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

[indiscernible] for being here on time. And obviously, thank you very much for Fredrik, CFO of Essity to join us today. I think the format will be Fredrik has a presentation for about 20 minutes, and then we have plenty of time for Q&A and you just raise your hand, and the mic will come your way. So over to you, Fredrik.

Fantastic. Thank you so much, and thank you for coming to listen. So I will give a bit of introduction to who we are for those of you who haven't seen so much of us before. And then I'll talk a little bit about the long-term characteristics of what we're trying to achieve. And then I'll end a bit with the kind of more short-term oriented environment. So give you a bit of flavor of what's happening now and how do we see kind of the near-term future. So that's the kind of plan. If you want to break in with questions, please let me know and I'll try and answer as good as I can. So I'll just start with a bit of who we are actually because we are, as many of you would know, we're a leading health and hygiene company, so a global health and hygiene company. We have a very clear purpose, which is breaking barriers to well-being. So with our leading solutions, this is what we intend to do. We actually create more well-being, and we do that for all our product categories and globally. So this is pretty much our purpose. If we look at kind of the brief numbers now using -- sorry, this was a bit fast, so using 2021 here as a proxy, our turnover is roughly about SEK 121 billion, so EUR 12 billion roughly. Profits at that year, EUR 13.7 billion. We're in 150 countries with roughly about 46,000 employees. So that's pretty much the context. We are split up in three separates, you can say, business areas. They're all linked. So they have common you can say, production platforms, common technology. But the way it looks, if you look at the three areas, if you look at to the left, Health & Medical, this is the business which contains our incontinence health care business around the globe. And we also have a medical med tech business there with compression therapy, with orthopedics and with Wound Care. So this is the Health & Medical and it constitutes roughly about 18% of the total company approximately. So turnover, about SEK 22 billion. The other one, Consumer Goods, roughly about 60% of what we do consists of feminine products, feminine care products, baby care products, incontinence for the retail end, so what you would find in supermarkets, et cetera, and consumer tissue. So these are the four areas and roughly about SEK 74 billion. And then finally, Professional Hygiene. So I'm not sure I haven't been into the restroom now of this hotel, but I hope it's here. So the Tork brand name is pretty much across the globe. We're, as you'll see, a clear #1 in this space globally. It's approximately about 22%. So this is basically dispenser-based tissue, soaps, wipers that you would find in restaurants and hotels, et cetera. So what is common, you can say for all of our different businesses are favorable market trends, and this is quite important because the underlying markets are generally just growing. So if you take, as an example, incontinence or the medical business, growing and aging population and of course, an increased prevalence for chronic conditions that comes along with that. So living a long life is really great but of course, it brings some conditions that we are there to help and treat. There is a general increase of awareness of hygiene and health. And of course, that's also been strengthened in recent years now through the pandemic. Sustainability, a very key issue as are many other of the underlying trends. So all of them basically favoring our three business areas jointly. So I won't spend that much time on the financials here and now. But -- and I'll come on to this actually a bit later because we have set very clear financial targets for what we want to achieve. So an annual growth of roughly about 5% of that -- or more than 5% actually. And of that, more than 3% organically. So for comparable business, so to speak, and another about a couple of percent coming from acquisitions. And we do that regularly. We continue to expand our business with acquisitions. And then we've set a target of reaching 17% of return on capital employed no later than 2025. Now this target was set 2 years ago. So at the latter part of 2020. Right now, and this is a bit of a lead maybe, our return on capital is actually below 10%. So interestingly enough, as you can see, this ambition is actually then, of course, means a big improvement from where we are at this current moment. I'll come on to that in a second. So if you look at the historic path, and this is actually quite interesting. You can see here that the latter 2 years have been quite exceptional for a couple of different reasons. But prior to that, up until 2019, we've consistently improved our margin, and we've had a consistent organic sales growth in what we do. And of course, growth of the profit has been higher than the growth of sales. So we've been on the clear trajectory. And when we set this target of more than 17% in 2020, we were actually about 15.5% roughly. So the improvement we set to achieve was, of course, to continue to grow our business, but also to continue to expand our margins. Now if we look at where we are, of course, today, we are quite far away. We were not when we set the target. So when we set the target, the underlying, you can say, levers to get to those targets where basically you can say 3 or potentially 4, a continued improvement of margin through innovation, I'll come on to that in a second, a continued expansion of our margins through better efficiency. And then, in addition to that, a higher growth, you can say, of high-yielding entities. And then we had a set of other issues like further digitalization, et cetera. So there were quite clear levers. Now a lot of the focus for investors, but just for about everyone in the last couple of years has been this very, very significant impact from, of course, first pandemic, and later on, the hyperinflation that we've seen in input costs. So of course, what has become much more of an element to compensate for this is largely basically price. So right now, in the short term, a lot of the focus is kind of aimed at continuing to strengthen our pricing and increasing pricing. I'll show you exactly how that works. But so far, it's going well. So the levers to get to the 17%, which we are still both committed to and secondly, convinced that we're going to be able to do is very much about, of course, compensating whatever we have in input costs through price but also those levers that we are behind the scenes continuing to execute on, which I'll talk a bit more about. Now just looking at the company, one of the absolute key strength, and this may be obvious to you, but we have very, very strong global market positions in all of these three business areas. So starting with Health & Medical, we're clear #1 when it comes to incontinence for the health care sector or institutions and health care. We're #1 in compression therapy. So this is for phlebology, for instance, or for lymphologies or for cancer treatment, as an example, but also for regular compression treatment. This is not when you're out running on a Sunday, and you need a bit of compression. This is basically medical treatment using compression. We're clear #1 there. Orthopedics, we're #3 and Wound Care, we're #5. But clearly, where we are, we're very, very strong. If you look at Consumer Goods, a close #2 when it comes to incontinence product for retail. And the reason we're not #1 there is simply we're small in the North American market, which is quite big. And there, we are actually quite small also in Japan is another explanation. But typically, where we are clear #1. Consumer Tissue, we're #2. The same thing there, we're not in the North American or -- yes, North American tissue market. The rest of the world, we're clearly #1. If you look at Feminine Care, this is not that impressive, #5. There are many others that are actually bigger, but it's exactly the same here. The reason is that we're very strong, typically #1 and potentially #2 in the markets we exist. So this is much more a matter of geographical presence. And Baby Care, very much the same thing. This is a pure, you can say, European business, and it's also a very strong position in parts of Asia and particularly so in Malaysia. And finally, Professional Hygiene, where we're basically global #1 under the Tork brand. And you can see all the brand names there, and of course, leading brands is incredibly important, not least now when you -- as we are in this environment, you raise the prices all the time. And those that have these strong brands have the possibility to do so. Those that don't, don't have that same capability. So leading brands is extremely important. And leading brands is cool to have, but where that comes from is, of course, very much in the products underneath them. So the premium product, the leading solutions that are behind all of these brands is what continuously builds the brand strength. And you can see that 90% of everything we do is actually -- or all of our sales is in these positions where we are #1 or #2. So in combination, if you look at all of these, of course, this is a very, very key strength that we continue to gradually build with our innovation capabilities, so building the brands basically. Sustainability is quite simple, and I'm pretty sure that it's also a theme of this conference that those in our sector that will do this well, they'll prevail. Those that don't will simply die, right, over time. So our absolute ambition is to be leading in this area. And these are just some examples where we have set very clear targets because basically, you can declare that you're committed to ESG or sustainability or the climate, but unless you actually have a tangible plan and you have tangible action and very clear targets, nothing gets done. So these are just some examples, science-based targets or the business ambition for 1.5 degrees, et cetera. And of course, we also have similar targets for plastics and sustainable purchasing, et cetera. So a very, very key aspect for us. Now we complement everything we'll do, and I'll come back a little bit later to everything, but we continue to strengthen the group by acquisitions. And just in the last 18 months or in that ballpark, we've made acquisitions for a combined amount of roughly about SEK 70 billion. So a lot of acquisitions has been happened quite recently. And generally speaking, we have all of these good market positions, but we also have a possibility to increase scale. We can increase our geographical presence, as I've alluded to before. We're also buying technology or other kind of reasons. And it's predominantly within the feminine space, within the incontinence or medical space. And if you look at this, you can see quite a lot of acquisitions within the medical. So [ Hydrophera ] an advanced wound care company as an example. [ AquaCast ] is within orthopedics, so a very special kind of technology for orthopedics. If you take Modibodi and Knix there, I'll come on to those in a second, but they're in leakproof apparel, which are basically related to feminine and to incontinence. Here, you have another medical company. Here, basically, you can say, feminine or personal care-related companies and to the upper end there in the adjacency part of professional hygiene. So we continue to strengthen, improve the mix, we are buying in high-margin segments and high-growth segments and continue to strengthen the overall position of the group. And this is interesting because we -- if you look at kind of -- our categories are not constant. They will develop. And if you look at intimate hygiene, as an example, and what do we mean by that? It's basically you can say lighting continents or feminine products or mailing continents and just generally intimate hygiene. And one of the sectors that really has been growing in the last couple of years and will grow even more as we progress is basically leakproof apparel or washable absorbent underwear if you can call it that. Sorry about this. So basically, you can say, today, it's a relatively small part of the market. Underwear, there is also other type of leakproof apparel, like bras or swimwear or other type of things. But this is actually growing a lot. And it does for a couple of reasons. First of all, I've already been into it, sustainability. So if you kind of replace single-use plastics products like in feminine products with a product that you can reuse, then of course, you contribute a lot to the sustainability of the world. So that's obviously one thing. The second other issue is just the look and feel and attractiveness of the product itself. This is much more like an ordinary underwear, if I put it that way. So it's very appreciated just from a wearing. So this is one of the products, if you try it, you'll continue. That's not the case with most other products. But in this particular case, once you've tried it, you will continue. So that's another reason. And the third, basically awareness. Not a lot of people actually know that this segment is there. So what we see here is that we expect this to be roughly in the next 5 years, about twice the size of the intimate market. So an average growth of about 20%. So what we did, we looked at the entire kind of global marketplace. There are a lot of different players, and we looked at two of top company. So basically, one is Knix, as you saw before, a very, very strong company in the U.S. and Canadian market. And Modibodi, which is an Australian-based company and it's also existing in Europe and predominantly in the U.K. And we thought we want to be the world leader in this segment. So together with what we did on our own, which was relatively small at the time, we basically bought these two companies, and we are now global leaders. And this will continue to grow as we progress in the next few years. It's super exciting. And this is just an example of how we can expand our business within the existing categories but with development, so to speak. Another part of what we do is e-commerce. And I mean, the pandemic wasn't really great for any -- in any context really. But for one thing, it was actually good, and this was the e-commerce side, that grew a lot. Right now, it's actually more stabilizing for most of the world, as you've seen. But for us, the growth rate here has been fantastic. So we invested a lot in back end for -- or customer-facing systems for many years with a very, very simple conviction that over time, this will become so much bigger than -- a bigger part of our business basically. And we set a very clear target that we want to have a bigger market share in the online channel than we have in the off-line wherever we exist because if that happens, if we are bigger in the online share and the growth of e-commerce continues to be higher than for the market in totality, then over time, we will actually gain market share. And we are exactly in that position. So right now, about 14% or thereabout of our entire sales is now in e-commerce. And as you can see here, the growth is really magnificent. And it has actually been. So in some areas in the world like Latin America, e-commerce a few years ago were completely nonexistence, and growth rates here have been several hundred percent. So it's gradually picking up in speed. And of course, this is, for us, a big opportunity that we have capitalized on and we'll continue to capitalize on as we go forward. I mentioned efficiency. So if you take the levers, how are we going to get to that 17%. Of course, price is an obvious thing. And I also mentioned innovation. I mentioned efficiency and a couple of other things. So efficiency, we have worked a lot. And as you know, if you do pretty much what every other competitor does in terms of efficiency, you will be likely to give away that in price. So in essence, you've got to go above and beyond what competitors do. And the way we work with this is in multiple areas within our manufacturing setup. It's not just there. It's also distribution and in the SG&A. And of course, this has been a really strong contributor to our profit improvement that you saw before, and we continue this journey. We continue to make our plants more efficient. We digitalized. We put in virtual sensors or machine learning in our different paper machines. We do things that others simply cannot do. We put a supply planning hub and a demand planning hub and a logistics hub in Barcelona to make ourselves much more efficient. Just to make a few examples, we are creating a business -- a shared service center in Lisbon, just to mention, and in Mexico, just to mention a couple of examples on how we consistently work with this and as I said, above and beyond what competitors are doing. And most important, which sounds so basic, but cost culture. You got to get people to become in your company cost hunters. Always try continuously to figure out better ways or cheaper way, more efficient ways of doing their every day life work. And this is maybe so obvious. So if you ask kind of 100 companies, are you -- do you have a good cost culture? 99 of them will probably say yes. But in reality, you've got to work with this very, very much, and we do exactly that to make sure that you always as an individual try and find the best way, and this is super efficient. Now taking a bit of the final -- I hope you've understood a bit of what we do, our market positions and how we strive. So let me talk about the toughest quarter that we've actually experienced for forever. So in the last couple of years, our average cost for pulp has been up by 100%. It's a big material for us. Energy, well, you know that market pretty well. and we consume a lot of energy. Plastic products, as an example, is up by 70%. So when you look at that consumer price index of 7%, 8%, we're not in that ballpark. We have tremendous increases of our production or input cost. So it's all about price increases. And I'll come on to that. So if you look at what we've actually achieved, you can see that our growth is continuing to be super strong. So organically, roughly, about 17%, as you can see but you can also see that our margin is currently 7.5%. Now if you look at the 17% target that I just mentioned, what does that mean? Approximately, it means that we need to have a margin of 13% roughly and a capital turnover of 1.3%. So capital turnover, we already have. But if you look at the margin, we need to increase. And as I said before, when we set the target, the margin increase was necessary about -- yes, a couple of percent or just below that. So the rest needs to come out in pricing. And we have increased prices very, very significantly. So just in Q3 compared to 1 year before, on all the sales, we do roughly about 15% of price increases, and we continue that spree all the time. So just looking at where we were 1 year ago, we were at 11.5%. We are now at 7.5%. So given, of course, that we've increased sales a lot. And of course, we have a cost-efficient structure. We gained a bit from A&P and SG&A from a margin perspective sense. But if you look here, the total raw material impact has been roughly about 13% of margin. So if you actually start with a margin of 11% and then just in 1 year, 13% of that goes away. So you're basically, before doing anything else, negative, right, but we have compensated then, of course, obviously, a lot in price, in mix and continuous volume increases. And this is actually a kind of a little bit of interesting exercise to look at because what this actually -- and this -- you got now think here, right? Because what these bars actually, they say that this is the quarterly sequential increase of cost, if you understand what I mean here. So if you just take as an example, Q3 of '21 increased a lot in -- compared to Q3. So if you look at Q3 and Q4 here as an example, if these bars would have been stable or exactly the same height, they would have been -- the cost would have been a lot higher than they were when all of this started. But as Q4 '21 is much higher than Q3 here, is also increasing in comparison to the quarter before. So what this actually tells you, very simple, every quarter has been much higher cost than the previous one. So it has just continued quarter-by-quarter to increase. And the line here that you see is the exact same on price. So what's the message here? Is this -- does this mean that you -- we cannot compensate in price? That looks -- it looks this way when you look at the slide. But in fact, it's not the message because it takes time for us. We got contracts, as an example. It takes time to renegotiate. So when cost hits us we basically go to our customers, and we say, here's the thing, we will raise our prices or we will do surcharges or we will do all sorts of different things. And this is, of course, a process that takes time. So if you actually just move this curve and look a little bit on you -- you shift the curve, what you can see is that as costs hit us we, are within two quarters roughly able to fully compensate if you understand. So basically, the cost that hit us this quarter, in two quarters, we will have compensated, if I put it that way. And this is really good news because there are two things here that's important to remember. If this is complicated, there are two things you can remember. One thing is that we are able to fully compensate all the cost increases. So when things stabilize, we will compensate. That's the first thing, and that's a very, very important assumption because that means that the structural profitability of all our markets remain intact. So that's the first thing. The second thing is we have become so much faster. If you would have looked at this graph a year, 1.5 years ago, the lead time or the lag would not have been less than two quarters, it would have been five quarters. So we have become so much faster not just us, the whole market has become a little bit more agile and this is also very good news. Good. Finally, so what are the priorities right now? Well, obviously continue to raise prices. And of course, as raw material input cost markets stabilize, margins will, of course, obviously look better. But equally important, you cannot just focus on the short term. We want to focus also on the long term, as you have just seen. So we continue to innovate. We continue with our brand building. We continue with our efficiency relentlessly as we have done before, the digitalization of everything, including our products and the sensor-based technology that we run as an example, it continues. And needless to say and not least important, the sustainability aspect of what we do. So basically, that's pretty much it. And I cannot resist taking the opportunity to do a bit of marketing as you are here. So in just -- yes, in -- on December 8 -- 7, 8 and 9, we will have a webcast where you will actually get a lot more detail on the strategies for all of these three business areas. So it's one per day. It's only 1 hour. So what can you possibly do better than actually take an hour on these days, just to kind of enlighten the winter a bit and listen to these fantastic presentation. So you're all very -- they're virtual. They're virtual. That's it. Thank you.

Thank you very much, Fredrik. So I don't know if there are any burning questions in the room at this stage. Doesn't seem like it. So maybe Fredrik, we can take ourselves back to the beginning of your presentation first and talk a bit about the long term, and you've talked about the 5% growth, 3% organic, 2% M&A. Taking the current context away, how do you think about the 3% organic in terms of composition? Obviously, right now, price is everything. But in a more normal world, how would you envisage the 3% to be composed of?

Yes. I mean the simple answer to that, when we set the target of whatever we -- when we kind of look at the financial targets, pricing is not part of that equation really. So we just assume, as I think, hopefully, I've been able to show you that if input costs move, we compensate. If they move in a kind of a downward trend, then unfortunately, we need to give away some. So pricing is really kind of not something we believe that we can improve our, either growth or margin with. So it's basically mix and volume. And if you decompose that and you just look at history, we have been roughly about 1% a year in terms of mix. That's the gradual improvement. And most of that is basically due to innovation, you can say. So roughly about 1%, and the other is roughly about 2% then in terms of volume. So this is very well supported. If you look at the overall context of our market, they're actually growing roughly if you look at the weighting, et cetera, with that kind of amount. So this is why we say more than 3% because we also aspire as you just heard on market share growth. So roughly about a couple of percent in volume, about 1% in mix and of course, on top of that, market share growth, roughly.

Great. And can you maybe talk a bit about the 2% from M&A? You've obviously been extremely active with fairly sizable deals last year. You've been fairly active on a slightly smaller scale this year. How do we think -- especially when I think about Knix and Modibodi, for instance. You said you already have your own capability to do the underwear. What was the decision internally to acquire rather than to strengthen what you already had?

Yes, it's a super relevant question. It's actually great because if you want to kind of get into a business like that, you got to figure out what kind of capabilities do you need? So the technology in terms of absorption because if you take a feminine pad as an example or liner, what that consists of is a bit of, you can say, pulp, there's a bit of plastics, and they're also super absorbent. So what happens when you kind of expose the super absorbent to fluid? It just expands and it actually then absorbs the fluids right. So obviously, if you put a liner or a pad into a washing machine, it's not going to be that great to use again because it's going to be kind of used. So you cannot actually wash that. That technology, we have. And there, we are, I don't know, definitely we're leader in that technology. What we don't have is basically the DTC, you can say, direct-to-consumer community-based selling. We're not -- we're typically either kind of a Health & Medical or B2B or a retailer oriented. We have e-commerce, but typically, this direct-to-consumer, we're tiny. And this is a very special competence that companies do require and they become very good at it. And it's very, very difficult to build up. So what we primarily buy is basically design capabilities, it's the DTC capabilities and of course, that's incredibly valuable to get, and it takes forever to build that up. So this is basically a way to kickstart and becoming the biggest in the category. We could never have achieved that organically. We could have had a good journey but we would have been -- remained a small player in the context of the entire category.

Okay. And then when I remember your slide on Wound Care. It's obviously a fairly young division for you and you have a couple of areas of strength, a couple of areas where you're #3, #5. What's the ambition in that segment? I mean it's been off to slightly rough start. You since then turned it around successfully.

Yes. I'm not sure it's a rough start when it comes to Wound Care. Actually, Wound Care has been -- I mean, so if you take the last -- I don't know, it's -- I think it's 9 quarters, it's been really good growth. So I think we just generally Wound Care, we're just relatively small there, and we have expanded in the advanced wound care sector with some of these acquisitions like Abigo and Hydrophera. So we've got a great ambition, and this is a very, very profitable and good markets. And we're quite happy because we have bought two companies that actually have unique technology for the advanced Wound Care. So Abigo had the [ Sorbact ] technology, which absorbs bacteria and really, really helpful and a direct competitor to Silver Linings that most of the competitors have, and from a sustainability purpose is much weaker. So that's a great technology. We have acquired Hydrophera with also a unique technology. So it's a great area for us and we'll just continue to expand actually. So I think generally, it's been a bit challenging from a growth perspective, the overall medical side, not now because it is actually growing very, very well. But in the early years after, the acquisition growth was too low.

Okay. And then coming back to your point on the 17% return target and the fact that obviously, it's now quite a big ask. If you take yourself back to 2020 when they were just a couple of hundred basis points between you and that target, what were the main building blocks to get you there? You've obviously talked about mix and innovation, more on the cost side.

Yes, there were four, and I mentioned it already. So the innovation was, without giving kind of exact -- it was an exact plan. So -- but if you take the kind of 200 basis points, a bit less than that, of difference, you can say slightly less than half of that was related to pure mix. And this was no rocket science because we've actually done it before. So this was kind of consistent with history. The remaining part was a lot of it was efficiency in the manufacturing road map. So we progress in that, and we track it every quarter. There were digital -- digitalization gains coming from our overall digital program. And the fourth and final was actually a relatively stronger growth for the high-yielding part of our business. So all of those four, you can say, are still quite valid. And the rest is basically caused by input cost, and that needs to be compensated by price. But as you can see, we're just doing that.

I know. I mean you've done some...

So this is something we're quite -- I mean we've got ample time to address the pricing. As you can see, we're quite fast in that. So we have enough time.

And how an environment like this does an organization like you think about marketing because obviously, marketing is an important driver. It's also an important cost because the consumer right now probably isn't that keen on innovation as they usually are. So how do you think of that as a lever?

Yes. I think if you look at -- and most of you know this better than I do, but if you look at the kind of HPC space or just generally, people kind of retract a bit from marketing spend, we try not to because we think that you're absolutely right. It's not just consumers. It's just generally also the trade that cannot really cope with too much innovation. We continue and we continue -- and when it comes to marketing spend, which was your question, doing innovation and not putting marketing spend behind it is completely useless. You might as well skip your innovation part. And if you just keep your innovation part, you've got bigger problems in the longer perspective. So we basically continue more or less intact with innovation. And as a consequence, we also continue to put marketing spend behind it. There is a bit of moderation in between quarters to fit with -- or you can say, consumer patterns that may change but on the totality, we have actually throughout the pandemic as well and also now continued and with the kind of notion that the world is not coming to an end. I think it was Warren Buffett that actually said, investing in the end of the world has never been a good idea, and we kind of think the same, right? So we continue to.

Good to have this positive note.

It is, yes.

And then you've done quite a fair amount of changes in the portfolio. So you've kind of split out the private label business. You've now separated the consumer in North America and EMEA. What's behind those? And what are the results? I mean, on private label, you've obviously been down the road a bit longer. What are you trying to achieve with that?

Yes, it's a great question because private label -- we're doing private label and most people will kind of think that that's a business that's not your own brands, right? It's kind of the context of the private label. But the private label could be two different things. For us, it is actually. The common denominator is we do business under other companies' brands. But what we have done is that for Consumer Tissue, in Europe, roughly about half of it is under other people's brand or other companies' brand. But of that, roughly about half is actually with strategic customers that we, first of all, innovate to, to provide a lot of innovation. We manage their brands. We're category captains. And in addition, we also sell the other products to them. So that's roughly about half of that. We call that retailer branded. And the rest, which is pure private label is basically what we're now splitting out, you can say. And in that context, what that actually means, if you take a customer like Aldi, as an example, they'll provide all the kind of suppliers in the market with the spec. Here is kind of the grammage of the tissue, here's the length and here's the number of products and blah, blah, blah. Please provide the cheapest price. This is the part that we are actually separating out. And there are two reasons for it. First of all, the drivers in that very specific part of the business is all about efficiency and price. So if you spend too much time on innovation or if you got too much overhead or too whatever, then, of course, you're not going to be competitive in it. So specializing on that part is extremely important. The other reason is that we are all about market position. We're all about leading brands. We're all about innovation. And of course, this part is really a bit apart from that. So by doing this separation, you can say, we allow these management teams to specialize on what they really do well. And we're not complete with that. We still have a kind of a journey to do when it comes to transfer of flows to making it very pure in terms of also manufacturing setup but we already see a lot of benefits for how it's managed. So I think the private label division is so much better managed now when it's isolated or on its own. And the other business is also better managed. So it's been so far a very, very good experience. But we still got a journey to travel.

And I think the queue of private label takes us into the now. I mean it's been interesting to see from the outside how up until now, we've seen massive amounts of pricing across the sector and yet volumes for you have been positive. A lot of your peers have been a lot less negative than feared. So everyone's just waiting for the quarter when it all unravels, and the consumer shows his true colors. What, from your experience, is that going to look like in terms of, are consumers buying less? Are they trading down but prefer brands? Are they going all down placing to private label? What's your read of the situation now?

Yes, it's a super good question because one, it's consumer dynamics or consumer behavior, and I guess we can all ask ourselves today, how do we behave? And I think the other thing is how you act as a company, right? But if you start with consumer behavior, we've looked at this history. We look 30 years back and how have people actually behave in crisis. So generally, if you take a feminine product or an incontinence product or consumer tissue or whatever or medical products, you tend to buy these products also and which we're very happy about, by the way, also in tough times. You still want your toilet tissue, obviously.

[indiscernible]they use papers.

No, that's not kind of good. So volume risk is quite remote. There has been times where people have bought less, but that's for very short period of time, and it's typically been connected to high unemployment rates and typically in emerging markets. So just generally, volume risk is not big. When it comes to down trading, that is a bigger exposure to us. If you look historically, it has happened also there predominantly in emerging markets. Latin America is a good example. To some degree, China. And what typically happens is that people just go into a shop and they'll cut on whatever. So they'll buy the cheapest products. After a couple of quarters, they kind of tend -- 2, 3 quarters, they tend to realize that it's not a big part of their disposable income and they kind of go back to the brands and the products they like. So down trading has never been historically a very long-lasting phenomena for us, but it will have an impact. And you -- I know you follow our results very, very closely, you can see where that will show is actually on the mix side of things. We have had a positive mix now throughout the last several quarters despite these monumental price increases. So it has actually been slightly more positive, but it's clearly there. So you can say the innovation, positive mix improvement is there, but it's to some degree mitigated by a downside. I think this will probably be there for another few quarters. I think we'll see more down-trading risk as we approach top winters, high mortgages, electricity bills, we'll see this. It's not going to be in the context of how everything else that's happening. It's going to be very small, but it's still going to be there for a few quarters, I think. We haven't seen it that much, to be honest, but we just estimate. It would be natural.

And what about the professional channel? What are you observing because when we look at Bank of America card data, we can see that since the start of the year, people spending on restaurants is still positive, but it's definitely been slowing down. How does that impact the professional channel?

I mean you can see for yourself, we've had an absolutely great volume growth. And of course, it's a bit difficult to track for us because the pandemic had so much impact that the recovery from the pandemic is a bit probably hiding this. So you're probably right that people -- I'm never able to get a table when I want to go out. So apparently, still people are doing that. But I would guess that there is a volume risk for this segment as times get a lot tougher. I would assume nothing else but so far, we haven't really seen it. And of course, it's hidden by the pandemic recovery. So it's from a speculation point of view, it should have a volume impact. But historically, as I said, not really major.

And how should we think about pricing? I mean, we've seen in a number of subcategories, pricing come off, but you are slightly unfortunate in that a lot of the paper-based packaging, which seems to be...

Not only that. It's plastics. It's pretty much everything we do, right? It's all the materials.

So when you look in the crystal ball for 2023, how do you envisage the situation?

Yes. I mean I'm not the person to ask, right? I'd like to believe that but -- yes, that's a great thing, but it's been inherently difficult and just giving forecast on input cost is -- there's no real upside because we manage the situation, as I've showed here, we manage as it comes along. Maybe just as a general comment, most people will kind of look at us and say, well, here's the thing, they'll gain tremendously things if input cost goes down. And maybe it comes at a bit of a surprise, but I just don't wish for that to happen because we are quite happy with stabilized markets. Flat markets is the absolute best for us. And there is a simple reason [Audio Gap] our features, our innovation, what we do for well-being in the world, how we break barriers, those are the kind of things that we want to talk about. And what we talk to our customers about at this point in time or even the consumers is basically inflation. What's the cost of pulp? Who cares, right? So what we want is basically stability. And I think there is a good shot at it in 2023 that we'll see more stable markets. Will we benefit from rapidly falling input costs? Yes, absolutely. But it will kind of come at immediate discussions on price concessions. I mean we've increased prices a lot and of course, if you see a sharp decline, you'll immediately start seeing price discussions, and we're back to the same. So, yes. I think stability is what we -- I would wish for, really. And with a little luck that may happen, but who knows?

But if prices were to come crushing down, would that chart you showed us still hold that you hang on for 6 months? Or is it 6 months only on the way up and not on the way down?

It's fairly -- I mean for those of you who have followed us, you can see it's fairly symmetrical. So it was interesting. In 2019, exactly this happens for a part of our business and we had margins of -- or Consumer Tissue, at the time of -- I think it was 16.5% or something like that. And I got these -- all these questions. Are you going to be holding on to your pricing? And our response was quite simple, the structural margin of our tissue business is roughly about 13%. So obviously, we didn't believe that. So -- and I don't believe it. I think it will circle around the structural margin. So if -- what will happen if input costs come down rapidly, our margins will shoot up a lot. And of course, over time, it will approach the structural margin. So that's why I think stability is much more favorable. No one is happy for volatility. And the last couple of years has been very volatile. So it's not good for the world, I think, not good for the consumers.

And most companies have said that retailer discussions have actually been relatively -- I mean, I wouldn't call it simple, but constructive in that the retailer understands is that -- and your price increases, I think, are a sign for that. When you have these discussions, have you seen periods where the retailer says, look, I'm not going to deal with this. I'm going to delist. Is that a big risk as we're heading into year-end? Or is it also something that can be -- is negligible at this point?

I mean we have yet to experience a customer saying, yes, fantastic. We understand why you're going to raise prices by 10%. Congratulations. We'll pay you. That hasn't really happened that often. So nothing has been simple. And especially at the early time because we were really fast out. We were faster than everyone else and more aggressive. And we were thrown out from all these discussions. We were boycotted, delisted, all of what you mentioned. That was before. That was before. And a lot of our competitors, some of them in this building, right, what they said we are not going to raise price. We're not going to do anything. And of course, what happened was that they all did. They had to basically. So as everyone else started to do exactly what we did, those discussions got -- and I can never use the word internally simple because I will be not that popular, but they were becoming a bit easier, if I put it that way. It's still difficult, and it still is difficult, but they became easier. So I think it's unlikely that we'll see delistings or boycotts, but there will be negotiations, of course, subject to whatever happens.

I'm just conscious of time because I think this pretends we have 7 minutes left, but I think we actually don't. So can I just check if there's any questions coming from the room. And if not, thank you very much. I mean you can tell I've only been through the first half of my first stage of questions.

So my answers were a bit too long.

They are perfect, let's leave it at that. Thank you so much. Thanks very much.

Thank you.

[indiscernible] for being here on time. And obviously, thank you very much for Fredrik, CFO of Essity to join us today. I think the format will be Fredrik has a presentation for about 20 minutes, and then we have plenty of time for Q&A and you just raise your hand and the mic will come your way. So over to you, Fredrik.

Fantastic. Thank you so much, and thank you for coming to listen. So I will give a bit of introduction to who we are for those of you who haven't seen so much of us before. And then I'll talk a little bit about the long-term characteristics of what we're trying to achieve. And then I'll end a bit with the kind of more short-term oriented environment. So give you a bit of flavor of what's happening now and how do we see kind of the near-term future. So that's the kind of plan. If you want to break in with questions, please let me know and I'll try and answer as good as I can. So I'll just start with a bit of who we are actually because we are, as many of you would know, we're a leading health and hygiene company, so a global health and hygiene company. We have a very clear purpose, which is breaking barriers to well-being. So with our leading solutions, this is what we intend to do. We actually create more well-being and we do that for all our product categories and globally. So this is pretty much our purpose. If we look at kind of the brief numbers now using -- sorry, this was a bit fast, so using 2021 here as a proxy, our turnover is roughly about SEK 121 billion, so EUR 12 billion roughly. Profits at that year, EUR 13.7 billion. We're in 150 countries with roughly about 46,000 employees. So that's pretty much the context. We are split up in three separate, you can say, business areas. They're all linked. So they have common you can say, production platforms, common technology. But the way it looks, if you look at the three areas, if you look at to the left, Health & Medical, this is the business which contains our incontinence health care business around the globe. And we also have a medical med tech business there with compression therapy, with orthopedics and with Wound Care. So this is the Health & Medical and it constitutes roughly about 18% of the total company approximately. So turnover, about SEK 22 billion. The other one, Consumer Goods, roughly about 60% of what we do consists of feminine products, feminine care products, baby care products, incontinence for the retail end, so what you would find in supermarkets, et cetera, and consumer tissue. So these are the four areas and roughly about SEK 74 billion. And then finally, Professional Hygiene. So I'm not sure I haven't been into the restroom now of this hotel, but I hope it's here. So the Tork brand name is pretty much across the globe. We're, as you'll see, a clear #1 in this space globally. It's approximately about 22%. So this is basically dispenser-based tissue, soaps, wipers that you would find in restaurants and hotels, et cetera. So what is common, you can say for all of our different businesses are favorable market trends, and this is quite important because the underlying markets are generally just growing. So if you take, as an example, incontinence or the medical business, growing and aging population and of course, an increased prevalence for chronic conditions that comes along with that. So living a long life is really great but of course, it brings some conditions that we are there to help and treat. There is a general increase of awareness of hygiene and health. And of course, that's also been strengthened in recent years now through the pandemic. Sustainability, a very key issue as are many other of the underlying trends. So all of them basically favoring our three business areas jointly. So I won't spend that much time on the financials here and now. But -- and I'll come on to this actually a bit later because we have set very clear financial targets for what we want to achieve. So an annual growth of roughly about 5% of that -- or more than 5% actually. And of that, more than 3% organically. So for comparable business, so to speak, and another about a couple of percent coming from acquisitions. And we do that regularly. We continue to expand our business with acquisitions. And then we've set a target of reaching 17% of return on capital employed no later than 2025. Now this target was set 2 years ago. So at the latter part of 2020. Right now, and this is a bit of a lead maybe, our return on capital is actually below 10%. So interestingly enough, as you can see, this ambition is actually then, of course, means a big improvement from where we are at this current moment. I'll come on to that in a second. So if you look at the historic path, and this is actually quite interesting. You can see here that the latter 2 years have been quite exceptional for a couple of different reasons. But prior to that, up until 2019, we've consistently improved our margin, and we've had a consistent organic sales growth in what we do. And of course, growth of the profit has been higher than the growth of sales. So we've been on the clear trajectory. And when we set this target of more than 17% in 2020, we were actually about 15.5% roughly. So the improvement we set to achieve was, of course, to continue to grow our business, but also to continue to expand our margins. Now if we look at where we are, of course, today, we are quite far away. We were not when we set the target. So when we set the target, the underlying, you can say, levers to get to those targets where basically you can say 3 or potentially 4, a continued improvement of margin through innovation, I'll come on to that in a second, a continued expansion of our margins through better efficiency. And then, in addition to that, a higher growth, you can say, of high-yielding entities. And then we had a set of other issues like further digitalization, et cetera. So there were quite clear levers. Now a lot of the focus for investors, but just for about everyone in the last couple of years has been this very, very significant impact from, of course, first pandemic, and later on, the hyperinflation that we've seen in input costs. So of course, what has become much more of an element to compensate for this is largely basically price. So right now, in the short term, a lot of the focus is kind of aimed at continuing to strengthen our pricing and increasing pricing. I'll show you exactly how that works. But so far, it's going well. So the levers to get to the 17%, which we are still both committed to and secondly, convinced that we're going to be able to do is very much about, of course, compensating whatever we have in input costs through price but also those levers that we are behind the scene continuing to execute on, which I'll talk a bit more about. Now just looking at the company, one of the absolute key strengths, and this maybe obvious to you, but we have very, very strong global market positions in all of these three business areas. So starting with Health & Medical, we're clear #1 when it comes to incontinence for the health care sector or institutions and health care. We're #1 in compression therapy. So this is for phlebology, for instance, or for lymphologies or for cancer treatment, as an example, but also for regular compression treatment. This is not when you're out running on a Sunday, and you need a bit of compression. This is basically medical treatment using compression. We're clear #1 there. Orthopedics, we're #3 and Wound Care, we're #5. But clearly, where we are, we're very, very strong. If you look at Consumer Goods, a close #2 when it comes to incontinence product for retail. And the reason we're not #1 there is simply we're small in the North American market, which is quite big. And there, we are actually quite small also in Japan is another explanation. But typically, where we are clear #1. Consumer Tissue, we're #2. The same thing there, we're not in the North American or -- yes, North American tissue market. The rest of the world, we're clearly #1. If you look at Feminine Care, this is not that impressive, #5. There are many others that are actually bigger, but it's exactly the same here. The reason is that we're very strong, typically #1 and potentially #2 in the markets we exist. So this is much more a matter of geographical presence. And Baby Care, very much the same thing. This is a pure, you can say, European business, and it's also a very strong position in parts of Asia and particularly so in Malaysia. And finally, Professional Hygiene, where we're basically global #1 under the Tork brand. And you can see all the brand names there, and of course, leading brands is incredibly important, not least now when you -- as we are in this environment, you raise the prices all the time. And those that have these strong brands have the possibility to do so. Those that don't, don't have that same capability. So leading brands is extremely important. And leading brands is cool to have, but where that comes from is, of course, very much in the products underneath them. So the premium product, the leading solutions that are behind all of these brands is what continuously builds the brand strength. And you can see that 90% of everything we do is actually -- or all of our sales is in these positions where we are #1 or #2. So in combination, if you look at all of these, of course, this is a very, very key strength that we continue to gradually build with our innovation capabilities, so building the brands basically. Sustainability is quite simple, and I'm pretty sure that it's also a theme of this conference that those in our sector that will do this well, they'll prevail. Those that don't will simply die, right, over time. So our absolute ambition is to be leading in this area. And these are just some examples where we have set very clear targets because basically, you can declare that you're committed to ESG or sustainability or the climate, but unless you actually have a tangible plan and you have tangible action and very clear targets, nothing gets done. So these are just some examples, science-based targets or the business ambition for 1.5 degrees, et cetera. And of course, we also have similar targets for plastics and sustainable purchasing, et cetera. So a very, very key aspect for us. Now we complement everything we'll do, and I'll come back a little bit later to everything, but we continue to strengthen the group by acquisitions. And just in the last 18 months or in that ballpark, we've made acquisitions for a combined amount of roughly about SEK 70 billion. So a lot of acquisitions has been happened quite recently. And generally speaking, we have all of these good market positions, but we also have a possibility to increase scale. We can increase our geographical presence, as I've alluded to before. We're also buying technology or other kind of reasons. And it's predominantly within the feminine space, within the incontinence or medical space. And if you look at this, you can see quite a lot of acquisitions within the medical. So [ Hydrophera ] an advanced wound care company as an example. [ AquaCast ] is within orthopedics, so a very special kind of technology for orthopedics. If you take Modibodi and Knix there, I'll come on to those in a second, but they're in leakproof apparel, which are basically related to feminine and to incontinence. Here, you have another medical company. Here, basically, you can say, feminine or personal care-related companies and to the upper end there in the adjacency part of professional hygiene. So we continue to strengthen, improve the mix, we are buying in high-margin segments and high-growth segments and continue to strengthen the overall position of the group. And this is interesting because we -- if you look at kind of -- our categories are not constant. They will develop. And if you look at intimate hygiene, as an example, and what do we mean by that? It's basically you can say lighting continents or feminine products or mailing continents and just generally intimate hygiene. And one of the sectors that really has been growing in the last couple of years and will grow even more as we progress is basically leakproof apparel or washable absorbent underwear if you can call it that. Sorry about this. So basically, you can say, today, it's a relatively small part of the market. Underwear, there is also other type of leakproof apparel, like bras or swimwear or other type of things. But this is actually growing a lot. And it does for a couple of reasons. First of all, I've already been into it, sustainability. So if you kind of replace single-use plastics products like in feminine products with a product that you can reuse, then of course, you contribute a lot to the sustainability of the world. So that's obviously one thing. The second other issue is just the look and feel and attractiveness of the product itself. This is much more like an ordinary underwear, if I put it that way. So it's very appreciated just from a wearing. So this is one of the products, if you try it, you'll continue. That's not the case with most other products. But in this particular case, once you've tried it, you will continue. So that's another reason. And the third, basically awareness. Not a lot of people actually know that this segment is there. So what we see here is that we expect this to be roughly in the next 5 years, about twice the size of the intimate market. So an average growth of about 20%. So what we did, we looked at the entire kind of global marketplace. There are a lot of different players, and we looked at two of top company. So basically, one is Knix, as you saw before, a very, very strong company in the U.S. and Canadian market. And Modibodi, which is an Australian-based company and it's also existing in Europe and predominantly in the U.K. And we thought we want to be the world leader in this segment. So together with what we did on our own, which was relatively small at the time, we basically bought these two companies, and we are now global leaders. And this will continue to grow as we progress in the next few years. It's super exciting. And this is just an example of how we can expand our business within the existing categories but with development, so to speak. Another part of what we do is e-commerce. And I mean, the pandemic wasn't really great for any -- in any context really. But for one thing, it was actually good, and this was the e-commerce side, that grew a lot. Right now, it's actually more stabilizing for most of the world, as you've seen. But for us, the growth rate here has been fantastic. So we invested a lot in back end for -- or customer-facing systems for many years with a very, very simple conviction that over time, this will become so much bigger than -- a bigger part of our business basically. And we set a very clear target that we want to have a bigger market share in the online channel than we have in the off-line wherever we exist because if that happens, if we are bigger in the online share and the growth of e-commerce continues to be higher than for the market in totality, then over time, we will actually gain market share. And we are exactly in that position. So right now, about 14% or thereabout of our entire sales is now in e-commerce. And as you can see here, the growth is really magnificent. And it has actually been. So in some areas in the world like Latin America, e-commerce a few years ago were completely nonexistence, and growth rates here have been several hundred percent. So it's gradually picking up in speed. And of course, this is, for us, a big opportunity that we have capitalized on, and we'll continue to capitalize on as we go forward. I mentioned efficiency. So if you take the levers, how are we going to get to that 17%. Of course, price is an obvious thing. And I also mentioned innovation. I mentioned efficiency and a couple of other things. So efficiency, we have worked a lot. And as you know, if you do pretty much what every other competitor does in terms of efficiency, you will be likely to give away that in price. So in essence, you've got to go above and beyond what competitors do. And the way we work with this is in multiple areas within our manufacturing setup. It's not just there. It's also distribution and in the SG&A. And of course, this has been a really strong contributor to our profit improvement that you saw before, and we continue this journey. We continue to make our plants more efficient. We digitalized. We put in virtual sensors or machine learning in our different paper machines. We do things that others simply cannot do. We put a supply planning hub and a demand planning hub and a logistics hub in Barcelona to make ourselves much more efficient. Just to make a few examples, we are creating a business -- a shared service center in Lisbon, just to mention, and in Mexico, just to mention a couple of examples on how we consistently work with this and as I said, above and beyond what competitors are doing. And most important, which sounds so basic, but cost culture. You got to get people to become in your company cost hunters. Always try continuously to figure out better ways or cheaper way, more efficient ways of doing their everyday life work. And this is maybe so obvious. So if you ask kind of 100 companies, are you -- do you have a good cost culture? 99 of them will probably say yes. But in reality, you've got to work with this very, very much, and we do exactly that to make sure that you always as an individual try and find the best way, and this is super efficient. Now taking a bit of the final -- I hope you've understood a bit of what we do, our market positions and how we strive. So let me talk about the toughest quarter that we've actually experienced for forever. So in the last couple of years, our average cost for pulp has been up by 100%. It's a big material for us. Energy, well, you know that market pretty well. and we consume a lot of energy. Plastic products, as an example, is up by 70%. So when you look at that consumer price index of 7%, 8%, we're not in that ballpark. We have tremendous increases of our production or input cost. So it's all about price increases. And I'll come on to that. So if you look at what we've actually achieved, you can see that our growth is continuing to be super strong. So organically, roughly, about 17%, as you can see but you can also see that our margin is currently 7.5%. Now if you look at the 17% target that I just mentioned, what does that mean? Approximately, it means that we need to have a margin of 13% roughly and a capital turnover of 1.3%. So capital turnover, we already have. But if you look at the margin, we need to increase. And as I said before, when we set the target, the margin increase was necessary about -- yes, a couple of percent or just below that. So the rest needs to come out in pricing. And we have increased prices very, very significantly. So just in Q3 compared to 1 year before, on all the sales, we do roughly about 15% of price increases, and we continue that spree all the time. So just looking at where we were 1 year ago, we were at 11.5%. We are now at 7.5%. So given, of course, that we've increased sales a lot. And of course, we have a cost-efficient structure. We gained a bit from A&P and SG&A from a margin perspective sense. But if you look here, the total raw material impact has been roughly about 13% of margin. So if you actually start with a margin of 11% and then just in 1 year, 13% of that goes away. So you're basically, before doing anything else, negative, right, but we have compensated then, of course, obviously, a lot in price, in mix and continuous volume increases. And this is actually a kind of a little bit of interesting exercise to look at because what this actually -- and this -- you got now think here, right? Because what these bars actually, they say that this is the quarterly sequential increase of cost, if you understand what I mean here. So if you just take as an example, Q3 of '21 increased a lot in -- compared to Q3. So if you look at Q3 and Q4 here as an example, if these bars would have been stable or exactly the same height, they would have been -- the cost would have been a lot higher than they were when all of this started. But as Q4 '21 is much higher than Q3 here, is also increasing in comparison to the quarter before. So what this actually tells you, very simple, every quarter has been much higher cost than the previous one. So it has just continued quarter-by-quarter to increase. And the line here that you see is the exact same on price. So what's the message here? Is this -- does this mean that you -- we cannot compensate in price? That looks -- it looks this way when you look at the slide. But in fact, it's not the message because it takes time for us. We got contracts, as an example. It takes time to renegotiate. So when cost hits us we basically go to our customers, and we say, here's the thing, we will raise our prices, or we will do surcharges or we will do all sorts of different things. And this is, of course, a process that takes time. So if you actually just move this curve and look a little bit on you -- you shift the curve, what you can see is that as costs hit us we, are within two quarters roughly able to fully compensate if you understand. So basically, the cost that hit us this quarter, in two quarters, we will have compensated, if I put it that way. And this is really good news because there are two things here that's important to remember. If this is complicated, there are two things you can remember. One thing is that we are able to fully compensate all the cost increases. So when things stabilize, we will compensate. That's the first thing, and that's a very, very important assumption because that means that the structural profitability of all our markets remain intact. So that's the first thing. The second thing is we have become so much faster. If you would have looked at this graph a year, 1.5 years ago, the lead time or the lag would not have been less than two quarters, it would have been five quarters. So we have become so much faster not just us, the whole market has become a little bit more agile, and this is also very good news. Good. Finally, so what are the priorities right now? Well, obviously continue to raise prices. And of course, as raw material input cost markets stabilize, margins will, of course, obviously look better. But equally important, you cannot just focus on the short term. We want to focus also on the long term, as you have just seen. So we continue to innovate. We continue with our brand building. We continue with our efficiency relentlessly as we have done before, the digitalization of everything, including our products and the sensor-based technology that we run as an example, it continues. And needless to say and not least important, the sustainability aspect of what we do. So basically, that's pretty much it. And I cannot resist taking the opportunity to do a bit of marketing as you are here. So in just -- yes, in -- on December 8 -- 7, 8 and 9, we will have a webcast where you will actually get a lot more detail on the strategies for all of these three business areas. So it's one per day. It's only 1 hour. So what can you possibly do better than actually take an hour on these days, just to kind of enlighten the winter a bit and listen to these fantastic presentation. So you're all very -- they're virtual. They're virtual. That's it. Thank you.

Thank you very much, Fredrik. So I don't know if there are any burning questions in the room at this stage. Doesn't seem like it. So maybe Fredrik, we can take ourselves back to the beginning of your presentation first and talk a bit about the long term, and you've talked about the 5% growth, 3% organic, 2% M&A. Taking the current context away, how do you think about the 3% organic in terms of composition? Obviously, right now, price is everything. But in a more normal world, how would you envisage the 3% to be composed of?

Yes. I mean the simple answer to that, when we set the target of whatever we -- when we kind of look at the financial targets, pricing is not part of that equation really. So we just assume, as I think, hopefully, I've been able to show you that if input costs move, we compensate. If they move in a kind of a downward trend, then unfortunately, we need to give away some. So pricing is really kind of not something we believe that we can improve our, either growth or margin with. So it's basically mix and volume. And if you decompose that and you just look at history, we have been roughly about 1% a year in terms of mix. That's the gradual improvement. And most of that is basically due to innovation, you can say. So roughly about 1%, and the other is roughly about 2% then in terms of volume. So this is very well supported. If you look at the overall context of our market, they're actually growing roughly if you look at the weighting, et cetera, with that kind of amount. So this is why we say more than 3% because we also aspire as you just heard on market share growth. So roughly about a couple of percent in volume, about 1% in mix and of course, on top of that, market share growth, roughly.

Great. And can you maybe talk a bit about the 2% from M&A? You've obviously been extremely active with fairly sizable deals last year. You've been fairly active on a slightly smaller scale this year. How do we think -- especially when I think about Knix and Modibodi, for instance? You said you already have your own capability to do the underwear. What was the decision internally to acquire rather than to strengthen what you already had?

Yes, it's a super relevant question. It's actually great because if you want to kind of get into a business like that, you got to figure out what kind of capabilities do you need? So the technology in terms of absorption because if you take a feminine pad as an example or liner, what that consists of is a bit of, you can say, pulp, there's a bit of plastics, and they're also super absorbent. So what happens when you kind of expose the super absorbent to fluid? It just expands and it actually then absorbs the fluids right. So obviously, if you put a liner or a pad into a washing machine, it's not going to be that great to use again because it's going to be kind of used. So you cannot actually wash that. That technology, we have. And there, we are, I don't know, definitely we're leader in that technology. What we don't have is basically the DTC, you can say, direct-to-consumer community-based selling. We're not -- we're typically either kind of a Health & Medical or B2B or a retailer oriented. We have e-commerce, but typically, this direct-to-consumer, we're tiny. And this is a very special competence that companies do require, and they become very good at it. And it's very, very difficult to build up. So what we primarily buy is basically design capabilities, it's the DTC capabilities and of course, that's incredibly valuable to get, and it takes forever to build that up. So this is basically a way to kickstart and becoming the biggest in the category. We could never have achieved that organically. We could have had a good journey, but we would have been -- remained a small player in the context of the entire category.

Okay. And then when I remember your slide on Wound Care. It's obviously a fairly young division for you and you have a couple of areas of strength, a couple of areas where you're #3, #5. What's the ambition in that segment? I mean it's been off to slightly rough start. You since then turned it around successfully.

Yes. I'm not sure it's a rough start when it comes to Wound Care. Actually, Wound Care has been -- I mean, so if you take the last -- I don't know, it's -- I think it's 9 quarters, it's been really good growth. So I think we just generally Wound Care, we're just relatively small there, and we have expanded in the advanced wound care sector with some of these acquisitions like Abigo and Hydrophera. So we've got a great ambition, and this is a very, very profitable and good markets. And we're quite happy because we have bought two companies that actually have unique technology for the advanced Wound Care. So Abigo had the [ Sorbact ] technology, which absorbs bacteria and really, really helpful and a direct competitor to Silver Linings that most of the competitors have, and from a sustainability purpose is much weaker. So that's a great technology. We have acquired Hydrophera with also a unique technology. So it's a great area for us and we'll just continue to expand actually. So I think generally, it's been a bit challenging from a growth perspective, the overall medical side, not now because it is actually growing very, very well. But in the early years after, the acquisition growth was too low.

Okay. And then coming back to your point on the 17% return target and the fact that obviously, it's now quite a big ask. If you take yourself back to 2020 when they were just a couple of hundred basis points between you and that target, what were the main building blocks to get you there? You've obviously talked about mix and innovation, more on the cost side.

Yes, there were four, and I mentioned it already. So the innovation was, without giving kind of exact -- it was an exact plan. So -- but if you take the kind of 200 basis points, a bit less than that, of difference, you can say slightly less than half of that was related to pure mix. And this was no rocket science because we've actually done it before. So this was kind of consistent with history. The remaining part was a lot of it was efficiency in the manufacturing road map. So we progress in that, and we track it every quarter. There were digital -- digitalization gains coming from our overall digital program. And the fourth and final was actually a relatively stronger growth for the high-yielding part of our business. So all of those four, you can say, are still quite valid. And the rest is basically caused by input cost, and that needs to be compensated by price. But as you can see, we're just doing that.

I know. I mean you've done some...

So this is something we're quite -- I mean we've got ample time to address the pricing. As you can see, we're quite fast in that. So we have enough time.

And how an environment like this does an organization like you think about marketing because obviously, marketing is an important driver. It's also an important cost because the consumer right now probably isn't that keen on innovation as they usually are. So how do you think of that as a lever?

Yes. I think if you look at -- and most of you know this better than I do, but if you look at the kind of HPC space or just generally, people kind of retract a bit from marketing spend, we try not to because we think that you're absolutely right. It's not just consumers. It's just generally also the trade that cannot really cope with too much innovation. We continue and we continue -- and when it comes to marketing spend, which was your question, doing innovation and not putting marketing spend behind it is completely useless. You might as well skip your innovation part. And if you just keep your innovation part, you've got bigger problems in the longer perspective. So we basically continue more or less intact with innovation. And as a consequence, we also continue to put marketing spend behind it. There is a bit of moderation in between quarters to fit with -- or you can say, consumer patterns that may change but on the totality, we have actually throughout the pandemic as well and also now continued and with the kind of notion that the world is not coming to an end. I think it was Warren Buffett that actually said, investing in the end of the world has never been a good idea, and we kind of think the same, right? So we continue to.

Good to have this positive note.

It is, yes.

And then you've done quite a fair amount of changes in the portfolio. So you've kind of split out the private label business. You've now separated the consumer in North America and EMEA. What's behind those? And what are the results? I mean, on private label, you've obviously been down the road a bit longer. What are you trying to achieve with that?

Yes, it's a great question because private label -- we're doing private label and most people will kind of think that that's a business that's not your own brands, right? It's kind of the context of the private label. But the private label could be two different things. For us, it is actually. The common denominator is we do business under other companies' brands. But what we have done is that for Consumer Tissue, in Europe, roughly about half of it is under other people's brand or other companies' brand. But of that, roughly about half is actually with strategic customers that we, first of all, innovate to, to provide a lot of innovation. We manage their brands. We're category captains. And in addition, we also sell the other products to them. So that's roughly about half of that. We call that retailer branded. And the rest, which is pure private label is basically what we're now splitting out, you can say. And in that context, what that actually means, if you take a customer like Aldi, as an example, they'll provide all the kind of suppliers in the market with the spec. Here is kind of the grammage of the tissue, here's the length and here's the number of products and blah, blah, blah. Please provide the cheapest price. This is the part that we are actually separating out. And there are two reasons for it. First of all, the drivers in that very specific part of the business is all about efficiency and price. So if you spend too much time on innovation or if you got too much overhead or too whatever, then, of course, you're not going to be competitive in it. So specializing on that part is extremely important. The other reason is that we are all about market position. We're all about leading brands. We're all about innovation. And of course, this part is really a bit apart from that. So by doing this separation, you can say, we allow these management teams to specialize on what they really do well. And we're not complete with that. We still have a kind of a journey to do when it comes to transfer of flows to making it very pure in terms of also manufacturing setup, but we already see a lot of benefits for how it's managed. So I think the private label division is so much better managed now when it's isolated or on its own. And the other business is also better managed. So it's been so far a very, very good experience. But we still got a journey to travel.

And I think the queue of private label takes us into the now. I mean it's been interesting to see from the outside how up until now, we've seen massive amounts of pricing across the sector and yet volumes for you have been positive. A lot of your peers have been a lot less negative than feared. So everyone's just waiting for the quarter when it all unravels, and the consumer shows his true colors. What, from your experience, is that going to look like in terms of, are consumers buying less? Are they trading down but prefer brands? Are they going all down placing to private label? What's your read of the situation now?

Yes, it's a super good question because one, it's consumer dynamics or consumer behavior, and I guess we can all ask ourselves today, how do we behave? And I think the other thing is how you act as a company, right? But if you start with consumer behavior, we've looked at this history. We look 30 years back and how have people actually behave in crisis. So generally, if you take a feminine product or an incontinence product or consumer tissue or whatever or medical products, you tend to buy these products also and which we're very happy about, by the way, also in tough times. You still want your toilet tissue, obviously.

[indiscernible]they use papers.

No, that's not kind of good. So volume risk is quite remote. There has been times where people have bought less, but that's for very short period of time, and it's typically been connected to high unemployment rates and typically in emerging markets. So just generally, volume risk is not big. When it comes to down trading, that is a bigger exposure to us. If you look historically, it has happened also there predominantly in emerging markets. Latin America is a good example. To some degree, China. And what typically happens is that people just go into a shop, and they'll cut on whatever. So they'll buy the cheapest products. After a couple of quarters, they kind of tend -- 2, 3 quarters, they tend to realize that it's not a big part of their disposable income and they kind of go back to the brands and the products they like. So down trading has never been historically a very long-lasting phenomena for us, but it will have an impact. And you -- I know you follow our results very, very closely, you can see where that will show is actually on the mix side of things. We have had a positive mix now throughout the last several quarters despite these monumental price increases. So it has actually been slightly more positive, but it's clearly there. So you can say the innovation, positive mix improvement is there, but it's to some degree mitigated by a downside. I think this will probably be there for another few quarters. I think we'll see more down-trading risk as we approach top winters, high mortgages, electricity bills, we'll see this. It's not going to be in the context of how everything else that's happening. It's going to be very small, but it's still going to be there for a few quarters, I think. We haven't seen it that much, to be honest, but we just estimate. It would be natural.

And what about the professional channel? What are you observing because when we look at Bank of America card data, we can see that since the start of the year, people spending on restaurants is still positive, but it's definitely been slowing down? How does that impact the professional channel?

I mean you can see for yourself; we've had an absolutely great volume growth. And of course, it's a bit difficult to track for us because the pandemic had so much impact that the recovery from the pandemic is a bit probably hiding this. So you're probably right that people -- I'm never able to get a table when I want to go out. So apparently, still people are doing that. But I would guess that there is a volume risk for this segment as times get a lot tougher. I would assume nothing else but so far, we haven't really seen it. And of course, it's hidden by the pandemic recovery. So it's from a speculation point of view, it should have a volume impact. But historically, as I said, not really major.

And how should we think about pricing? I mean, we've seen in a number of subcategories, pricing come off, but you are slightly unfortunate in that a lot of the paper-based packaging, which seems to be...

Not only that. It's plastics. It's pretty much everything we do, right? It's all the materials.

So when you look in the crystal ball for 2023, how do you envisage the situation?

Yes. I mean I'm not the person to ask, right? I'd like to believe that but -- yes, that's a great thing, but it's been inherently difficult and just giving forecast on input cost is -- there's no real upside because we manage the situation, as I've showed here, we manage as it comes along. Maybe just as a general comment, most people will kind of look at us and say, well, here's the thing, they'll gain tremendously things if input cost goes down. And maybe it comes at a bit of a surprise, but I just don't wish for that to happen because we are quite happy with stabilized markets. Flat markets is the absolute best for us. And there is a simple reason [Audio Gap] our features, our innovation, what we do for well-being in the world, how we break barriers, those are the kind of things that we want to talk about. And what we talk to our customers about at this point in time or even the consumers is basically inflation. What's the cost of pulp? Who cares, right? So what we want is basically stability. And I think there is a good shot at it in 2023 that we'll see more stable markets. Will we benefit from rapidly falling input costs? Yes, absolutely. But it will kind of come at immediate discussions on price concessions. I mean we've increased prices a lot and of course, if you see a sharp decline, you'll immediately start seeing price discussions, and we're back to the same. So, yes. I think stability is what we -- I would wish for, really. And with a little luck that may happen, but who knows?

But if prices were to come crushing down, would that chart you showed us still hold that you hang on for 6 months? Or is it 6 months only on the way up and not on the way down?

It's fairly -- I mean for those of you who have followed us, you can see it's fairly symmetrical. So it was interesting. In 2019, exactly this happens for a part of our business, and we had margins of -- or Consumer Tissue, at the time of -- I think it was 16.5% or something like that. And I got these -- all these questions. Are you going to be holding on to your pricing? And our response was quite simple, the structural margin of our tissue business is roughly about 13%. So obviously, we didn't believe that. So -- and I don't believe it. I think it will circle around the structural margin. So if -- what will happen if input costs come down rapidly, our margins will shoot up a lot. And of course, over time, it will approach the structural margin. So that's why I think stability is much more favorable. No one is happy for volatility. And the last couple of years has been very volatile. So it's not good for the world, I think, not good for the consumers.

And most companies have said that retailer discussions have actually been relatively -- I mean, I wouldn't call it simple, but constructive in that the retailer understands is that -- and your price increases, I think, are a sign for that. When you have these discussions, have you seen periods where the retailer says, look, I'm not going to deal with this. I'm going to delist. Is that a big risk as we're heading into year-end? Or is it also something that can be -- is negligible at this point?

I mean we have yet to experience a customer saying, yes, fantastic. We understand why you're going to raise prices by 10%. Congratulations. We'll pay you. That hasn't really happened that often. So nothing has been simple. And especially at the early time because we were really fast out. We were faster than everyone else and more aggressive. And we were thrown out from all these discussions. We were boycotted, delisted, all of what you mentioned. That was before. That was before. And a lot of our competitors, some of them in this building, right, what they said we are not going to raise price. We're not going to do anything. And of course, what happened was that they all did. They had to basically. So as everyone else started to do exactly what we did, those discussions got -- and I can never use the word internally simple because I will be not that popular, but they were becoming a bit easier, if I put it that way. It's still difficult, and it still is difficult, but they became easier. So I think it's unlikely that we'll see delistings or boycotts, but there will be negotiations, of course, subject to whatever happens.

I'm just conscious of time because I think this pretends we have 7 minutes left, but I think we actually don't. So can I just check if there's any questions coming from the room. And if not, thank you very much. I mean you can tell I've only been through the first half of my first stage of questions.

So my answers were a bit too long.

They are perfect, let's leave it at that. Thank you so much. Thanks very much.

Thank you.