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

Great. Well, good morning, everyone, and thank you for joining us today at the UBS Global Consumer Conference. And it is a pressure for me to have again Essity with us. They have been coming to our conference since the first one in Boston many years ago. And it's a pleasure to have Fredrik Rystedt, the CFO of Essity, who is going to give us a quick intro presentation into the company, and then we're going to have a Q&A. Thank you, Fredrik.

Thanks, Pilar. It actually feels a bit like the beginning of the spring every time we come to here. So we would never miss it because then we would not enjoy the spring. So it's a pleasure to thank you for all for joining. So I would actually not perhaps so surprising. I'll give you a bit of an overview who we are, right? I mean most of you perhaps already know that, but I'll still give you a bit of a few numbers. Maybe not that interesting anymore, but I'll still give you a bit of feeling for what happened in 2024. So not spending so much time on that, but still give you a bit of glimpse, where are we at this point in time. And then I'll talk a little bit, which is perhaps more interesting, what about the future, what would you expect if you look at the company in the next 3, 5, 10 years and from a rough perspective. A theme a bit, which has been at least a theme for us, and we picked it up for many, has been our balance sheet, how do we actually manage our capital, et cetera. And so I'll touch upon that as well, and I'll end up with the priorities for this year, so a bit more short-term. So this is what I would like to do. And of course, I'll not take the entire session. And if you Pilar, feel like you want to interrupt me, you don't understand the word I'm saying, then just interrupt me and the same goes for you. So I'll start with the company, right, SEK 146 billion, so what is that EUR 14 billion roughly in terms of net sales and SEK 20 billion in operating profit. We're in 150 countries and roughly 36,000 employees. So this is the high-level picture of our company. We have 3 business areas. So this is interesting because we are kind of a bit different from most of our competitors. We don't have a very clear peer group where you have other companies doing exactly what we're doing. We have many peers in our different segments. So if you look at our 3 different business areas, I'll start with the one to the left, Health & Medical. So that's roughly about 20% of our net sales. It consists of, you can say, 4 categories or therapeutic areas, incontinence for institutional customers, so elderly care homes, hospitals, et cetera, you would have wound care, advanced and acute wound care. So if you have wounds that don't heal as an example, we have advanced products for those patients, compression garments that if you have lymphedema or phlebology. And then finally, orthopedics, if you break your legs. And I hope that you don't. But if you do, you have to pick a product from us because it's much better than from everyone else. So that's basically Health & Medical. Consumer goods, 54%, as you can see. Here, we have incontinence, but for retail. So in Walmart or in Carrefour or any other retail customer, here, we have feminine products, so liners and pads and tampons and those kind of products. And then we also have baby diapers and baby wipes and finally, also consumer tissue. So this is about 54% of the group. And then finally, Professional Hygiene. And this is for you that live here in the United States, you would find Tork in many, many different places. I'm not sure if that's good or bad, but you would find it in the White House, you would find it in the Congress, in many airports, many hotels. I'm not sure actually this one, whether it's Tork here or not, but we're basically a global leader in this space and #2 here in the North American market. So a very big part of Essity. So this is basically system-based tissues or soaps and sanitizers and those kind of products. So this is our 3 business areas. We got lots and lots, and this is a key feature of the group. We got lots of strong brand names. We're #1 or #2 in 90% of what we do in the retail space. And we have 60% we're #1 in branded sales. And some of these brand names you actually will recognize. We're global #1 with TENA, Tork, I did mention and some of the feminine brands and consumer tissue brands, et cetera, are super strong. A few words on 2024. As I said, this is perhaps past its history, so perhaps a bit less interesting, but it was actually a super good year for us, highest profit ever. And we had -- and we continue to basically execute on our strategy, growing where we have the highest return or highest margin and the lowest capital intensity. So we kept executing on our strategy, generated lots of cash flow. We've continued to reshape the portfolio and kind of completed the reformation or the change of the group that we initiated many years ago. And now we don't actually have any underperforming parts of the group anymore. As a consequence of having reached that new platform, we set new financial targets. We launched a share buyback program, and we continued to execute with lots and lots of innovation, lots of efficiency work. So all in all, a great year, as you can imagine. And these are lots of numbers. I'm not going to go through them all of them. We managed to grow roughly about 2% underlying. We've made restructuring or we left certain businesses that had a negative impact. But if you disregard that, we had about a couple of percent in organic sales growth, and that was gradually increasing throughout the year. We had a return on our capital of nearly 18%, which was basically our old target. So we nearly reached that and an operating margin of 14%. So all in all, a good year. And this is not a unique feature for us. If you look at this long-term trend starting in 2014, as you can see, we have continuously increased with a clear kind of, how should I say, pause maybe for the pandemic years, you see it there in '20 and '21 and the hyperinflation years in '21 and '22 on the profit side. But if you disregard those 2 kind of unique years, then basically this is a continuation of a long-term trend, which has been stable and increasing all the time and of course, profit also growing more than sales. So if I kind of leave '24, obviously, I hope you got the message. It was a good year, but what was kind of the best of it was that we continue to actually execute on what we would want to also do in coming years. We executed on our strategy. So if we look forward, we have favorable underlying trends. Obviously, disposable income, the more you actually make, the more you spend, perhaps not in the U.S., but generally in the world as a whole, we actually spend more on health and hygiene. We have an aging global population, more in need of incontinence products, more in need of wound care products as an example. Chronic conditions increase as people become a bit more -- how should I say, they pick on more weight and they become older. Infectious diseases is something that we manage with our -- not least our wound care business and well-being, of course, obviously, is the awareness of that and how that contributes to a good life is also increasing. So generally, we got good trends underlying. And this is quite good. It's a much better situation than if you have kind of negative trends, but we have positive. Our global growth, about 2% to 3%. Asia is actually growing a lot more, roughly 3% to 4%, as you can see. We're not really in Asia. North America is also quite strong. We are partly here. We are mainly in Europe. So one of our strategic features and one of our strategic ambitions as we go forward is to become bigger in North America and also become bigger in Asia. But overall, the global growth with our presence in our categories roughly 2% to 3%. So in this world with the favorable trends, in this world with 2% to 3% growth, what kind of ambitions do we have in the next few years when it comes to financial performance? Well, we have set very clearly organic sales growth target of more than 3%. So if you have a market growth of about 2.5%, then of course, we have set an ambition to every year gain market share and therefore, grow more than 3%. We have set an ambition to have a margin of more than 15%. Now again, 2024, we had 14%. So more than 15% represents a continuation of a path of enhancing margins that has gone on for many years. And this combination of growth and margin represents the optimal shareholder value creation that we can think of. We can expand margins more, but we could not do that with that kind of growth. We can grow more, but that would be with lower margins. So the combination here is the optimal combination of growth and value. How do we do this? Well, a profound and the most -- by far, the most important component historically and also going forward relates to our innovation work. If we stop innovating or if we don't innovate well, we, over time, will just simply, will not be on the marketplace. So making impactful innovations. And to actually define what does that mean, you may not obviously what does that mean impactful innovations. First of all, we need to be better than our competitors in terms of price features, absorption or whatever it may be, fit, feel, whatever, we are superior in comparison to our product -- to our competitors right now of roughly about 65%, as you can see. So that means that we are at par with the best competitor more or less for 35% and we're better or better than the others at 65% or we're perhaps inferior in the small part, Sandra, I don't actually know that. But largely, you can say, better in 65% and roughly on par with the best -- second best competitor on the rest. We have an innovation rate, more than 50% of everything we sell has been launched on the market in the last 3 years. Everything we do, everything we put on the market has a higher margin than what it is actually replacing. And this is why margin is also -- it's not only growth, it's also margin that's being helped by a continuous innovation. And we continue to make sure that whatever we put on the market is actually becoming bigger and bigger, and this is how we've become more efficient in our innovation work. So innovation, super, super important for us. When it comes to profit, and of course, innovation is the most important together with geographical expansion for growth. But if you look at the profit expansion going from the roughly 14% to the more than 15%, where is it going to come from? As you can see mix, coming from innovation is a big portion of it. Not only that it is also growing in the high-yielding segment, but mainly it's about innovation. Efficiency has become a -- or has been a core feature of what we are doing for many years. It will remain that. And as we have now launched a much more comprehensive growth program, as we go forward, operating leverage is also a key component. And then we have made specific efforts to grow like here in the United States or incontinence products, like in Brazil, like in many specific areas to grow certain, how should I put it, speedboats of our marketplace. So we've made specific growth investments. But all in all, if you look and take these in combination, within our planning horizon, we aim to meet our target of more than 15% margin growth. So this is pretty much it. We will grow more than 3%. We will have a margin that continues to expand and reach a level of more than 15%. What about our balance sheet? Very simple. We have a capital policy stating that we should at all times maintain a solid investment grade. And we should have a dividend policy where we have a dividend policy that says that our dividend should always be stable and over time also rising. So if you look at, of course, the foundation, we are a stable and anti-cyclical company. So when you have extreme times like we had in '21, '22 with those hyperinflation, some of our direct raw material increased with 70% or 100% or 120% or whatever, those were extreme years. Also in those very, very turbulent years. As you can see, we managed to uphold a very strong cash flow generation, both from an operating perspective and from a free cash flow perspective. So generally, the underlying cash flow feature of our company is very strong. And as a consequence of the strong cash flow generation, but also the fact that in the last couple of years, we've made less acquisitions or no acquisitions, we've gradually now strengthened our balance sheet to a level which is -- to a leverage level of roughly, yes, 1.2%, as you can see, or just over 1%. So we are in this point of time, also equipped with a very strong balance sheet. So how do we look then at capital allocation? This is a question we get a lot actually because I mentioned it in 2024, we launched a share buyback program as a component of our capital allocation. And we get this question a lot, are you going to do this going forward? And the answer is simply, yes, we are going to do that. We have this as a recurring part of our capital allocation toolbox as we say. So -- looking at free cash flow, how do we actually dispose of that? Well, #1, the most highest priority is actually the dividend. And as I already said, that should be stable and it should be rising over time. Then we always calculate with a certain deleverage. It doesn't have to be much more than SEK 1 billion or SEK 2 billion or SEK 3 billion in that order of magnitude, it doesn't have to be much, but it should be a constant deleverage provided that we're not acquiring anything. And the rest is basically open for share buybacks. So I get this question a lot. So last year, you had SEK 3 billion in share buyback. How much are you going to have this year? And the first obvious question is, are you going to have a share buyback program? And the likelihood is, of course, yes, absolutely, that's very likely. The amount, very easy to calculate. You just make your assumption as to what is the free cash flow. You basically look at our dividend that you already know, and then you assume a bit of deleveraging and the rest is basically share buyback. So you get very close if you make that kind of math. So this is basically how we do things. M&A is a key feature. And we believe, although our financial targets you saw were all organic, we also believe that we can couple the organic strategy with an inorganic strategy that strengthens the business in many different ways. And it's also potentially creating lots of shareholder value. So let me just finalize this by talking a little bit about how we intend to acquire. We've made a lot of acquisitions. If you actually look at Essity as a group, we're built as a, you can say, a combination of many acquisitions. And the reason we're doing it, not that much rocket science, growth capabilities or growth contribution, I should say, we can add capabilities in terms of technology or market presence, and we would like to continue to shift our portfolio towards the more higher end. And so the themes, if you put it that way, where do we want to go? Health & Medical, Advanced Wound Care, we would really, really like to become bigger there, bolt-on acquisitions, compression therapy also, but much more so Advanced Wound Care. And one of the areas where we are particularly looking at this is this country. So if you feel that you have any wound care companies that you think we should buy, just let me know, and we'll be absolutely looking at it. Consumer goods, we're not going to invest in Consumer Tissue. Over time, if you look at us 5 years from now, we are likely to become smaller in Consumer Tissue in terms of relative size. but we would like to become bigger in predominantly feminine, but to a degree also in incontinence retail should that be possible. And also here, we're not actually present. We're really small in the U.S. market in the consumer space. This is a very profitable market. So those of you who are from -- if you're from the United States, you actually pay a lot for your consumer staples product. You should know that. So we would like to be here and sell to you. And we're not really, but we would like to be in the future. So this is, of course, one of our key areas that we look at in terms of M&A. And then finally, Professional Hygiene, soaps and sanitizers, wiping and cleaning. And we are really strong in the North American market. We're really strong in Europe, but we are weak in some of the D&E or I shouldn't say weak, we have lots of opportunities. So these are some of the themes we are looking at in terms of M&A. So to sum this up, basically, I've already said it, we have an organic sales growth target of more than 3%. We have a margin target of more than 15%. Dividend long -- should be long-term stable and rising and the capital structure, yes, we need to obviously continue to have a strong balance sheet. What does this actually then mean if you happen to be a shareholder, and I just assume you all are, but let me just say what is this going to mean? Well, first of all, we will grow more than the market. That's actually our ambition going forward. We will have and we've had a very strong EPS growth over many years. We expect, if you look at these financial targets, that will be the case also in coming years. We'll continue to raise our dividend. And as I've already alluded to, we will continue to deploy our capital through share buybacks. And just maybe a bit of repetition as the final slide. What does 2025 look like? Well, we continue to grow in a high-yielding segment. We have a very, very strong momentum in these areas. We would like to grow, as I already said, in North America, Latin America, over time, also Asia. Innovation, brand building, building on our strong brand, super key for us. We will continue to expand, spend more time -- money on A&P as an example, in 2025. We will continue to make sure that we gain the operational efficiency that we absolutely have to have to get to where we want to be in terms of financial performance and perhaps not so fashionable these days to say, but we will continue our progress on ESG, and we are very much working our way towards our many ESG targets that we have set. With those, thank you. Long speech perhaps.

No, not at all.

I'm looking forward to all of your questions.

Thank you very much, Fredrik. So I'm going to actually start with those with the guidance. I mean you have an organic sales growth guidance for the medium term over 3%. But in terms of this year of 2025, how do you feel about that organic sales growth?

In 2025, the organic sales growth?

Are you think you will achieve that medium-term guidance?

Yes, I hope so. I mean, we -- I can't really comment on any individual quarter or year, but -- we've basically set a target, which is higher than the market. And this target is composed of, you can say, 2 main components. And it's about a 1% of mix improvement coming from the innovations that you -- that I talked about and more than 2% coming from volume. Right now, times are not super good in the European market, disposable incomes and same actually in Latin America. So for the time being, we have a bigger volume growth and not that much mix. I think as we progress over the years to come, the mix component will increase, but it's absolutely our ambition to be about 3%. Whether we reach it this year in 2025, I'm not going to comment.

And I mean, volumes is where we're all focusing on because of the softer consumer in many regions. Can you give us some color on the changes that you are seeing in volume trends in the recent months in the different categories?

Yes. We've had -- if I can use Q4 as perhaps as an example, so generally speaking, volume growth was phenomenal for us. It was really strong in Q4. It was actually in Q3 as well. And what is super much growing now is a bit, to be honest, to my surprise is actually incontinence on the retail side. We had -- you got to correct me now, Sandra. I think we actually had 10.5%, 10.7% growth, volume growth in Q4. I mean, to be honest, I have no idea why everyone is suddenly becoming incontinent. Maybe just...

Maybe they discover that there is a solution.

Yes, maybe that they discovered. But it's a very, very buoyant market. And we had super good growth basically throughout 2024. So generally, underlying growth is fine, I think. Feminine is the same, also growing quite strongly. So we have a good growth situation.

And what about tissue because there the trend has been a bit weaker. There's been some downtrading in the category. So what are your thoughts on the tissue side.

On the tissue side, we are losing market share, and we did that in Q4 and Q3 actually. And the reason is that if you remember the kind of long-term trend that I showed you before, you saw that we in '21 and '22, you had hyperinflation. So tissue prices increased a lot. What happened then was that there was a downtrading to more private label or lower cost segments. And that has actually not come back. So what you see now is growing is very much in the mid-tier or even lower tier in consumer tissue, and this is not where we wish to play. So we are deliberately actually losing a bit of market share in that field.

And then if we move to pricing, which is obviously a key area. I mean you have discussed how you've been shifting towards having greater flexibility in terms of the pricing strategy. So you can recover the raw materials with only 1, 2 quarters of a lag before -- I remember it used to be 4, 5 quarters. So great efficiencies have been achieved there already. But can you talk a bit more how that's been changing and also your customers' reactions to that pricing strategy being much faster? And also what are your competitors doing?

Yes. So -- thank you for bringing it up because we don't like volatility, but we're in -- we're still as a company, volatile, not over the longer perspective. So if you look at Essity over kind of 1 or 2, 3, 4 years, we're not that volatile. But if you look a quarter, we are still volatile. And the reason we are that has to do with pulp moving up and down. So it's basically because of pulp. Now gradually, and I mentioned it, we have reduced our dependency on consumer tissue. So it's now much more -- a much smaller part of the group, but we're still in the consumer tissue space. And so for us, it's been very important to manage volatility and reduce volatility. And we've done that in many different ways. We have obviously limited our pulp purchase and reduced. We've sold Vinda as an example. And we've become a lot faster in terms of how we price. So these are -- and to a degree, we've also premiumized our business. So there has been a deliberate work on reducing volatility, but there is still a bit of volatility. And of course, it's so key for us that we can address any kind of volatility or cost increases in pulp fast through price increases. We are doing that now. We are much better at actually understanding the situation. The psychological awareness of this internally is much higher, but it's also with the customers like Carrefour, like Aldi or like Lidl or whoever they are, also for them, also for competition, it has become clear. It became clear in '21 and '22 that it's absolutely necessary to get a much more flexible environment. So I hope that it's here to stay. I hope that we have reduced permanently our volatility and that we should be able to reduce it further.

Okay. So kind of going deeper in that sense, raw materials expectations for this year. I mean, the industry continues to expect that pulp prices will continue to move up through the rest of the year. Do you share that view? Are you changing your pricing plans on the back of it?

Yes. First of all, I think since I'm constantly wrong, it's completely relevant what I think because I'm always wrong, so I shouldn't even ask the question. If you actually look at our company, the cost of pulp is completely irrelevant. That may sound super strange because 50% of the questions or 40% of the questions we get is about pulp. But it's completely relevant because we have, throughout the last 50 years, that's about as long as we have actually looked, been able to compensate changes in input costs through price and price alone, not cost reductions or mix or volume, but with basically price. So that means that it doesn't really matter for us what the pulp cost is. We will compensate in either way. The point is that the movement of pulp will create volatility. So if pulp cost goes down, our margins will temporarily go up. And if pulp cost increases, then our margins will temporarily go down. And that's the 1, 2-quarter lag that we talked about. So honestly, I don't really care where pulp is going because it has a very short-term impact. With that said, I guess, what I'm hearing is that it's likely now after having coming down for some time that it will gradually go up a little bit. That's at least the latest conventional wisdom I heard. But as I said, I'm normally wrong, so don't ask me.

Well, I think you're quite an expert on it. So I don't think you're wrong. But anyway, we'll move to market share momentum then. What percentage of your country and category combinations within revenue at gaining or maintaining share at the moment.

Yes, what is the number we have?

40%, 65% Okay. So 65% maintaining or gaining share in case someone couldn't hear. And then on the share buyback, you already touched on it. You're over SEK 2.8 billion at the moment. Basically, you have a current SEK 3 billion share buyback program. I think you already kind of touched on it, but I mean, is it just to make it very clear, is it -- should we expect another share buyback at the next month's AGM -- and what could be the magnitude of our future share buyback?

Yes. I mean, first of all, I can't comment. I can only tell -- the way it works in Sweden is that you ask the AGM for mandate, right? So you ask -- and that mandate we've had for many, many years. What is actually perhaps more -- and we'll ask for that mandate also this year, and we're going to get it. So the more important thing is the Board decision to actually initiate the share buyback program. Is that likely to happen? Absolutely. Exactly when it's going to happen, I can't really say that's up to the Board, obviously, but it's likely to happen shortly after the AGM, I would assume. Then when it comes to size, I think my -- how should I say, interpretation of the Board's intention is that -- and I already mentioned it here, what is absolutely prioritized is increasing dividend. So if you have a certain kind of portion or increase that you want to allocate to the shareholders, then it's more likely that, that will come out as dividend increase than it would come out as share buyback increase. That would be my reading from the Board. But exactly the amount we'll come back to whenever relevant, which I guess is not that far away from -- after the AGM, I guess. But I don't think any major movements is effected, but roughly in line with what we currently have.

And then another topic is on the CEO transition. It has been -- and obviously, I'm sure you can talk on behalf of Magnus. But I mean, it's been announced that he will leave the company at some point. He's going to be waiting there to do the transition. But is there any insight that you can give us on that front, when it could happen?

No, not really. I mean, Johann, our Chairman, he has clearly said that the Board is looking externally and internally. So there's going to be an evaluation with all kind of candidates, available candidates. And as soon as they have anything, then they'll communicate that. So I don't actually have any update. I think what is clear is that Magnus has clearly stated that he will be in position with full energy until a successor is in place, not just kind of name, but also in place. So exactly when that happens. I don't have any update. I know the process is fully ongoing, so to speak.

And Fredrik, would you be interested in stepping?

No.

No. Okay. Then let's move to M&A then.

Absolutely.

Would you agree that acquisitions are likely off the table for this year or until Magnus successor is announced.

No, I don't think so. And the reason I'm saying that is twofold. I think, first of all, my perception of the Board, and I participate in every Board meeting. So my perception is that the Board is quite robust in their approval of the strategy. This is a strategy that we have that is anchored not just within the management team of the company, but also with the Board and the owners. So I wouldn't anticipate a large change of the strategy. And if you look at our M&A agenda, and I exposed to parts of it, the details of it here, it is actually anchored in that strategy. So what we do is that based on the themes that I showed you, we identify a large number of potential acquisition targets. And then we define what we call the top 20 list. These are the top 20 companies that we really would like to have. And of course, if one of them becomes available, then we would definitely look at it and provided that the financial metrics are okay, then we'll buy it. That acceptance and this whole framework is already accepted by the Board since long. And if one of them comes up and if there is such an opportunity, I would be surprised if the Board said not now because we don't have a CEO, that would be very surprising. It's much more anchor than just -- it's not just a person.

It will be business as usual, basically.

At least that's my percep -- I could be dead wrong, Pilar, but that's not -- that's my perception.

And in terms of categories. What is at the top of that list of the top 20 companies that you just mentioned?

Yes. I think it's a great question. But I mentioned it may be very briefly. But if I look out 5 years or 10 years, then Health & Medical will be that much bigger. It's going to be a bigger part of the group and especially on the medical side.

You've been saying for long...

And it is actually now. It's obviously -- it is growing. Professional Hygiene is slightly bigger. Consumer goods is smaller. But within consumer goods, Feminine will be bigger and Consumer Tissue will be smaller. So I can't really name -- I think there's -- there are a couple of Feminine acquisitions that I would like -- just love to do. There are a few wound care acquisitions that would be wonderful for us to have. And there are a couple of cleaning and wiping businesses for Professional Hygiene that I also would like to do. And to actually prioritize them against each other, I wouldn't really say. They're all on that list I mentioned, but they actually rank them I have the luxury of not having to do that, but it would be difficult. They're all very good, if I can...

It's more like if they're available.

Exactly.

And then one question that I think is going to come in this conference a lot because after CAGNY, a lot of the companies have already mentioned that they were seeing some consumer slowdown in the U.S. and in Mexico. When you talk to your customers, to the retailers, to the -- are you already starting to hear that they're seeing that consumer slowdown?

Yes. I mean we -- in the -- if I start with the U.S., we're really kind of not very big in the United States for consumer. We'd like to be very much bigger, but we're not. So at this point in time. But -- so I can't really say that much about the consumer. I can say that I don't see a lot in terms of the Professional Hygiene space. And of course, we meet the consumer when it comes to hotels and restaurants and to a degree, traveling and some other stuff. So I think it would be premature to actually talk about large impacts there. We don't really see that. We had actually a quite slow we had a bit of an impact actually in Q4, but that was for specific customer reasons rather than anything else. So I think it was -- I can't really say. In Mexico, yes, maybe a bit, but not a lot actually. So we're probably not the ones to ask.

Great. Then if I move to longer-term strategic questions, back to the over 3% organic sales growth target. Basically, that would imply an acceleration in the growth of the remaining of the portfolio following the Vinda disposal compared to around 2% that you delivered organically historically. So what's your confidence on that over 3%? And how much contribution from mix and pricing would you expect?

Yes. So we have spent a lot of time, a lot of time in fixing our business in the last 7, 8 years. What we've basically done is we've looked at every single category geography combination. And then we have eliminated every underperformer. So we have sold, divested, shut down or fixed, actually predominantly fixed businesses all over. We have restructured. We have done everything. So at this point of time, we just don't have any underperforming units basically in our group. But this -- all of this work has also meant that the focus on growth has been quite small. And in fact, every time you restructure you shut down, then you actually lose sales. So that work is now completed. We've actually completed it. We don't have any underperforming units anywhere in the group. And so we have reshift or you can say, redirected the focus of the group. We've done that in many ways. First of all, communication-wise, but also incentive structures are now focused towards profitable growth, not just growth, but profitable growth. And that means that the whole kind of vision for the company and for the employees of the company is now profitable growth instead of restructuring, fixing cure or kill, all of those kind of things. So I think it's -- it's no more rocket science than that. And if you then kind of intensified your launch agenda, your innovation pipeline and added a bit of A&P, it doesn't take much more than that. And we can clearly see that in the last 2, 3 quarters, it has had a very good impact. So this is a continuation as we will see it in '25 and onwards.

Great. Margin over return on capital employed target then when you were updating your medium-term targets, you switched the target into over a 15% adjusted EBITDA margin from above 17% ROCE by 2025. What drove that decision?

Yes. Actually, ROCE, return on capital employed is still what we actually have internally. So the reason we had return on capital employed, if you think about kind of creating value -- net present value, it's just a combination of 3 things. It's basically margin, capital efficiency and growth. Those are the 3 kind of value drivers. And so internally, what we actually manage is margin and capital efficiency and growth, all of those 3, and we combine margin and capital efficiency in ROCE. So this is -- we have very clear, how should I say, a link between the internal financial steering and external value creation. So everyone in the company gets lots of training on value creation, gets lots of training on exactly how you generate value and what you can do as an individual, whether you're in a plant or your marketeer or whatever. So return on capital is extremely important. But whenever we communicate to you guys or to the analysts, the first question I got when you say, okay, we got 17% return on capital employed. Then the first question was, okay, what's the margin? What's the margin target? And so of course, it's not difficult if you have a certain capital turnover, then you can translate the margin. So we kind of thought that for external purposes, it might just be that much easier to immediately just communicate the margin target, and that's what we did. So it was a simplification thing for -- just for communication purposes. Some of the analysts, some of the investors actually asked me, "Oh, does that mean that you've now had less focus on the capital?" And I said, no, you've never asked me about the capital ever before. So why I ask now, right? And -- and my clear statement is that we have exactly as much focus on capital efficiency as we've had before. And internally, we maintain exactly the same structure as before. So it's just externally. It's just for communication purposes. So I hope you appreciate it.

Yes, I guess for many companies, you got the margin. So it's -- I get it. Great. So I'm going to go back to the private label business in Europe on Tissue because, I mean, you kind of legally and operationally, you kind of separated that business. Would you sell it or why not sell it?

Yes. So we looked at the possibility of, over time, making Consumer Tissue a bit smaller, and we identified a couple of different parts. Vinda was one. Consumer Tissue private label was another, which we potentially could sell without impairing the rest of the business. So if you look at our Consumer Tissue business, it's quite important for us because we sell consumer tissue together with Feminine products or baby products or incontinence products, and it gives us a certain size. For private label, the private label division that did not apply. That was a fairly isolated business. So we decided that let's evaluate whether we can actually divest it. And so we started the process. But in the end, we came to the conclusion that for financial reasons, it was a better deal for the shareholders to actually keep it than to divest it. That was a financial decision. It's still not the core of our strategy to be in private label. So it wasn't a kind of a shift of the strategic direction. We still have a strategy very much focused on innovation on brands and not on private label. But for financial reasons, we chose to keep it. And there is no sales process ongoing at this point in time. But should that change that it's a better proposition for shareholders to sell it, then we would do that and that we could do very simply because it is fully separated.

And then very quickly, the last question on innovation. You focus obviously a lot of innovation that drives the mix. And you talk a lot about sustainable and sustainable innovation. What are the innovations that you are -- the new launches that you are most excited about? -- like in the last 6 months or so.

No, I can't really say. I think there are so many actually that we have launched many -- and as I said, many people come -- when they look at us, they may not see innovation. It's not completely changing how you use a diaper or a feminine product or consumer tissue. But it's gradually based on consumer insight, based on people's need and how they manage their everyday life. We constantly, based on that consumer insight, simply create concepts and products that much better cope with it. So I won't say anything in particular. Some of the products are on sustainability, and I think that is absolutely crucial for us also going forward.

Great. Well, thank you so much Fredrik.

Thank you.

Great to have you. So thank you so much for all the insights.

Thank you.