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

Thank you for joining the call today, which is for JPMorgan Equity high-touch clients of Research Advisor [indiscernible]. The call is for institutional investors only. Therefore, if you're corporate clients or member of the press, please kindly disconnect from the call. I will now pass you over to JPMorgan host for this event, Celine Pannuti.

Thank you. Good afternoon, good morning, and thanks to everyone for joining me today. I am Celine Pannuti, and I head the equity research at -- [ Staples ] Equity Research at JPMorgan. I am pleased today, as part of our fireside chat series, to host Magnus Groth, CEO of Essity. Magnus, thank you so much for joining.

It's a pleasure.

Magnus, we will be a bit -- over the last hour looking at long-term questions as well as short term regarding Essity. You do not provide the financial outlook, but you had a strong start to the year and you have guided, so to speak, to restore profitability throughout '23. So my first question really following on that is trying to understand where we are in terms of pricing implementation. We've seen pricing has been strong across the board and even in Health & Medical as they're caught up recently in terms of pricing. Are you done now in pricing, if I think about Consumer Goods and the Professional Hygiene division? And if I think about Health & Medical, how much longer and how much more pricing should we expect?

So in Professional Hygiene and in Consumer Goods, we are mostly done. There is still, of course, individual markets or subcategories where there might be some more [ work demands ] especially in Incontinence Care, Retail and in Feminine Care, in Personal Care in the Consumer Goods area, we still have some more work to be done. But broadly, we are now focusing more on price management, so to work to improve our margins rather than to just raise prices at any cost, so to say. And then in Health & Medical, we have good pricing, but we need more. So expect us to continue raising prices in the next 3, 4 quarters before we see kind of the recovery where we want it to be. And this is because of the fact that we are, in many cases, on 3-year contracts here. So it just takes time to work through that backlog of existing contracts, but we're halfway through approximately.

All right. I would like to come back to that price management that you were talking about. Clearly, we've seen many costs started to roll over from a [ profitability ] standpoint, but as well energy and distribution costs have come down quite a lot. How do you expect your competition to behave across markets as we're seeing [ good ] cost easing coming through. Should we expect promotion to rise, as I think similar competitors may try to win back market share? And we also see usually the private label are probably a bit quicker to pass on any changes in crisis. So yes, it would be really interested to understand that dynamic that's been the focus on the market.

Yes. We haven't seen too much of promotional pressure yet. In the last 18, 24 months, I think the kind of pricing landscape has been quite disciplined across the board. Of course, I [ can't ] talk about competition specifically. So very difficult to say. What we have seen, of course, now the last couple of quarters down trading, but that's more from a consumer perspective that they are moving from kind of middle-tier products to lower tier products and to private label. But that's a stronger trend that we're seeing then. And that has, of course, to do with inflation rather than competitive pressure.

And just to come back on that because we see some politicians and retailers talking about price cuts. Is that something that you are as well confronted to? Or is not yet a discussion that you're having with your customers?

We've had discussions with our customers now every quarter for the last 18 months or 2 years. And of course, that's still ongoing. And for us, the key is the margin development that we can continue to expand our margin because we are on the path to a return on capital employed above 17% by 2025, which is just around the corner. So we need to continue to get our overall adjusted EBITDA margins up to about 13% until then. So that's our clear focus. Of course, now also taking into account that we want to balance with not losing market share or too much volume. But clearly focus is still on the margin recovery.

Right. Maybe if I also come into the cost outlook, looking into Q2, you have guided for lower raw material and lower energy costs for all the businesses sequentially. Should we expect the cost to turn already into a tailwind in Q2? And then maybe I can also ask about pulp prices that have been coming down year-to-date across geographies. So we've seen recently uptick in China. Can you talk about what you've seen in terms of price negotiations for pulp across regions?

Sure. So when it comes to raw materials, energy and also distribution costs, we did forecast lower costs in the second quarter than in the first quarter, so sequentially. However, year-over-year, we still see stable or slightly higher costs than the second quarter of last year. And specifically in energy, we expect to have higher costs than last year because of higher prices in our hedge -- in the hedged part of our energy purchasing. So -- and then, of course, with the price declines that we're seeing in the market, global market prices, this will then turn positive in the second half of the year. And I tried to look here recently at China, actually, since the beginning of the year, both hardwood and softwood is down significantly. And with the recent new capacity coming into the market now and also later this year, we expect -- we don't expect kind of an uptick overall in pulp prices. We expect them to remain low. I mean they're not low today from a historic level, but that they should continue to decline kind of in the short to medium term, then it's always difficult to say. But right now, we can see stocks building up in many places, pulp stocks and the new capacity coming in. So we're not expecting pulp prices to increase again, rather the opposite.

Okay. Right. One other point has been volume, you've been quite vocal. I mean, we are mentioning that earlier, and you don't want to use too much volume. And yet we've seen volume being negative in Q1. Do you expect volume to come back to positive territory this year? And can you talk about the competitive context because over the past years, Essity was better able than its competitor for supplying customers. Is that to help because of the relationship you build or is proving to be maybe a high comp base as some of your competitors are trying to get back their fair share of volumes?

Yes. So volume is important for us because volume growth is always helped for cost [ coverage ] of course, in our asset base. And our ambition for this year is to continue to grow volumes. Last year, we had positive volumes, not many other FMCG companies have that, even though we actually did see a decline also in the fourth quarter and then followed by the first quarter of this year. The first quarter of this year, it wasn't that much. It was around 2.5% and half of that was due to actions that we have taken with a focus on enhancing margins, which we have -- partly it was actually Russia, but half of it was also stepping out of baby diapers in Latin America, which is one -- Cure or Kill initiatives. And this could still be the case going forward that we take initiatives that actually has a negative impact on our margins in order to improve long-term profitability. But then, of course, we clearly guide to that. When we look back historically, at recessions, we've never seen a big impact on underlying volumes in our categories. They are very resilient. It's the necessities and the essentials, the products that we sell. So that's why we have an ambition to have positive volumes by year-end, even though, of course, this could also vary between quarters.

Right. Then maybe coming back to what you said earlier about down-trading. I would like to understand a bit, so yes, it's a necessity, but how is the consumer looking at their purchasing in your categories. You mentioned some down-trading. So if you could talk about what you've seen in Latin America? And specifically, can we touch on Europe? Are you seeing this accelerating? And how are you going to play around that? I think in the past, if I think about the innovation that you were talking about, they were more trying to push out the premiumization. How are you looking at your pipeline in that context as far as innovation is concerned?

What we're seeing so far is down-trading in Latin America and in certain geographies in Europe. And it's in 2 categories in the Consumer Goods area. It's in Consumer Tissue and in Baby Care. And we see it in that [indiscernible] -- already mentioned in Europe, for instance, in the U.K., but actually also now in a few other countries. And the way we manage this is to always be where the consumer is. So especially in Europe, we also have a strong offering both in the value tier of our branded products and also in private label. So from a volume perspective, this is something that we should be able to manage, but of course, from a kind of value creation point of view, we prefer and continue to focus with innovation in the premium segment. And what we see specifically from a kind of innovation perspective is that the premium segment seemed to be holding up quite well, while those who are buying kind of middle tier products are down-trading to basic products or value products. So if you look at it from a good, better, best perspective, the best part of the category is holding up, but there's down-trading from better to good, so to say. And that we manage with a focus -- focusing our claim on the value that we bring with our products, more product in [indiscernible] on the toilet roll, for instance, more products, so different, more value-related claims than we have typically had. And it's important for us to try to catch consumers who are used and enjoy our brands so they don't move to private label, so that we can catch them in the value tier of the branded assortment. So that's our thinking and our strategy.

Well, we took [indiscernible] in Europe or as well now [indiscernible] to U.K...

We see that in some other markets. I think U.K. is the country we mentioned, so far, but we're seeing it in some other European countries also.

Now another short-term question around your [ saving ]. So due to the fact that we saw increased inflation that add negative headwind on your savings, do you still see the scope delivering this SEK 0.5 billion to SEK 1 billion saving in '24 and support profitability? And what are you -- what opportunity do you see in terms of efficiency savings throughout the year being production or in materialization or in a different part of your supply chain?

Yes. So for quite a few years, maybe the 5 years running up to 2020, we saw savings of about SEK 0.5 billion to SEK 1 billion per year in terms of goods sold. And those were quite visible also in the P&L because we didn't have any inflation, and then we had the years here of great disruption, of course, with volume declines during the pandemic and then the supply chain issues last year and bottlenecks and so on. And during those 2 last years, it's been much more difficult to work with efficiency savings. We had more of a focus than on service levels and just keeping the machines running. But having said that, we have had savings, but they have been visibly in our P&L or kind of -- the inflationary effect has been bigger than the savings. Looking forward now from this year, it's much easier to work with the types of savings that we do in getting rebates from suppliers, material rationalization, finding more supplies, strong focus on energy savings and machine efficiency improvements because things are getting back to normal in the factories for the first time in several years. So it's much easier to work again in a structured way with these types of efficiencies. So yes, the answer is yes. We expect savings in the range of SEK 0.5 billion to SEK 1 billion. However, we still have inflation in maintenance, in salary costs and so on, which will partly eat into this. So it's difficult to state the number kind of visible in the P&L. But underlying, we have -- expect to have really good savings this year in cost of goods sold from a gross perspective.

Good. Maybe moving much more to midterm discussion, and I would like to start with your midterm growth ambition, which is around 5% growth per annum that includes around 3% inorganic growth. Obviously, we have seen several years of you clearly delivering well ahead of that, but as well helped by pricing that has been quite extraordinary for you, but for as well the rest of the industry. And my question is more about looking forward after those huge price increases, we could be looking at years of a lot of pricing or even price deflation. So how should we look -- I mean, what's your confidence level around this 3%? Should we expect that on a year value basis? Or do you think it's more on average that we should be looking at?

Yes. I would probably look at it on average. I mean there is underlying volume growth in our categories, and we're focusing, of course, in the parts of our business where we see the highest growth. And we have had a positive mix now for many, many quarters and many years overall in our business, and we aim to continue that and we had huge pricing. And that could, of course, reverse depending on how quickly and how dramatically the raw materials, energy and distribution and other costs decline or how they develop. So it's really difficult really to predict that in the medium term. I'm very convinced about the 5% and the 3% organic on average, but how it develops over the next quarters and years will depend very much on those underlying tests. So I can't really say.

All right. Well, thank you for that. But yes, I think right to mention the debt and the rapidity of the cost is excellent, very visible. Okay. Maybe another target that you already [indiscernible] the return on invested capital to hit 17% -- above 17% by '25. First of all, we're going to discuss Vinda and the private label, which are both under strategic review, but what will happen to this target if this were to be disposed of? And if I think about the return on capital target, you said that it will be equivalent of hitting a 13% EBITDA margin by 2025. Now this is a number that you only achieved in 2020 when there was a strong COVID-led benefit. Obviously, lower cost could help along with your prices. But from a structural standpoint, what do you think you have achieved that could help you effectively to narrow that gap and get to that 13% margin?

Yes. So absolutely, we're completely committed to that 13% margin that then would translate to [ 17% ] ROCE by 2025, which is just around the corner, it's less than 2 years away. And actually, to put this in perspective, in 2020, we didn't really have a COVID-led benefit. We had that big benefit from lower raw materials and energy costs, which, of course, may be [indiscernible] COVID. But we actually had a negative impact overall in the year from volumes when we started to see lockdowns. So of course, early in the year, there were all these big swings due to panic buying and so on. But I mean that also created some trouble for us. Later in the year, we started to seeing actually a negative impact. And then in the following year, we had huge negative impact from the low volumes during the pandemic when people were in lockdown in Professional Hygiene and actually in the Medical categories and in other categories. And then in 2022, the cost tsunami. So if you look at that in 2020, I think we made around SEK 17.5 billion in adjusted EBITDA. And then the following year, SEK 13.5 billion and then last year, SEK 13.2 billion or something like that. But we managed cost headwinds of well over SEK 20 billion, I think, SEK 26 billion in this period, and these big negative impacts on volumes also. So you have to -- it's not been normal years. But since we did the 13%, for sure, it's been incredibly tough. And I'm convinced since we have continued to invest in our plants, in efficiencies, doing Cure or Kill initiatives in our brands and launching new products that underlying structurally, we have continued to improve our competitiveness and our, so to say, structural margins, which have kind of been hidden behind all of this upheaval over the last couple of years, and that's what makes me confident. So to close the gap from where we are today, where we need to find another 3%, I don't know 3.5% or something, 3%, a large part of that will come from price management now over the next year or so. And then just the fact that we are continuing to work with efficiencies, with innovation and with taking out underperforming parts of the business. So that's how it builds up. So yes, it's been interesting times. And when we achieved over 13%, and that meant that we achieved our return of capital employed above 15%. Of course, it was based on overall sales. It wasn't really from any massive onetime benefits. It felt as kind of steady state number at a time or performance at the time. So just to put it in perspective.

You just mentioned, Magnus, that part of it would be including taking you out some underperforming part of your portfolio, so just coming back to my -- the first part of my question, how the target looks like if you have to sell those 2 assets? If you think...

Yes, of course. It's -- what we announced in the strategic review, not that we're going to sell them, but -- and we are committed to the 17% ROCE target with the business assets, so including Vinda and the private label division since we set that ambition and target a long time ago, and a rough kind of back of the envelope calculation based on the assumption that the private label division and Vinda would not be included anymore in Essity would add over 1% of return on capital employed in that case. But that's again, hypothetical, and then we have to discuss targets once we get to such a situation. Now we're completely focused on the 17, as the business is today. And when I mentioned taking out maybe some capacities and businesses, I was referring more to initiatives like what we announced in the first quarter when we were announcing Professional Hygiene, taking out some sales and assets in Professional Hygiene, the lowest margin part, which was, to some extent, almost like a private label type, very commoditized part of the Professional Hygiene. So more kind of smaller activities.

Right. Maybe just following on the strategic review, so if I start with Private Label and Consumer Tissue, I think this accounts for about 1/3 of your European Consumer Tissue operation. I think the business is already independent from a legal standpoint. But where are you in terms of running it and it's all from an operational standpoint? How is this margin comparing with the rest of your branded Western European Consumer Tissue? And then my overall question on that, if I think about the scale that you achieved by combining private label and branded, the scale benefits, how are you going to think about potential [ dyssynergy ] from a cost standpoint, but as well from a bargaining standpoint with your customer if you were not the owner at some point of that asset?

So yes, thanks. Many questions. The private label division is running completely separately from an organizational, operational and legal point of view. And so a clearly separate business. And that means that we have had time also of the last year to manage the stranded costs that actually came out of this separation, which I think has shown us that when you set up such a business only focused on private label, it might be that you're allocating some costs that doesn't have to be there. And of course, those stranded costs end up in the rest of the city, and we worked hard to [ flush ] out those costs. So there shouldn't be any kind of negative synergies from that perspective. What we still have is that we have -- the private label division includes 7 plants. There are still some machines producing branded products in those plants and vice versa. We have some private label tissue being produced in the Essity plans. And we are moving those machines now and moving those volumes, and this will take until first quarter next year. So that's ongoing. And in the meantime, we're managing that with service level agreements, which works well. So that's all ongoing. And it's a lot of work, but quite straightforward. So when -- by the first quarter next year, also, that will be completely sorted out. And then, of course, it's about purchasing, procurement, negotiating with the pulp suppliers, considering all the other tissue business we have in Latin America, but also in Professional Hygiene, we are still a major pulp buyer and a major player when it comes also working with suppliers of machinery and maintenance and so on. So we don't see any disadvantages of scale from that perspective. And also maybe important to note, of course, is that most of the customers of the private label division, mostly buy private label consumer tissue, they are typically not a big buyer of our branded Personal Care assortment or Personal Care in general from us. And that's a difference, of course, from the customers where we work with our branded assortment, which those customers, those retails typically buy all our categories and the same with what we call our retail brand partners that in many cases buy both our branded assortment, but also we developed their retail brand together with them, and we've done that for decades. So it's a different type of relationship. So we don't miss that synergy either by sorting -- by putting this -- separating out the private label division.

Okay. Moving on the other one that is under strategic review Vinda. So you own a majority stake in that company, which is run in China independently, but as well, you have seen it in your Asian business into that and you have invested into growing the Personal Care business in Asia and especially in China. So in the event that you're looking at disposing your stake in Vinda, I just want to understand a bit the strategy from an Asian standpoint. How -- because clearly, China has been a nice contributor to growth and to the makeup of your 3% organic target. You don't have a big business in the U.S. [indiscernible]. I just want to understand from a geographical standpoint, how you envision the presence of the development of the group? And then if I think about the Personal Care brands that are now fully into the joint venture with Vinda, how you -- should we think about licensing going forward? What could be the outcome of that?

Absolutely. So yes, important, again, just to underline why we are doing the strategic review. It has nothing to do with the geography. It's all about the categories that in spite of all our efforts over the last 10 years, the fantastic work done by Vinda management, I mean, having very strong brands, very strong market position, a great team, 83% of Vinda sales is still a Consumer Tissue. So only 17% is Personal Care. And this tissue business is consuming about 25% of our capital expenditure in the group, even though it's around 14% of our sales. And it's quite competitive. We see some new capacities coming in. So just as an experiment, assuming that this has been other categories that have been less capital-intensive, higher-margin, then we wouldn't have been doing the strategic review today. So it's all about reducing Essity's share of sales in Consumer Tissue. I think that's important to note. But of course, what's happening is, since it's a listed company, also including our Personal Care categories in this region, of course, that goes as well. And that means that we -- yes, we do not take part directly in assuming that we would no longer be owners of Vinda in the market growth either. But a large part of the -- to get back to the second part of your question to the Personal Care part of that business, but also actually [ Tork ] and Tempo, the tissue brand, are under license from us, and these licenses terminate in 2025. So that's also part of the strategic review. And of course, it's an opportunity to remain in major growing markets like China, but from -- instead with the licensing agreement rather than being there as a fully invested producer and so on. So that's part of the strategic review and very important for us because, of course, we want to take part in that growth. And then I think you implied also that where you find to compensate for that growth. And we would like to have a stronger presence in the U.S. also in the consumer categories. Not that easy, of course, it's highly consolidated and very competitive, but still very, very good margins in many cases, something that we're looking at. And then through the licenses, as I said, we continued our position in China and Southeast Asia.

So still talking hypothetically, I would like -- I mean, if you were to sell those 2 businesses and that would be some of your review, I would like to understand the priority for cash usage. I think the market has been concluding that you would use cash towards reinvestment in M&A, but that could be at a higher multiple than the group average. So can you talk about your focus in terms of M&A, and how you would address the concern of value creation in buying higher multiple assets?

Yes, in this hypothetical scenario, 22% of Essity sales would leave the company then, it would be a smaller company. But just to give the picture what the company would look like without Vinda and the private label division, approximately half of sales would then be consumer goods, of which half Personal Care and half Consumer Tissue and then so a quarter each of the group and Professional Hygiene and Health & Medical would also be one quarter each of the group. So much less focus on Consumer Tissue, which is the most volatile, most capital-intensive part of our business. And we would almost -- we would reduce our sales of Consumer Tissue by 45% of the overall Consumer Tissue business, just to give some other numbers of that. So of course, it's a big change. Actually, it's a bigger part that we would move out of Essity than when we did the split from SCA actually. I think SCA at the time was 18% or something. Yes. Having said that, of course, you have to look at every acquisition opportunity by itself on its own merits and make sure that it's value creating. So if you're moving into categories that are more value creating typically, the multiples are higher, but every acquisition needs to make sense by its own. And then, of course, to the extent it also contributes with the synergies and so on. So -- but it's not our intention to sell cheap and buy expensive. We're in no rush here with a strategic review. And we look carefully at different acquisition opportunities and assess them case by case. And I think looking back at all the acquisitions we made over the last couple of years, they have been quite value creating, but of course, with different projects, where some have been at quite high multiples and others at lower multiples.

Yes. Maybe -- good. Can we spend a bit of time talking about this acquisition. We've made quite a few in the past 2, 3 years in different segments. So in Consumer Goods, Asaleo and Familia; in Personal Care, Modibodi and Knix; and in Medical you added ABIGO and Hydrofera. So can we just spend a bit of time to understand how those transactions are going to your ambition and the value creation you think you've already delivered?

Sure. We can go through them in turn because they're quite different characteristics. The 2 biggest ones were Familia and Asaleo, where we acquired the outstanding shares in companies we were already part owning. And Familia has been tremendous success, fantastic development in Latin America from a growth and margin perspective. So very value-creating and of course, big synergies with our existing Latin American business also. So really happy about that. Asaleo, a very well-managed company with a strong overall portfolio of 40% Professional Hygiene and then mostly Feminine Care, Incontinence Care and just a little bit of Consumer Tissue. They were struggling a little bit here last year due to freight costs. Like many of our competitors, they were a big part of volumes imported to the country and freight costs, as you know, were 10x higher last year than they were 2, 3 years ago, and it's all normalizing now. So we're really, really moving forward on strengthening the brand equities and the market positions and expecting margins to come back to where they should be in the short term. So also happy about that acquisition, but quite impacted by the pandemic. And then when it comes to Modibodi and Knix, completely different project. These are companies that are fast growers, kind of tech or new economy to some extent, and where we wanted to grab an opportunity to become the leaders in the fastest-growing part of intimate hygiene, which is leakproof apparel or washable or absorbent underwear, whatever you want to call them. And these were 2 market-leading companies that were up for sale. And of course, from a multiple standpoint, it looks quite expensive, but this is because a very good gross margin is completely reinvested more or less in growth. And this is something we will continue for a while, and that's part of our business plan. And in the first quarter this year, especially Knix did really well, and Modibodi is also performing according to plan. But of course, here, we need to see significant growth going forward and then eventually that we benefit then from a margin standpoint, also once we've kind of grown in this fast-growing segment of intimate hygiene. So that's a different logic. And then both ABIGO and Hydrofera are doing really, really well. I mean I think the margins were -- I mean the -- what we paid was quite reasonable, and they are performing as or better than our business plans. And I think on reasonable multiples because these were quite profitable companies already before where we can then leverage and get scale also. So very happy about those. But of course, in Medical and especially in Wound Care, we need to get better. So I'd really like to see some maybe more midsized opportunities going forward in Advanced Wound Care and Wound Care. So let's see how that develops over the next couple of years.

Okay. If I may...

Yes. I mean when it comes to the leakproof, washable part of the business, we now have 20% global market share, approximately. This is our estimate, also including our own washable, leak-proof products under our own brands, and that's a very, very good starting point in this fast-growing subsegment.

Yes. I wanted to transition to divisions and starting with Medical, which you just alluded to, which also was built through M&A, quite a sizable M&A. We've seen that the division has continued to grow in the past 8 quarters with pricing improving as well, but that also has the impact of the long-term tender process. Do you expect the business to recover its prior peak margin of more than 20%? And now that the dust is setting on COVID and we are in to normalization, what is your assessment of the growth opportunity for the Medical categories?

So definitely, our assumptions that we did already now almost 6 years ago to a margin over 20% and a growth of 3% to 5% still applies in these businesses. So still very attractive and an area where we look to grow both organically and through acquisitions. But actually, with the enormous cost impacts that we had last year, even these businesses that have a very high gross margins were significantly impacted also with the delay because the cost increases flow through the different materials that we buy to use in our Wound Care, compression and our orthopedic soft goods products kind of flowed through with a bigger lag. So also we're actually still in the last quarter, we saw higher costs in Medical than we saw in the fourth quarter sequentially. So that was actually an exception to the group. But again, we are raising prices, we still have growing volumes, and we expect also here, costs to eventually turn in the next couple of quarters. So that's why I'm still committed to about 20% margin in the longer term. And the [ inco ] health care part of Health & Medical has been really negatively impacted. But again, we're just -- we're working our way when it comes to raw material costs primarily. We're working our way through that as we negotiate the 3-year contracts. And also as -- because a substantial part of the volumes there are based on also reimbursements where we are putting pressure on authorities and health care, health care authorities to raise those reimbursements and to be able to provide, of course, the amount of products and services that our consumers and customers need.

Maybe just to round up on Medical, you mentioned that you would be interested in potential M&A and to maybe increase your sales in Advanced Wound Care and Wound Care. I wanted to understand whether there was as well more specific categories or skill set knowledge that you need to acquire in that market. Last year also at the CMD, you talked about expanding your offering across the care continuum, what are the agencies or new categories that you are looking at?

Yes. So from an overall kind of category perspective, I think we have a good set of categories now, so Incontinence Care Health Care, Wound Care, compression and orthopedic soft goods, and we need to scale up, especially in Wound Care and Advanced Wound Care, especially in the U.S. So that's a clear focus, but overall -- but we see that we can add more value than by adding adjacent offerings, for instance, TENA SmartCare, which is the sensor that we use to monitor the product usage in health care settings, but now also increasingly in home care settings. So moving away just from treating to also kind of monitoring. And then the Novioscan product, which is a sensor that you put on the outside of your bladder to actually avoid the even having to use [ inco ] products. I think it's also prevention. So those -- but those are smaller types of acquisitions, add-ons to increase the strength of our market positions. I think at CMD, we also spoke about another adjacent product that's been very, very successful, which is the Cutimed Wound Navigator, where you can use your phone to take a picture of chronic wound to see how it's developing, if it's healing or if it's getting worse, and also you have a recommendation on product usage, which is very valuable in these times when staff turnover is very high in health care settings and it's kind of increased efficiency also in those types of settings. So those are the typical types of acquisitions or developments that we're doing to kind of cover more of the continuum of care than we have done from just treating the current condition.

Okay. Maybe turning to Consumer Goods and with that, we have the Consumer Tissue and the Personal Care side of it. So focusing on Europe, can you talk about maybe some of the latest innovations or premiumization opportunity that you see in this segment. In an environment where you discussed earlier, there could be a bit more budget constrained from your customers, how are you looking at the rise of private label in those categories or competition in these categories? And then maybe also looking at Feminine Care more specifically, we'd like to understand, I think you mentioned earlier your ambition to put this business higher. I just want -- and you mentioned the U.S., is that where you see an organic opportunity from -- for these 2 businesses?

Yes. Exactly. So we covered Consumer Tissue. Let's focus on Personal Care. And we see a growth of the private label in Baby Care, but of course, we're also quite present there in Europe and with the retail partners I mentioned earlier. So we are happy to be in either branded or retail brand when it comes to the Baby Care where we are today in most European business, and in addition, then part of Vinda having a strong position in Malaysia in Baby. Turning then to intimate hygiene, the combination of Feminine Care and inco care, this is an area where we are still working on price increases actually because some of our biggest competitors, like P&G specifically, have not raised prices outside of the U.S. until recently, which is quite surprising. And so we still have a way to go here. And a strong focus for us has been to think more about this as a whole, so intimate hygiene and also look at kind of solutions, maybe also kind of the continuum in the gray zone between kind of menstruation products and Incontinence Care products covering different need states and multi fluids, as we call it, and having a stronger offering here also, again, always based on products that have a strong consumer appeal in being very thin, very underwear-like and then, of course, adding also the washable products. And typically, intimate hygiene is an area where we've been growing market share over the last many, many years, continuously. So we know this is an area where we are very, very strong and where we continue to invest. And we're also looking specifically at certain kind of need states, like menopause, for instance, and looking at offering a wider offering here. We have Issviva, for instance, which is website, where it's possible to get advice on different menopause need states and how they can be managed, for instance. So these are examples of efforts we're doing in this area. So a strong focus on the intimate hygiene part of consumer goods going forward. And outside of Europe and Latin America, we are really continuing to win everywhere, and we are typically the market leader in both of these categories in most countries. In the U.S., small positions, less than 5% in Incontinence Care retail and some small positions in the Hispanic population close to the border of Mexico since we have I think 60% market share with [indiscernible] FemCare in Mexico. Many Hispanic people also in the U.S. prefer to buy these products. But here, we would like to do more going forward. It's kind of -- and then we have Knix, the leak-proof apparel company that we acquired that's strong in the U.S. and Canada, but it's kind of -- it's a bit patchy. We would like to do more, and we're reviewing the strategy regarding the U.S. It remains the biggest hygiene and health market in the world for sure. I mean this is also one of the reasons that we did the reorganization that we did, creating 2 Consumer Goods business areas, one that covers both Latin America and North America or South America and North America and then the other one, then covering Europe, Middle East, Africa. So there we get an increased focus on the consumer categories also in North America. In Canada, we're doing great, but that's only 10% of the market of the U.S. So it's a smaller market.

Thank you for that, Magnus. Just I want to say on that division, I just would like to understand the profitability here. I mean you've done a lot of the cost initiative, reorganization, the tissue road map, Cure and Kill, manufacturing blueprint. Now if I have to look at the category, the division of a [ cycle ], I think we are looking at low teens margin. Obviously, we have spoken earlier about input cost volatility. But structurally, what kind of profitability can we aspire at for this division?

Yes. We decided not to provide kind of margin targets per division at this point. But of course, they need to be higher than they are to achieve the 13%. So we need to continue to improve margins in all the categories in baby, in tissue still and feminine. So we still have a gap in margin in all these areas. And in some areas, I mean, in Consumer Tissue, it's now more about price management, while in intimate hygiene, we even still need to increase prices to some extent.

Right. Let's turn to the third division, Professional Hygiene. Throughout the pandemic, you spoke a lot about the adjacencies you are going into, if you think about skin cleansing wipes, surface cleaning, even [ digital ]. Can you talk about how resilient this initiative had been now that these businesses that's probably [indiscernible] normalized? And what is your aim to do in this channel in terms of expanding the offering?

Yes. First of all, I want to underline the fantastic recovery of Professional Hygiene. So in spite of -- this is the only of our businesses or divisions where volumes are not significantly higher than before the pandemic. In this area, volumes are still only at 95%. The simple reason is that people are working from home still. So in hotels, restaurants, catering, in industrial use, in healthcare use, we still higher -- we see higher volumes, but not in commercial buildings and public buildings. It's still lower and will probably remain lower, but still we had a really, really good margin recovery here. And we expect to -- we see great opportunities. We see opportunities in the U.S. now that we operate this globally and also in Latin America. And when it comes to these subsegments that we spoke about a lot, definitely opportunities very much still in industrial use. So there's a high usage of wipers to wipe down equipment, to wipe down control rooms and so on between shifts in different industries because there are new hygiene routines. We also see a high consumption of soap, in general, which is typically a high-margin business for us. Hand sanitizers is difficult. There's been so much new capacity coming into the market that it's not as obvious as maybe it looked at as at the time. So even though there's still a high consumption of hand sanitizers than before the pandemic, there's also a bigger supply, it was easier to kind of build supply here. So looking forward, don't expect us to make acquisitions kind of in the core tissue part of Professional Hygiene. But if it's specialist wipes from nonwovens, like the acquisition we did last year, Legacy Converting, for instance, I mean, I think that's a perfect example of what we would like to do or venturing more into soap, for instance, and something we're doing both organically and potentially through acquisitions. And as we stated, we would like to do more of what you find on a cleaning cart today in your office. And I think an interesting example is that currently, we are working together with [indiscernible]. We have launched surface cleaning chemicals under co-branded Dettol and [ Tork ] because [indiscernible] are up your consumer brands today, and they would like to get into the commercial space and for us, we're not experts in cleaning chemicals. So an interesting opportunity and just an example of what we're looking at for the future. Let's see how that develops.

Interesting, yes. And maybe to finish up on this division, I would like to understand profitability, not that you're going to give me a target, but is there any reason why we should not see this category go back to mid-teens or high teens margin, like it did in the past? And talking about the additions that you were just discussing today come with better margin because it's a bit more service [indiscernible] to your customers. And then maybe lastly, I think you -- when you think about that, we really think about U.S., Europe, where you are very strong in this business. How should we think about the emerging market part of Professional Hygiene?

I see so many opportunities in this business area because we are the global #1 and the Tork brand is so strong and it carries more than just tissue, and we have the sensor-enabled solutions. There's still some opportunity for what we call Cur or Kill. And what we announced in the first quarter, I think I mentioned that in the call, we'll have a positive impact on the overall Professional Hygiene business area of around 1% margin uptick, just that Cure or Kill exercise. And of course, if that's 20% of Essity sales, that would equate to 0.2%, just that initiative, as an example, while also adding other initiatives, as I mentioned. So there's a lot to be done here. And we're reviewing also overall the kind of dispensing costs, which is a big cost item for us. We amount about SEK 6 million dispenses every year to see what we can do there to improve efficiencies. And continuing to grow in Latin America quite aggressively. And since a few years, actually also in Brazil, where we have added some converting equipment in our plant, our Incontinence Care plant in Brazil. And that's, of course, a big and important market. So yes, really excited overall about Professional Hygiene. It's a very good business area for us.

Well, Magnus, thank you so much for this discussion. Lots is going on in the organization from the projects you have just mentioned. Thank you for sharing these insights and for the time with us this afternoon, and we look forward for your next checkpoint in H1. Thank you so much.

Thank you very much, Celine, and thanks to everyone for listening.

Yes. Thank you, everyone. Have a good weekend.