Sweden for some napkin suppliers. And I think we'll see more of that. This will be a little bit of a last man standing. And of course, we're very, very strong. We're very cost efficient. We can raise prices and we have a very solid hedging strategy also for electricity and natural gas. So we are relatively, to our competitors, we believe significantly better off than they are.

Can you remind us in terms of hedging for energy? It's 50% hedged roughly for 2022?

So there's a corridor. If you look at our energy costs, I think it's about 5% of our costs. And 60% of that is electricity and 30%, 40% is natural gas. And we have a hedging corridor. So in both in electricity, we're currently for the first quarter hedge to 70%. That means that only 30% is subject to the spot prices and swings that you see. And for gas, we're hedged to 72%. So -- but even then, of course, the remaining is still going up and down. And then for the full year, it's slightly lower. It's about 65% hedge level for electricity and 55% for natural gas because this corridor eventually tapers down, and now it's not the time to hedge for the coming quarters. We don't -- as we see it.

And in terms of the pricing and the negotiations that you have with your customers, how are those negotiations going to continue with this input cost increasing and having lack of visibility on potential further increases?

Yes. So when we put through our first wave of price increases in the second quarter last year, as I already alluded to, there was a very strong resistance, what are you guys talking about? And it's not increasing that much. Your competitors aren't really saying the same thing. But now there's a very, very strong momentum. Also for the reasons I mentioned, we have competitors who are shutting down, and we know that some competitors also in Personal Care are in financially very, very much under pressure. So there is a strong momentum. And we see that we can come back after 3 months. Typically with many customers, we have pricing windows every 3 months or every 6 months. With other customers, we have annual contracts that we have broken up, we said we will stop delivering. We cannot refer to force majeure, but we can refer to something alone that's called frustration of purpose, which means that the contract that you entered was entered on completely different purposes than the situation is. And this is -- we're seeing that increasingly, especially in Europe where we have the biggest issue. We're raising prices continuously everywhere now and seeing good progress. And if we can't, then we're willing to give up those businesses. And so far, I don't see any big needs for restructuring or anything like that. So a very dynamic environment. And again, it's not to catch up or to get back to some level or so on. It's about now using the power of our brands to price as much as we can. I mean that's what we need to do. So -- and I think the sales force is very much on top of this now.

And are any geographies that you would say is much easier to pass pricing and some countries where it's much more difficult?

So again, in emerging markets, it's much easier, and we are even already back -- I shouldn't say back because things will change again. But like Latin America, like China, Eastern Europe, at least until recently, who knows now, and then in Europe, in tissue, there's such strong momentum that it's possible to kind of increase pricing continuously. And then Personal Care, I think, is the most challenging part. So especially Incontinence Care and personal -- and in health care, where we're typically on 3-year contracts with health care suppliers, of course, many them also government health care suppliers and so on. But even there, we're going in and saying that we need to just renegotiate. So...

Can you give us a feel maybe for the magnitude of these price increases? I don't expect you to give us a number, but is it unprecedented?

Yes. But every way, it has to be at least double digit. So…

Across all your divisions?

No, the need is -- the biggest need is clearly in Consumer Tissue because that's where we also have the impact of gas and electricity and Professional Hygiene where also recycled fiber prices are up because people are not back in the offices so there’s a lack of recycled fiber, a shortage, and also those prices are coming up =m while in the personal care categories, there's a lesser need for price increases, but still some. And then, of course, really, the jewel in the crown, the medical business, where we don't see any impact from raw materials. And I mean, this is the reason why we -- one of the important reasons why we ventured into the medical categories we're in 3 years ago, very high gross margins, very little material costs and energy costs and so on. This is the advanced wound care products, the compression products and the orthopedic products. And that's why we want to do more eventually in those categories. And as you can see from the acquisitions we're doing, we're growing very fast now in medical, both in organically and through acquisitions to make that a bigger part of the business going forward.

And price elasticity when you think about at least double-digit price increases? Do you expect a knock-on impact on volumes with consumers maybe trading down? I would not expect trading out of the category, but potentially trading down?

Not yet, and we don't see that as kind of our biggest issue. If you look at the consumers, they are still employed. They still have strong purchasing power here in Europe, everywhere. And they still buy premium products. And especially when they go online, they prefer premium products. So we're not seeing any -- and we don't expect any down trading. But actually, it's just now the first quarter or 2 when we are seeing significant shelf price moves also that the retailers and others are moving the inflationary pressure to the consumers. But so far and historically, we haven't seen really any down trading or impact on volumes.

I mean, clearly, you were highlighting before that you have market shares of like -- your market is 70% of your products has been increasing in the retail channel, which is amazing, right? So do you think it's mainly been driven through that innovation that you keep putting through, even some of the products going to the more sustainable angle? What do you think has been driving that phenomenal market share?

So long term, we have been very, very consistent in our marketing, in our kind of innovation focus and investing behind that. And we have remained consistent through the pandemic when many of the smaller and regional players have had to cut costs, and we've just continued to invest in innovation, but also then supporting it with advertising and promotion and a strong go-to-market and of course, moving from face-to-face selling to online selling, and I think with all the digital tools, and I think all of that has helped and not the least, of course, the switch to e-commerce, where we have been strong since -- I mean, since 5 years back and really benefited from the growth there because that has benefited strong brands and it benefited all the things we've done over the years when we built a very strong presence with Amazon in Europe, for instance, even when it wasn't taking off. Nothing was really moving and then suddenly with the pandemic, started moving. And of course, Vinda, which is just to show how the difference here. Vinda in China is 50% of sales online, while in Latin America, where we doubled our online sales last year, it went from 1.5% to 3%. So big changes, big differences. And then Europe and North America are somewhere in between, of course, depending a little bit. So the shift to e-commerce has helped us a lot also.

Marketing has also been an important area of investment, supporting your innovation, driving market share gains. So to go back about -- to the 2022 margins. I mean, you reiterated that you expect Q1 to be the trough and then some sequential margin recovery thereafter. I guess my 2 questions on this, what underpins your confidence, particularly at a time when the inflation is still very uncertain?

Every day, you wake up and read in the news that something is more expensive than yesterday. Yes.

So how can you be so confident about that? And how do you think about the trade-off between margins and marketing investments in the current environment, as in, would you be willing to sacrifice some of these investments, maybe seeing your market shares going -- not being as strong as 70% of your business winning shares to protect margins?

Yes. So I mean, typically, my confidence comes from the pricing momentum that we're seeing. I mean that's the reason it has to come through pricing. And our advertising and promotional spend is 5.2% of sales. So even if we cut that, it's just 1%. If you would make a significant cut to 4.2%, it would still only be 1% help to margins, which, I mean, might be the right thing to do. I mean, in certain categories like consumer Tissue, we're not doing any promotions right now because, of course, that's a way to raise prices not to promote. And that kind of will have been seen as lower A&P to some extent also I think, in a few quarters. But in general, we're continuing investing because we have a strong launch program for this year as well that we want to support with A&P. So it's not a solution it's -- you can work a little bit with it. But of course, we're talking about many, many percentage points of price increases that we need to do throughout the year. And as we also stated at the time of announcing the fourth quarter that most of the price increases that we achieved during last year will have full impact in the second quarter. So they're coming gradually through the first quarter, and then the impact will be in the second quarter, and that's also what we're seeing just as a heads up that we stand by that, of course. And we are also working with surcharges which we prefer not to use because the surcharge is temporary, of course. But right now, with the gas prices, for instance, I mean there's no other way around it, so.

So if we move to a different lever to try to compensate. You have a manufacturing road map of achieving savings of SEK 0.5 billion to SEK 1 billion to 2025, is there any way that you could accelerate some of those savings kind of near term to be able to compensate for this very high input cost pressure?

Yes. There are a couple of things going in different directions there. Of course, just the fact that we're back to high capacity utilization, especially in Professional Hygiene, helps with savings, and we can do more now on energy savings because the payback is, of course, much, much faster than it was a year ago. So those are some things that are helping. Typically, we can get a little bit better rebates when raw materials are very, very high. That could help a little bit. But we have to remember that, again, absence rates in our plants are still about 5% higher due to COVID than they were before the pandemic. So it's down to maybe 10% to 15%. It used to be 5%, 10%. So that's something we're working with. And we still have the challenges from some bottlenecks, of course, in the global supply streams and so on. But having said all that, so that's kind of not making life easier for us at the time being. The big potential comes from digitalization in the plants. So prescriptive maintenance, continuous monitoring of the machines with sensors and having -- producing higher quality with fewer stops in the machines, and we're seeing a lot of progress there. And very much in the supply chain where we have created a global distribution and transport hub in Barcelona in Spain, where we have 130 experts. The average age is 28 in this hub. It's amazing, and they optimize our transport flows. We have 3,000 trucks on the road every day in Europe and of course, none in the other parts of the world as well. And we're seeing big, big benefits in efficiencies. So truck fill rates, demand planning, supply planning, the S&OP process, all of this, that also eventually improves the working capital. So and that's all about -- it's a huge change management effort internally because some you have to trust the data that these guys provide instead of the experience of logistic experts who are sitting out in the countries and know all the routes and the distributors and how much this Lidl store is selling every week and so on. But the big data is…

It’s working.

It’s working. And it's better. It's the forecast accuracy improves, but it's a huge step for many working in the organization to -- they say, "Yes, I can see that the precision is better, the forecasting accuracy is better, but I don't believe it.” I mean that's what they say. So -- but that's happening. And that could be a big saving potential also.

When did you create that hub?

This, we started 3 years ago, and it's fully operational now and also including most geographies right now, actually. So they're doing -- they started with the demand planning and then consolidating all the transportation flows in Europe, and then we have gradually expanded into them also optimizing supply planning, even in the plants. So even between the tissue paper machines and the converting lines, how many mother wheels should be in between and so on. So that's a fun case to go to actually and see the future.

And on the future, what's the big picture? What will Essity look like in 5 years from now? Imagining Health Medical will be a much bigger proportion of your sales. So what's the Essity of the future? And you went on an acquisition spree in the last 2 to 3 years. How do you make sure that all these businesses you are acquiring are properly integrated? And maybe related to that, what did you learn from acquisitions from 5, 6 years ago? I'm thinking of Wausau, I'm thinking BSN Medical, which had, at least initially, a challenging -- that's quite a challenging integration.

Yes. And all the acquisitions I showed here previously are doing really, really well. So that's a good message. So what are we doing now maybe differently? What have we learned? One is don't touch sales and marketing for the first 2 years. We also learned that, where it's possible, if you can have an earn-out with -- if it's a privately held company for a year or 2, that creates a lot of stability for the handover and of course, with a focus on keeping sales up. And then what we always integrate immediately is the back end. So IT, procurement, typically very important kind of SG&A, those different kind of back office into the global supply chain, as I mentioned, and also global business services. So that, we manage very quickly and can typically achieve some savings and efficiencies. But don't touch the go-to-market and the sales. Don't try to do too much cross-selling or to be too clever and accelerating and so on. Do that step-by-step as you get to know each other and so on. So that's a big learning. And it seems to be working with the most recent acquisitions.

Top line. Do you think with the pricing environment, you could actually -- I mean, at a guess, at least at 3%, do you feel that there's actually upside in this?

Yes, the 3% organic growth that builds a part of the overall target of B2B about 5%, I mean that means that we should gain about 0.5% market share on average in the markets where we're present with the different categories where we are present. And typically, we've been around that number, but it's always a mix of price, volume and mix. And it's very different what’s what and of course, this year and also into next year, pricing will be a huge part of that. And this year, it will be easy to achieve that, of course, and we'll achieve much more because of the pricing we need. But I mean in the long term, it should be a healthy mix of the 3. But probably this year, it will be less volume and more -- because volumes are okay and much more price component and then some mix.

And some mix, right, with all the innovation, which is quite a good thing as well.

Actually, can you -- to finish on a very positive EBIT note, can you talk about your FemCare business in China, where we’re seeing like very strong momentum? And I guess, overall, the Chinese opportunity still for Essity, I mean with Vinda, you're quite big. It's been a very successful business. But as you're pushing more into other Personal Care, outside of Consumer Tissue more into personal care and health care institutions?

Yes. We mentioned our strong market and strengthening market positions. For FemCare, we have 100% improving market positions. And it's been like that for years, and it's our smallest category. So sometimes we wonder why is that because it's a category that's mature, it's fully penetrated. It's not growing and still we're growing. So we kind of have the recipe there when it comes to marketing, and we have product superiority in many areas. So we launched 3 years ago with Vinda in China towards kind of affluent young working females and it's been growing fantastically the FemCare business. Everyone is in China, all the big players, all the local players, and we are we are very, very successful. And in 1 or 2 years, it typically takes 5 years before you break even, even though you have a good gross margin because you reinvest, of course, in A&P and growth and so on, but it's going extremely well. And we have a couple of percent market share now in China, but in this segment, in geographies where we have launched and also online, where we have a much higher market share. And one of our best promoters on TikTok is Mr. Lipstick. I mean maybe you know him. You’re in the beauty category. So he's an expert in applying lipstick and makeup on TikTok, and he's also one of our influencers for Libra's female pads and liners, and he's doing a great job.

That's good. Another [indiscernible] advertisement. Thank you so much, Magnus. It's a very tricky time for all the companies. So thank you for making the time to be with us, and thank you for all the details. I think it's been a very good presentation. So thank you very much.

Thanks for having me. Thanks.

Thank you.