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

Welcome to Essity's Business Area Web Presentation. Today is the first day of 3 when we will talk about Essity briefly before getting more detail on Health & Medical.

And hello, and a warm welcome also from me. I'm Josephine Edwall, Head of Communications. And today, we are standing live from Essity's headquarters in Stockholm. We will have 3 days, as you know. Today, we start focusing on Health & Medical. And tomorrow, it's Business Area Professional Hygiene. And then on Friday, we will hear from Consumer Goods. But let's look at today's agenda. So as Magnus said, Magnus was talking about the Essity Group, and then we'll have a deep dive into our Health & Medical organization, where Ulrika Kolsrud, our President for Health and Medical Solutions, together with parts of our team member will join on stage. And in the end, we'll have a Q&A session. And you will find the dial-in details on the screen or on essity.com. So with this, Magnus, I hand over to you. Let's start.

Thank you, Josephine. So to set the scene, in 2021, Essity's had net sales of SEK 122 million. We were active in 150 countries with 46,000 employees. Our purpose is breaking barriers to well-being, and we do this with leading hygiene and health solutions. These solutions are represented in a portfolio of leading brands, trusted by over 1 billion users every day. These brands are sold by our 3 business areas -- 3 very distinct business areas that we have been presenting over the last year. And in a form that we will also be fully organized by the first of next year 2023. So very different in terms of customers, consumers, go-to-market competitors, but also with many, many synergies in the back end relating to the supply chain, to procurement, to R&D. So a lot of synergies and scale from being together by the very distinct differences and a very customer- and consumer-centric organization that we'll hear more about through these 3 days. And all 3 of these business areas are benefiting from very favorable market trends, growing in aging populations, an increasing prevalence of chronic conditions following this and increased disposable income. And we know that people with a high disposable income tend to be more interested in hygiene and health. Then there are 2 strong mega trends, digitalization and sustainability, that are not specific to our industries. But they give us new opportunities to create innovations that give more value to our customers and consumers, but also the opportunity to differentiate from our competitors. Our current addressable market is EUR 120 billion. Huge markets, of course. And this means that approximately Essity today has a 10% market share of the global market with a healthy long-term growth of above 3% with big variations geographically and also between the different categories and business areas. And we will learn more about this in the business area presentations also. So talking about the growth opportunities with our financial targets. Our overall growth target is to be above 5% combined, organic and through acquisitions. And our adjusted return on capital employed target is to be above 17%, which was changed to a higher number in 2020 after we had achieved the previous target for an extended period. Our policies regarding capital structure is to maintain a solid investment grade and to see that we have stable and increasing dividends over time. So how we've been doing in these areas? Starting then with organic sales, a very positive trend, even including the 2 COVID years that did have a very, very negative impact on our top line for the simple reasons that lockdowns and restrictions leads to a lower consumption of our hygiene and health offerings. In spite of this, on average, we have been growing at above 5%, SEK 5 billion per year and with a huge recovery in the first 9 months of 2020 to 18.4% compared to 2021. So a big recovery coming this year. And this growth includes not only organic growth but also a number of acquisitions, and we have been very active in the last 2 years with over SEK 17 billion invested and all of these companies that you see here on the slide are contributing very positively, both the top line and to profitability. And we are very focused on acquisitions in the areas where we see the highest growth opportunities, high gross margins, low capital intensity. And that's typical for all of these acquisitions. Moving then over to the development of profitability, also an incredibly strong development over the last number of years. And even including the last year 2021, we have an improvement year-over-year of over 5%. And what you see is, there is the combined impact of the COVID lockdowns and accelerating raw material and other costs. But that was history. Now this is a very important slide because this describes how we aim to achieve our ROCE targets to 2025. And we aim to achieve this in 3 distinct blocks, as you can see here. The first one being price increases, a strong focus. And price increases is what we do to cover our costs for raw materials, distribution, logistics, but also SG&A. And historically, and this time, we are always able to fully compensate for underlying cost increases with our own price increases because we have strong brands. Now more important for the longer term is the margin expansion in the second block here. And margin expansion is about growing volumes, growing with mix, premiumization, higher margins, higher prices from improved product offerings and consumer satisfaction. And then increasing capital turnover by using our capital more efficiently, but also through top line growth, which improves our capital turnover. And I'll talk about these 2 first blocks now in turn. So starting with price increases. This is a slide that created quite some attention in our third quarter presentation. It shows the accumulated sequential development since costs started to really accelerate after Q4 in 2020. So a massive cost increases sequentially quarter-over-quarter-over-quarter and also the red line showing how we have been picking up and recovering that. And if we take that red line and just move it 2 quarters to the left, what this slide clearly shows that there's less than 2 quarters lag between the fact that we are encountering higher costs until we have compensated. So we have been able to achieve this very, very fast with big variations between business areas and categories as we'll hear more about later, but a huge achievement. And as we presented during Q3, what's important to note is that we are, for the fourth quarter, guiding for stabilizing input costs and also guiding for approximately 3.5% higher pricing on our side sequentially compared to Q3. So that's then about price increases, we will be able to compensate. Again, over to the structural margin expansion that we're working with every year and that we've been working with over the last 10 years. And we focus this on 6 distinct areas that you see here. And I'll say something about each of these, and in addition to that, continuous portfolio optimization and performance management, of course. Starting then with innovations. This is so important in order to raise prices now, but of course, also to gain leading market positions and build strong brands. And we are really, really proud that 90% of our branded sales have a #1 or #2 position where we are present. And the way we do this is to continuously, with customer dialogues, customer insights, consumer insights, build new, exciting solutions that our customers and our consumers prefer. And it's something that we measure continuously. And this is not something that's achieved overnight. This is something developing year-over-year-over-year. And this is then percentage of our sales where customers and consumers prefer our products to other products. And typically, when they prefer a product, they stay with that product. So it's a very, very important measurement. Moving then into another one of our margin expansion priorities to lead in the fastest-growing channels. And this is specifically an example from e-commerce, which we believe will continue to be the fastest-growing channel going forward. And this accounts for 14% of our sales today with big variations between regions and brands and categories. And we saw also this year, even though it's the first non-COVID year, a growth year-over-year in the first 9 months of 20% in this important channel. So it's still growing faster than Essity that also has a huge growth in the first 9 months this year. When it comes to geographies, we have a clear priority to grow in East Asia, in Latin America. These are markets that are growing very fast. They are underpenetrated. We see exactly what we're looking for here, increasing disposable incomes, higher spend on hygiene and health. And the U.S. where we are, to some extent, underrepresented and that is still today the world's largest hygiene and health market. Sustainability is something that we are incredibly proud of in Essity. And here's a picture of our tissue site in Southern Sweden. That's completely fueled with biofuel. This is household waste from the local municipality that we convert to biogas and use to produce paper. So quite innovative. And of course, in these days, highly, highly relevant. It's just an example of one action that we're taking with 8 important areas. We have clear distinct targets and actions in all these areas. We were one of the first companies to sign up to science-based targets. We're completely committed to the net zero ambition by 2050 and have strong ambitions for 2030. So within all of these 8 areas, we have ongoing efforts to reach our short-term targets for 2030 and on to 2050. And today's sustainability and efficiency is, of course, very closely linked because being more efficient is using less resource. And this is also good from a sustainability perspective. And what we've been able to achieve over the last number of years and also aiming to achieve until 2025 at least, is a reduction in cost of goods sold from efficiency improvements by between SEK 0.5 billion to SEK 1 billion per year. And how we do that are some examples here. Over the last 5 years, we have a 20% efficiency improvements in terms of million pieces produced for personal care products per employee. We have 9% lower usage of energy per tonne, so an energy efficiency measurement compared to 2010. And we reduced our carbon emissions with 15% in Scope 1 and 2 compared to 2016. So it's a win-win for sustainability, for our customers and, of course, also from a cost and efficiency perspective. Finally, most important of all, winning corporate culture. I can assure you that all our 45,000 employees are completely committed to delivering superior results that they are and have shown a lot of courage over these tough years with the COVID and the cost challenges, and that we will continue, as we've always done, to care for our customers and for each other and doing that by collaborating across teams and with our suppliers and customers. So thank you for listening. I hand over to you, Josephine.

Thank you, Magnus. And now it's actually time to hear the presentation about our business area, Health and Medical. [Presentation]

So welcome, Ulrika Kolsrud, CEO.

Thank you, Josephine. So why don't we start with putting some context to this? The Health & Medical business area stands for 18% of Essity's sales and 26% of Essity's profit. And the compensation of the business area, 60% of our business is incontinence care. Wound Care stands for some 19% of sales, whereas Orthopedics and Compression Therapy accounts for 11% and 10%, respectively. And we have 65% of our sales in Europe, 16% in North America. And then we have sales also in Asia and Latin America and Middle East, Africa, making this business area truly global. And if we zoom in on the 9 first months of this year, we had a strong development in terms of sales growth with 10.8%, including organic growth and acquisitions. The gross margin, however, has come down to 37.3% due to the cost inflation. Following that, the adjusted EBITDA margin was at 11.8% and the adjusted ROCE at 9.5%. And the cost headwinds have especially impacted our incontinence business as incontinence products contain a lot of pulp and a lot of oil-based materials. So as we speak, our first priority is to raise prices to compensate for these costs. And in Q3, we managed to raise prices by a bit more than 6% in Health & Medical, which is a strong achievement considering the market conditions, but not enough to compensate for these costs.

So let's stay a little bit into the current environment before you take a deeper dive into your business. You said you had actually a good sales growth. Please elaborate.

Yes, this is true. We are very pleased with the fact that we managed to grow in health care during 2021 in spite of the market being quite hampered by COVID-19. And we've grown medical solutions now for 6 consecutive quarters with double-digit growth in 2021 and a strong growth momentum also in this year. And besides the good organic growth, we have done 4 strategic M&As, ABIGO, AquaCost, Johnson & Johnson, also tapes, and Hydrofera. And these have increased our presence in high-yielding product segments and increased our positions in high-yielding product segments. And with 3 of these companies being U.S.-based, we have also strengthened our position in this fast-moving markets.

So four acquisitions, it's a clear acceleration in Medical Solutions. How do you see the future? Do you see more acquisitions to come?

Yes, I think we have -- we see opportunities for further acquisitions as we, especially in Medical Solutions, operate in quite fragmented markets, and we have the ambition to grow both, organically and through acquisitions. With that said, short term, our focus is to integrate the latest acquisitions.

Just one more question on the current environment. It's a turbulent world. We all know that. We have seen cost inflation and it has heavily impacted your profitability. How are you managing this situation?

Well, we are, of course, fully committed to restore our profit margins and enhance our profit margins. But it takes longer time in Health & Medical than in our other business areas. As we operate in a regulated market where we are dependent on the funding system for health care around the world. And if we take incontinence in health care, as an example, we have more than half of our business locked into longer-term contracts. Some of them are annual, but the majority is tender based with the typical contract length of 3 years. We do manage to raise prices also in this part of the business, but the freedom to maneuver is dependent on the contractual obligations. We also work actively to increase the flexibility in this part of the business, for example, shortening the contract length. Another part of the business is listing, where the pricing is set and dependent on the reimbursement system. And sometimes they are fixed or capped reimbursement levels. Price increases in this part is often subject to governmental decisions and that doesn't happen overnight. So what we do is that while we work with price increases in the current reimbursement framework, we also work with industry associations to influence the reimbursement system and the reimbursement levels. Then we have self-pay and there, we have another level of flexibility. So they were quite flexible. So I'm talking e-commerce and over-the-counter pharmacy, for example. So we continue, of course, with raising prices in the coming quarters across our channels. We are -- with these market dynamics in mind, we are pleased with the pricing development so far. But it's clear that we will continue. Yes.

Good. So now let's hear a little bit about your categories.

Yes, let's do so. And we have 4 categories: Incontinence Care, Wound Care, Compression Therapy and Orthopedics. And the base for pricing as well as for growth is the great offerings that we have across our categories. Our TENA incontinence products range from finliners for little leagues to highly absorbent products for heavy incontinence. And we also have TENA skincare products specifically adapted to elderly skin. In Wound Care, we have products for all stages of chronic wound healing under the Cutimed brand as well as a wide range of local products for the hospital setting. So post-op dressings, surgical tapes, wide area fixations, et cetera. Under the Leukoplast brand, we also have some specialized band aids for the home environment to take care of a scratched elbow or a paper cut. Then in Compression Therapy, we have a comprehensive assortment of bandages, wraps and compression garments for people with lymphatic conditions or venous conditions. So we have JOBST garments for everyday use as well as for special situations like maternity. We even have custom-made garments. In Orthopedics, we focus on noninvasive products, meaning products we apply on the body and not in the body. So I'm talking costing, splinting, braces for fracture management as well as different support products for after an injury and physiotherapy products like strapping tapes. And our key brands for Orthopedics is ActiMove and Delta-Cast. And one thing that is common across these different categories is that they target conditions that have a very high prevalence in the population. If we talk incontinence, as an example, it affects the life of more than 400 million people worldwide. So as many as 1 out of 3 women over 35 and 1 out of 4 men over 40 deal with urine leakage. That's more than what most people are aware of. And I dare to say that the awareness about lymphedema is even smaller. Some are born with lymphedema. And then we have more than 150 million people that have lymphedema caused by, for example, cancer treatment or infection or having other medical treatments of some kind. And they are in need of compression garments to reduce the swelling and control the swelling. Compression garments is also used for different venous conditions, for example, for chronic venous insufficiency. And 5% of the population in mature markets suffer from chronic venous insufficiency. And if that is not treated correctly, it can turn into a venous leg ulcer, so a chronic wound. Other type of chronic wounds are pressure ulcers and diabetic foot ulcers. And it's 1.6% of the population that suffers from chronic wounds, mostly elderly. Acute wounds on the other hand, come at all ages. And the same goes for orthopedic injuries. I don't think there is anyone who's not experienced a broken wrist or an ankle sprain or something like that. So there are hundreds of millions of orthopedic injuries to take care of every year. And then our products also use for chronic conditions like arthritis. And 10% of the population over 60 suffer from the most common type being osteoarthritis. This high prevalence of the various conditions that I'm talking about here is also reflected in our market size. And we expect good market growth also moving forward since all of our categories are driven by an increase of the aging population and an increase of the prevalence of chronic conditions. So the fact that we are in growing markets that are supported by favorable trends, it's putting us in a good position for profitable growth. We're also in categories that have high margins and low capital intensity. And as I said before, we have a good growth momentum to build from. We also have some strong positions to build from, being #1 in incontinence care, being #1 in compression therapy, #3 in orthopedics and #5 in wound care, closing in on competition. So we are well positioned for profitable growth. We are also well equipped for profitable growth. Many companies have strong medical expertise. Other companies are good at brand building, consumer insight and other key capabilities for fast-moving consumer goods. Not many have the combination of strong medical expertise and strong consumer know-how. This is a competitive advantage for us. In the pharmacy channel, for example, we can see how this quite unique set of capabilities come to play. With Essity’s state-of-the-art brand-building capabilities, we have a wide portfolio of strong brands. That makes us relevant to our customers. And with our medical expertise, we can support the pharmacy owners with clinical knowledge and also with training of staff. And then thanks to our consumer know-how, we know how to bring shoppers into the pharmacy. Another strength that we have is our presence across the various channels. We are where the consumer and patient is. And we can also follow the demand and capture the demand if there is a channel shift. And thanks to our combination of B2B skills and B2C skills, we can also be successful across these various channels. Then another critical success factor is that we have to delight or that we should delight all of the different stakeholders that we cater for. So for example, we need to delight the payers like health authorities; we need to delight the health care providers like hospital leaders and owners; we need to delight caregivers, doctors and nurses; the business owners that I just talked about, for example, the pharmacy owners or medical distributors and patients and consumers. And these all have quite different priorities. And the fact that we have a very deep understanding of their priorities and their needs in combination with strong R&D capabilities. That is what's behind our strong innovation performance. Because we have a high pace of relevant and insight-based innovations to continuously strengthen our portfolio of unique products and solutions. Speaking about unique products and solutions, one category in which we certainly have some really unique products and offerings is Wound Care. This gives us the right to win. And we have also gained position from #6 to #5. We have the ambition to strengthen our position even further, and we are well equipped to do exactly that. Just listen to Carsten Henry, who is Vice President for Global Marketing and Innovation.

Thank you, Ulrika. I have the pleasure to present 2 themes to you today that give us the leading position in the market, one being infection management and the other one being skin integrity. Let's dive right into it. From my early days as a physician when I worked on a burns unit, I still recall that we sometimes set patients when it was challenging to find antibiotics that still worked. And sometimes there was only one option left for treatment. This problem is called antimicrobial resistance or AMR. As we know from projections, in 2050, we will most likely face 10 million deaths per year worldwide if we do not manage AMR more forcefully. Antibiotics are too quickly losing their effectiveness, and we noticed that even established products like [indiscernible] may face the challenge of resistance. We at Essity have products that can prevent the dangerous incline in AMR, one of those unique product solutions is Cutimed Sorbact, a product that has a working mechanism preventing the development of resistance. For us, it is a great product. For society, it can be an effective means to push back antimicrobial resistance. We acquired the Swedish company, ABIGO and their antimicrobial Sorbact technology in 2021, not only securing ownership of the technology, but also strengthening our capabilities. Our thought leadership in antimicrobial stewardship is also reflected in the collaboration with United Nations Foundation. However, Sorbact is only one of several unique solutions that we have in our portfolio, giving us the right and reason to win in Wound Care. Our latest acquisition is the U.S. company, Hydrofera. Their products and technologies have quite some similarities to Sorbact, providing scale in the U.S. Now we have 3 R&D centers for Wound Care, one in Hamburg, one in Sweden and one in the U.S. So much on infection management. Let me next take you to the topic of skin integrity. Why is skin integrity important? As a physician, a care-providing nurse, you need solutions that are reliable while doing know-how. As you see me here, putting this product on and gently removing it. Our Leukoplast and [indiscernible] portfolio with its unique adhesion and surface technology keeps the skin intact and takes away the pain when removing the products. Our latest launch, Leukoplast Echo is now combining these innovations with a sustainability boost, having 90% of the components of the product being derived from sustainable sources. Our strategy in Wound Care and these multiple competitive advantages that I've outlined to you today, and our strongly growing sales numbers further confirm the potency and the potential of our unique solutions. And we will continue to build on them to further accelerate the growth in Wound Care.

And the recipe that Carsten has talked about now comes to live in our innovations. So one of our recent launches is the extension of the skin sensitive range. Skin friendliness and skin integrity is a true differentiator for Leukoplast, justifying price premium and driving a positive mix. Carsten talked also about Leukoplast Echo. And we have sustainability integrated in everything we do, not the least our innovation processes. So with every launch, we aim to take a step towards reduced climate impact. Leukoplast Echo that we launched earlier this year is a good example of that. And with 12% growth year-to-date in Wound Care, I think this shows that the recipe in Wound Care works. Moving to Compression Therapy, where we are global #1 with 13% share of market. Here, we have a very strong brand in JOBST and a strong portfolio to build on. So we aim to strengthen that position further. And we will do that by winning with customers, winning with payers and winning with patients. And if we start with the customers. So typically, for example, in medical device shops. They, of course, look for good patient outcomes, but they are also looking for convenience in their everyday work. And we continuously improve the convenience for them. We make it more easy to fit patients into the right garments, more easy to order products, more easy to access aftermarket services, et cetera. For the payers, we bring health economic benefits because with the right treatment of lymphedema, you're not only improve well-being among a large population of people, you also save costs in society. And then we come to the patients. So you should know that most of the patients wear compression garments 24/7. So what's on top of their agenda? It's comfort. And we bring superior comfort. An example of that is our JOBST confidence line that I believe I talked about in the Capital Market Day a year ago. Now we have added more products to this range of next generation compression garments that is based on a unique and innovative technology. So now even more patients with lymphedema can enjoy to wear compression garments that feels like a second skin. [Presentation]

This was not to symbolize improved comfort, but actually just to symbolize the important characteristic of compression garments and what consumers are looking for. Because consumers and some patients, they are not only looking for comfort, they also want their products to be appealing. And what you just saw is our JOBST trend collection that we have, the color trend collection that we have that enhances fashion in this category. And with that, we move to Orthopedics. And there, our 6% share of market brings us to a #3 position. We do have different strengths in different segments in this category. So in fracture management, we are #1. And we aim to leverage that #1 position to strengthen our share of market also in braces and support and in physiotherapy. And now you're going to listen to Koen Jorissen, our Global Therapy Area Director for Orthopedics, who will tell you exactly how we will do that across our sales channels.

Thank you, Ulrika. First of all, I would like to mention that the goal of an orthopedic treatment after injury is to get the patient back to movements. Essity has a unique offering and can address all phases to being active again with a comprehensive range of products. Please join me on our journey where we have a closer look into the segments and the related sales channels. Welcome to the classroom, where most of our fracture management products are used and which typically is in a hospital or orthoclinic. This segment contains all products and accessories related to immobilization. In the fracture management segment, we are #1 worldwide with 25% market share. Essity offers an extensive portfolio in the classroom to cover all the needs of the cast technician and orthopedic surgeon. In late 2021, Essity acquired the company AquaCast, which produces and markets a waterproof cast [ bedding ]. This allows immobilized patients to wash their hands, shower or bathe and further strengthens our leading market position in fracture management, while extending our portfolio offering in the cast room. As the undisputed global market leader in fracture management, we will further expand our presence in the cast room and win by being the best partner to our customers. Next to fracture management products, there is an increased use of braces and supports in the cast room. Braces and Supports is the second segment in Essity Orthopedics which are off-the-shelf products such as walkers. They require less time and skill to be applied, which drives increased usage. Join me to my visit to a pharmacy that next to the cast room is our strategic focus for growth and Braces and Supports with higher profit margin. Braces and Supports is a EUR 2.5 billion market worldwide and our largest opportunity for growth. Actimove is our global brand in Braces and Supports. And these products are medically engineered based on biomechanics and stand for excellent functionality to help manage pain. The majority of orthopedic injuries are minor to moderate. They can be acute after sports injury as well as chronic conditions like osteoarthritis that develops with age, but all seeking pain relief. We win in the pharmacy by bundling our Actimove portfolio with a strong TENA and Leukoplast position supported by all of our marketing programs. Shoppers also expect to find physiotherapy products next to braces and supports in the pharmacy. Let us have a closer look into this segment. This segment contains our strapping and taping products and nonadhesive bandages. After the recent acquisition of Coach, Zonas and Elastikon in the U.S., we have become the global market leader in physiotherapy. Essity has a strong position within professional sports clubs all over the world as our products are considered best in class. As the majority of orthopedic injuries are minor and self-medication by consumers are growing trends, we will make in 2023, our well-known branded physiotherapy products as co-branded products available under Actimove in both, profitable online and pharmacy channels. This will allow active individuals to continue to do what they love, while providing pain relief when they need it most. Thank you all for making the time to travel with me into the various channels. I hope you now have a clear understanding of how successful we are already in certain channels and will be even more successful in the future, having this unique, differentiated, comprehensive portfolio in the various segments. And now back to you, Ulrika.

Thank you. And with the acquisitions that Koen talked about in physiotherapy on top of a good organic growth, we have enjoyed 37% growth in this segment. Then overall, in orthopedics, we have an organic growth of 8% in the first 9 months of the year. Now last but certainly not least, let's move to our biggest category, Incontinence Care. We are the expert in Incontinence Care, leading and shaping the market, and we aim to continue to do so. Today, we have 22% share of the health care market globally with 14% in North America and 36%, so close to 40% in Europe. And what has taken us here is a combination of strong go-to-market, superior products and a holistic offer. And when we talk superior products, I want to highlight TENA ProSkin Slips. This belted product that is seen innovation from some years back, is making it more easy and ergonomic for caregivers to change inco protection. It also has the TENA ProSkin technology that leaves the skin dry and healthy. And now we have introduced new features to this product that makes it even more convenient for health care staff, thereby supporting care efficiency in these times when there is staff shortages. And this is a good example of how we enhance superiority of our premium products to justify price premium and to drive a positive mix. Another part of the recipe, as I said, is our holistic offer. And this makes us the best partner to health care in their ambition to provide good quality care at the lowest possible total cost of care. Our wide range of TENA products that we've talked about earlier is, of course, part of this holistic offer as is our digital solutions that support cost efficiency, individual care and sustainability. And on top of this, our customers have access to our profound experience and expertise in incontinence care. Through our TENA trainings, through TENA incontinent nurse advisers that provide clinical support and through tools that we have developed for their benefit, like TENA incontinence care plans. So this holistic offer that we call TENA solutions that really makes a difference. 95% of the nursing homes that have applied TENA solutions experience an improvements. And in a recent case study that we have done, we can see that using TENA products in the right way can reduce health care staff time up to 50%. And we use these type of results and outcomes to shape the market towards a total cost approach. To purchase incontinence products and lowest cost per piece is not cost efficient. You have to think about costs for laundry, cost for staff, et cetera. So we will continue to influence towards a total cost approach towards value-based procurement and towards a reimbursement system and levels that are adapted to an inflationary environment and that allows for a good quality care. And in those markets where we do not have a reimbursement system that allows us to have healthy margins and allows a good quality of care, then we focus on other channels. And that brings me to our expansion strategy because with the pressure on public funding and health care staff shortages, there is an accelerated trend towards home care, self-care and self contribution. So family members, they need to take more and more responsibility to care for their loved ones. And we aim to capture these market shifts that we see across different categories. So we will win in home care. We will win with caregiving relatives. And we will expand in self-pay by having the relevant assortment and innovations investing in A&P and not the least by leveraging this combination of medical expertise and consumer know-how that I talked about before. Another opportunity for profitable growth is a geographical expansion, not the least in medical solutions, where we have the ambition to grow double digit in D&E markets, both through organic growth where we are already present as well as by investing in selective new markets. Then when it comes to offers, we see opportunities of expansion of our sustainable offers but also expansion in continuum of care. And now I have Anand Chandarana with me to explain what we mean with that. Anand is Vice President, Sales, Excellence and New Business. So welcome, Anand. Over to you.

Thanks, Ulrika. So it's true that we continue to innovate with solutions that support consumers, patients and caregivers in managing conditions. This is the mainstay of our business and represents an addressable market of around EUR 15 billion across our core categories. But we think we can do more. We believe we can impact health care outcomes in a better way, and we think we can tap into new markets by expanding along the continuum of care. And the continuum of care describes how health care providers see patients moving from preventative care through to medical intervention, to rehabilitation and even maintenance. And you may ask why is expansion along the continuum of care important to Essity. Well, simply put, it's because we reflect, and we are responding to the evolving focus of health systems around the world. They now put more emphasis on prevention and remote monitoring, both to preempt conditions but also to preserve well-being in patients and consumers. And the evidence of this shift of focus is very, very clear. We see that between 2015 and 2019, 2/3 of OECD economies increased the proportion of health care spend on preventative care. And if we look forward, I mean if you take 2019, 18% of global health care spend was dedicated to prevention. But if we forecast forward in 2040, this is expected to rise to over 60% of health care spend dedicated, devoted to preventative care. And we really want to be in that. So what are we doing about this? Well, firstly, it's clear, and you can see from the slide showing that we are quite deliberate on where we put our efforts, our focus and where we explore. And that is based on where we feel we have the highest ability to win, which is based on legacy positions in the different therapy areas, but also where we see the absolute market size big enough and growing enough for us to take a position. So some of the examples that I can share with you about our expansion along the continuum of care is in Wound Care, where we position dressings with Sorbact and Hydrofera technology on postoperative wounds to prevent surgical site infections. Another is the use of mobile apps to assess patients and even select products from our portfolio. We do that to a good extent within the compression therapy and wound care areas. And probably the area where furthest ahead with is incontinence care where we now have commercialized the solutions TENA Identify and TENA SmartCare to optimize care delivery by remote monitoring.

This is totally right. And actually, now we will -- I will welcome Axel Nordberg who is Global Director for Digital Solutions in Incontinence Care. And Axel, I think the solutions that Anand just talked about, we are continuously sharpening these offers. But even more importantly, you now have some recent new evidence that this is the future of incontinence care, right?

Absolutely. And in fact, if we take a look at the next picture, we already know that TENA SmartCare provides value to our customers. For example, we see up to 28% of waste reduction. And we see that we can provide up to 29% fewer leakages and also a significant reduction in response time. This is absolutely great. But what we also see now is an increasing awareness around these things among payers and policymakers. And to take an example, in U.K., TENA SmartCare was recently selected as a part of the NHS Greener program to support a more sustainable health care. And the first trust implemented in '23 has the potential to reduce the CO2 of incontinence care with up to 15%. If we take Belgium as an example, TENA SmartCare again was piloted recently. And the conclusion was that smart incontinence care increases the well-being of residents and also lowers or decreases the time spent from caregivers. So the conclusion again was that more individualized care, sustainable care and lower waste, which means that the end conclusion in this was that this is an absolutely must have going forward. We also were recently labeled in the Netherlands as Sensible Care. And on the European level, Essity was recently invited on a workshop on sustainable consumption. So Essity was specifically invited to present TENA SmartCare and TENA Wear around the sustainable consumption. And if we take a look at this, we see that this is basically a new padding of incontinence care going forward, that things like sustainability and also the more efficient care and also the better outcomes that we can provide becomes must have in incontinence care going forward. And TENA SmartCare can provide an important impact in this field and also give us a stronger premium position at Essity and with TENA.

Thank you, Alex. I think these are some fantastic results, and the recognitions really show that we are doing the right things. So thank you again. And Anand, why don't you stay? I will come back to you in a minute because before we wrap up, I really want to talk efficiency improvements. We work with continuous efficiency improvements in our supply chain. We work with continuously optimizing and reducing material usage in our products through state-of-the-art technologies as well as through value engineering. And we work to automate and digitize to become as efficient as possible in our internal processes. In Health and Medical, on top of this, there is one area that is especially important for efficiency improvements. Right, Anand?

Absolutely, Ulrika. So just as you say, the commercial model in the med tech environment is traditionally associated with a high cost to serve. We deploy and others deploy a lot of feet on the street or resources, both to interact with our customers and reach them, but also to deliver important parts of our value proposition like education and service. And whilst we expect better leverage of our cost to serve over the coming years as we scale our medical solutions business, we do put a lot of emphasis on sales and marketing productivity. So the way we interact with our customers has been changing over the past few years, but over the last 2, there's been a pronounced shift in the way we work and also in customer behavior. So we see higher overall digital maturity in society. We see a customer preference for more digital interactions. And we also see improvements or advancements in marketing technology, which allow us really some opportunities to capitalize on. And whilst our sales teams remain critically important to our go-to-market, what we know is that we can leverage the digital and omnichannel interaction model to a better extent to optimize our SG&A investments. So some of the examples that we've already put in place are, one, having a digital marketing engagement team installed. So this team executes marketing -- digital marketing campaigns for our country organizations, and it does it in a precise and efficient manner, serving our sales force with high-quality leads. But this is something that we've actually leveraged from our B2C knowledge in the organization, which gives us kind of a unique position. We've employed what we call a blended selling model amongst our field sales force, where we mix virtual and in-person interactions with our customers because they prefer it that way, to even increase the intimacy. So we sometimes even increase the frequency of calls and interactions with our customers by using the same resources. And thirdly, we've started seeding what we call inside sales teams, so purely virtual or remote sales forces to interact with certain customer segments where it makes sense. And we see that also as a good leverage of our resources and capabilities. So it's all really about improving customer experience, but also about levering some of the opportunities with efficiency in SG&A.

Thank you, Anand. So if I now summarize our priorities to drive profitable growth and to contribute to Essity's ROCE target, you find both, enhanced customer experience and efficiency improvements, on that list. Needless to say, price increases is a key priority, as is innovation. And then I'm talking about innovation to drive differentiation and pricing power but also to improve cost position and support sustainability. Innovation is driving growth, and we continue to have high growth ambitions in Health & Medical with specific focus on accelerating growth in our highest margin area. And with that, I think we open up for Q&As, right?

Thank you, Ulrika, for interesting presentations. And now we also have Magnus joining. [Operator Instructions] So before the first question, though, Magnus, what are your key takeaways from today?

It's that we have a fantastic business already today and so many opportunities, and these presentations make me really excited and positive for the future. So really, really interesting and many opportunities.

Good. So please, operator, now you can open up for the first question.

[Operator Instructions] The first question today comes from Oskar Lindstrom of Danske Bank.

Yes. I think I appreciate very much this. It's the first time that we have this -- that you have these focus on a specific business area, which is very helpful. I'd like to have two questions, if I may. The first one is in the Health & Medical segment. I mean, you described the factors sort of holding back the pace of price increases that contracts and tenders and so on. But what can you say about the size of price increases that you are expecting going forward? So that would be my first question. I guess to you, Ulrika. And the second one is on acquisitions for the overall group. I mean -- and growth -- in the past, you've had this sort of strategic triangle showing where the focus for SAP is in terms of growth and acquisitions. I noticed we didn't see it this -- in today's presentation. So is that still sort of how you like to present your strategy? That's my second question.

So if I start then with the pricing question. As I said, our ambition is to restore our profit margins. It's more that it takes longer time in Health & Medical due to as operating than in a regulated market. And it's both about the contract lengths and the structure of contracts but also about the reimbursement systems and levels in the reimbursement. And when it comes to the size of the price increases, that is also -- it's also very different across markets and these different segments. And as an example, now we have worked with this shaping of the market and together with industry associations try to change pricing levels. And in the Netherlands, the health index has now increased to 9.5% as from January, which will have a positive impact. So it's these type of decisions that we need to shape for and influence for in order to drive our price increases. And it might not be the full price increase at the same time, but then we will continue because, as I said, our ambition is to restore profit margins and compensate for the cost.

Good. And then to the strategic pyramid. And for those of you who haven't seen it, it's a pyramid based on our categories with Medical and Feminine Care, Incontinence Care at the top, followed by Professional Hygiene and Baby Care and then with Consumer Tissue as the base. And what we showed with this pyramid was that our strategic intent from both, an M&A but also from an organic perspective, was to grow the top of the pyramid faster while focusing on the improving margins at the bottom of the pyramid. And this is very much what we've been working on. Then, of course, you have challenges or opportunities that change the shape of this pyramid anyway. For instance, we have significantly higher price increases in Consumer Tissue currently than we have in some of the categories at the top of the pyramid. The pyramid priorities are still unchanged. There's no difference. Maybe a way of thinking around this is that we have 3 pyramids, 1 for each business area with really interesting opportunities to grow both, organically and through acquisitions in all 3 business areas. So in [indiscernible], in Health & Medical, of course, it's all very attractive, and we should find opportunities to continue to do the type of acquisitions that we've done in Wound Care, but also in other areas. While in Professional Hygiene, it's a lot about adjacencies. It's similar to the legacy converting acquisition that we did earlier this year, specializing in advanced wipers. And the same in Consumer Goods, where we did the 2 leakproof parallel acquisitions, Knix and Modibodi. So there are really attractive, interesting pyramids in all 3 business areas. That's the way I'd like to reposition it. Thanks for the question.

[Operator Instructions] The next question is from Faham Baig of Credit Suisse.

I'll take two as well, if that's okay. The first thing I want to try to better understand is where are we with the integration of the medical solutions business and the incontinence business with regards to the sales force, in particular? And the sort of follow-up from that is you presented an efficiency program through focusing on an omni-channel approach, which sounds highly intriguing. Are you able to maybe quantify to what extent that could potentially reduce your current sales force in the division as well? And where are we? How many sales force do we have in Health & Medical right now? And then my second question is probably one for Magnus. But how do we -- how do you -- how does the business manage capital decisions and tensions between the retail and the business-to-business channels, particularly within inco given one of the areas maybe slightly lower growth than the other?

So shall I start with the integration then, of inco and medical sales force. And we are integrated where we want to be integrated because we structure our sales force based on how we can best meet the customer needs and the consumer needs. So in the pharmacy, for example, we have a joint sales force in most of the markets because there, we have a benefit in going together as one company. We can build on the strong position for TENA in order to gain listings also, for example, Wound Care and also [indiscernible]. Also in the hospital channel by having a key account manager approach that is across our different channels -- or sorry, our different categories. We have a better negotiation power and also we have a wider portfolio and become more relevant with the customers. With that said, there are some parts of the business where it's important to have dedicated salespeople. So once you have reached a commercial agreement on the key account management level with the hospital with our full portfolio at hand, then you also need to convince the clinicians, for example, in the cast room or in a wound clinic. And in those places, it's very important to really know and be the expert on that specific therapy area. And then in those cases, we have dedicated sales forces for that reason. So we have integrated in the sales force, inco and medical, to the level that we want to integrate it. And then maybe to talk about this. I mean there are other synergies between inco and medical that are important besides the go-to-market synergies. Magnus, you talked about R&D, and I think that is a typical example where things like absorption and skin health and skin integrity, these areas are relevant across inco and medical. So there, we have synergies. And also, we should remember that a lot of the patients that experienced one of the conditions also experienced the other condition. So for example, many people that have chronic wounds, they also are incontinents and the same with lymphedema, for example. So we build knowledge about the consumers and the patients, and about caregiving relatives, for example, that we use across the categories. So that was a bit of a longer answer to that question. Maybe you can take your thing between Magnus, and I'll come back to the sales force and so.

And I mean, we see efficiencies, but I don't think we're providing any specific numbers yet. But definitely, going forward, in light of the current inflation, there's an increasing focus on SG&A costs, of course, in general for us, like for any other company. Then when it comes to how we allocate capital, yes, very much according to the strategic pyramid or the overall priorities. And this goes both for how we allocate for organic growth and for M&A, as I think it's clearly reflected in the acquisitions that we have done over the last 2 years. So of course, different hurdle rates for different types of business and comparing to other opportunities in the short term and in the longer and medium term, of course, also always comparing to doing nothing or doing something later. So it's a very strong priority with where I'm very much engaged myself, of course, prioritizing between the different business areas and the different categories.

And if I then go back to SG&A, I just want to emphasize, I mean, we have thousands of people in the sales force, but our ambition with the efficiency improvement is not to reduce the sales force. We need all the people in the organization. It is to get more mileage out of the sales force to accelerate our growth. So that is our ambition with that program.

That's a good point.

And also to become, as Anand was talking about, also to increase the customer interaction and the intimacy with the customer because not only do we become more efficient, but we also can interact with the same customer more times and in a more effective way. And we can reach more customers with the same resources when we use digital tools and this type of technology.

So faster profitable growth.

Exactly.

[Operator Instructions] There are no further questions at this time.

Okay. So then I think we conclude today's session. Thank you, Ulrika. Thank you, Magnus, and thank you, all of you who called in today. And we hope to see you again tomorrow when we'll do -- make presentations around the business area, Professional Hygiene. So goodbye and see you tomorrow.

See you tomorrow.

Thank you.